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Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment

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  • Steffen Andersen
  • Kasper Meisner Nielsen

Abstract

We use a natural experiment in Denmark to test the hypothesis that aspiring entrepreneurs face financial constraints because of low entrepreneurial quality. We identify 304 constrained entrepreneurs who start a business after receiving windfall wealth and examine the performance of these marginal entrepreneurs. We find that constrained entrepreneurs have significantly lower survival rates and lower profits when compared with a matched sample of unconstrained entrepreneurs. These results are consistent with the hypothesis that the marginal entrepreneur is of low quality. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • Steffen Andersen & Kasper Meisner Nielsen, 2012. "Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment," Review of Financial Studies, Society for Financial Studies, vol. 25(12), pages 3684-3710.
  • Handle: RePEc:oup:rfinst:v:25:y:2012:i:12:p:3684-3710
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    Cited by:

    1. Johan Hombert & Antoinette Schoar & David Sraer & David Thesmar, 2016. "Does Unemployment Insurance Change the Selection into Entrepreneurship?," NBER Chapters,in: Measuring Entrepreneurial Businesses: Current Knowledge and Challenges, pages 351-369 National Bureau of Economic Research, Inc.
    2. Martin C. Schmalz & David A. Sraer & David Thesmar, 2017. "Housing Collateral and Entrepreneurship," Journal of Finance, American Finance Association, vol. 72(1), pages 99-132, February.
    3. Francine Lafontaine & Kathryn Shaw, 2016. "Serial Entrepreneurship: Learning by Doing?," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 217-254.
    4. Becker, Sascha & Hvide, Hans V, 2013. "Do entrepreneurs matter?," CAGE Online Working Paper Series 109, Competitive Advantage in the Global Economy (CAGE).
    5. Laerkholm Jensen, Thais & Leth-Petersen, Søren & Nanda, Ramana, 2014. "Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform," CEPR Discussion Papers 10260, C.E.P.R. Discussion Papers.
    6. Brown, Jason, 2017. "Response of Consumer Debt to Income Shocks: The Case of Energy Booms and Busts," Research Working Paper RWP 17-5, Federal Reserve Bank of Kansas City.
    7. David Cesarini & Erik Lindqvist & Matthew J. Notowidigdo & Robert Östling, 2017. "The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries," American Economic Review, American Economic Association, vol. 107(12), pages 3917-3946, December.
    8. Hvide, Hans K. & Panos, Georgios A., 2014. "Risk tolerance and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 111(1), pages 200-223.
    9. Daly, Moira, 2015. "The long term returns of attempting self-employment with regular employment as a fall back option," Labour Economics, Elsevier, vol. 35(C), pages 26-52.
    10. Sari Pekkala Kerr & William R. Kerr & Ramana Nanda, 2015. "House Money and Entrepreneurship," Harvard Business School Working Papers 15-069, Harvard Business School.
    11. Pierre Azoulay & Benjamin F. Jones & J. Daniel Kim & Javier Miranda, 2018. "Age and High-Growth Entrepreneurship," Working Papers 18-23, Center for Economic Studies, U.S. Census Bureau.
    12. Kathryn L. Shaw & Anders Sørensen, 2017. "The Productivity Advantage of Serial Entrepreneurs," NBER Working Papers 23320, National Bureau of Economic Research, Inc.
    13. Hanspal, Tobin, 2016. "The effect of personal financing disruptions on entrepreneurship," SAFE Working Paper Series 161, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

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    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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