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Initial Capital Constraints Hinder Entrepreneurial Venture Performance: An empirical analysis

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  • Mirjam van Praag

Abstract

A novel method is applied to evaluate the effect of capital constraints on entrepreneurial performance on a panel of 1,000 Dutch entrepreneurs. We find that initial capital constraints hinder entrepreneurs in their performance, even when we control for various human capital and other factors that might affect both performance and credit scoring outcomes. We use a direct individual indicator variable for initial capital constraints. Previous research with the same objective used indirect indicators of wealth, inheritances or windfall gains, where it remains unknown whether the entrepreneur indeed suffered from capital constraints. This drawback is not attached to our (neither perfect) approach so that policy implications will become more evident.

Suggested Citation

  • Mirjam van Praag, 2003. "Initial Capital Constraints Hinder Entrepreneurial Venture Performance: An empirical analysis," CESifo Working Paper Series 887, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_887
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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp887.pdf
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    References listed on IDEAS

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    1. De Wit, Gerrit & Van Winden, Frans A. A. M., 1990. "An empirical analysis of self-employment in the Netherlands," Economics Letters, Elsevier, vol. 32(1), pages 97-100, January.
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    6. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
    7. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    8. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April.
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    14. Cooper, Arnold C. & Gimeno-Gascon, F. Javier & Woo, Carolyn Y., 1994. "Initial human and financial capital as predictors of new venture performance," Journal of Business Venturing, Elsevier, vol. 9(5), pages 371-395, September.
    15. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-1526, November.
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    Cited by:

    1. Werner, Arndt, 2008. "Do Credit Constraints Matter more for College Dropout Entrepreneurs?," MPRA Paper 11867, University Library of Munich, Germany.
    2. Uschi Backes-Gellner & Arndt Werner, 2007. "Entrepreneurial Signaling via Education: A Success Factor in Innovative Start-Ups," Small Business Economics, Springer, vol. 29(1), pages 173-190, June.

    More about this item

    Keywords

    entrepreneurship; small business founders; success; venture performance; wealth/capital/borrowing constraint;

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