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Effects of wealth inequality on entrepreneurship

Author

Listed:
  • Casey J. Frid

    (Pace University)

  • David M. Wyman

    (College of Charleston)

  • Bentley Coffey

    (Duke University)

Abstract

This study examines whether personal net worth affects new venture creation and performance. Prior research on wealth and entrepreneurial entry has relied on data providing only a snapshot of the transition into self-employment. The present study draws on a sample of US nascent entrepreneurs actively attempting to start new ventures. Controlling for a number of covariates and the endogenous accumulation of wealth, we find strong evidence of higher dropout rates among low-wealth and moderately wealthy nascent entrepreneurs. However, wealth appears to have no effect on venture creation for those managing to remain in gestation. This suggests liquidity constraints theory applies more toward entrepreneurial disengagement than entrepreneurial entry. Furthermore, the suggestion that the wealthy are able to aggressively grow their ventures is only partially supported by the data when we include a set of covariates correlated with wealth. Integrating these findings, we conclude that entrepreneurial success is concentrated at the top of the wealth distribution, despite notable evidence of capability for those at the lower end of the wealth distribution.

Suggested Citation

  • Casey J. Frid & David M. Wyman & Bentley Coffey, 2016. "Effects of wealth inequality on entrepreneurship," Small Business Economics, Springer, vol. 47(4), pages 895-920, December.
    • Handle: RePEc:kap:sbusec:v:47:y:2016:i:4:d:10.1007_s11187-016-9742-9
    DOI: 10.1007/s11187-016-9742-9
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    2. Roxana Gutiérrez-Romero & Luciana Méndez-Errico, 2017. "Does Inequality Foster or Hinder the Growth of Entrepreneurship in the Long Run?," Research on Economic Inequality, in: Research on Economic Inequality, volume 25, pages 299-341, Emerald Group Publishing Limited.
    3. Christopher J. Boudreaux & Niklas Elert & Magnus Henrekson & David S. Lucas, 2022. "Entrepreneurial accessibility, eudaimonic well-being, and inequality," Small Business Economics, Springer, vol. 59(3), pages 1061-1079, October.
    4. Stefan Schneck, 2020. "Self-employment as a source of income inequality," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(1), pages 45-64, March.
    5. Marcos Segantini & Lori A. Dickes, 2020. "Creative-entrepreneurs and new venture performance a study of the creative class at the firm-level," Documentos de Investigación 124, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    6. Hyejin Jung & Inseok Seo & Kyujin Jung, 2018. "Mediating Role of Entrepreneurship in Explaining the Association Between Income Inequality and Regional Economic Performance," Economic Development Quarterly, , vol. 32(2), pages 135-145, May.
    7. Halvarsson, Daniel & Korpi, Martin & Wennberg, Karl, 2018. "Entrepreneurship and income inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 275-293.
    8. Maribel Guerrero & Francisco Liñán & F. Rafael Cáceres-Carrasco, 2021. "The influence of ecosystems on the entrepreneurship process: a comparison across developed and developing economies," Small Business Economics, Springer, vol. 57(4), pages 1733-1759, December.
    9. Sahasranamam, Sreevas & Nandakumar, M.K. & Pereira, Vijay & Temouri, Yama, 2021. "Knowledge capital in social and commercial entrepreneurship: Investigating the role of informal institutions," Journal of International Management, Elsevier, vol. 27(1).
    10. Erik Lundmark & Alex Coad & Julian S. Frankish & David J. Storey, 2020. "The Liability of Volatility and How it Changes Over Time Among New Ventures," Entrepreneurship Theory and Practice, , vol. 44(5), pages 933-963, September.
    11. Kun Fu & Anne-Sophie Larsson & Karl Wennberg, 2018. "Habitual entrepreneurs in the making: how labour market rigidity and employment affects entrepreneurial re-entry," Small Business Economics, Springer, vol. 51(2), pages 465-482, August.

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