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Funding Self-Employment: The Role of Consumer Credit

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  • Kneiding, Christoph

    (LFS Financial Systems)

  • Kritikos, Alexander S.

    (DIW Berlin)

Abstract

This paper investigates whether self-employed households use consumer loans – in particular instalment loans and overdrafts – to finance business activities. Controlling for financial and non-financial household variables we show that self-employed households particularly use personal overdrafts significantly more often than employee households. When analyzing the correlation between consumer loan take-ups and consumption of self-employed in comparison to employee households, we find first evidence that overdrafts are used by self-employed to finance their business as well. This indicates that intermingling constitutes a financing strategy when regular business loans might not be accessible.

Suggested Citation

  • Kneiding, Christoph & Kritikos, Alexander S., 2011. "Funding Self-Employment: The Role of Consumer Credit," IZA Discussion Papers 6093, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6093
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    Cited by:

    1. Alina Sorgner & Michael Fritsch & Alexander Kritikos, 2017. "Do entrepreneurs really earn less?," Small Business Economics, Springer, vol. 49(2), pages 251-272, August.
    2. Tia Michelle McDonald & Maria I. Marshall, 2018. "Family Business Responses to Household and Business Cash-Flow Problems," Journal of Family and Economic Issues, Springer, vol. 39(1), pages 163-176, March.
    3. Kritikos Alexander & Kneiding Christoph & Germelmann Claas Christian, 2009. "Demand Side Analysis of Microlending Markets in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(5), pages 523-543, October.
    4. Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.
    5. Xu, Nana & Yuan, Yan & Rong, Zhao, 2022. "Depressed access to formal finance and the use of credit card debt in Chinese SMEs," China Economic Review, Elsevier, vol. 72(C).
    6. Renee D. Wiatt & Yoon G. Lee & Maria I. Marshall & Virginia S. Zuiker, 2021. "The Effect of Cash Flow Problems and Resource Intermingling on Small Business Recovery and Resilience After a Natural Disaster," Journal of Family and Economic Issues, Springer, vol. 42(1), pages 203-214, March.

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    More about this item

    Keywords

    small business finance; financial intermingling; consumer credit;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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