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Entrepreneurship, Windfall Gains and Financial Constraints: Evidence from Germany

  • Dorothea Schaefer

    ()

    (DIW Berlin)

  • Oleksandr Talavera

    ()

    (School of Economics, University of East Anglia)

  • Charlie Weir

    (Aberdeen Business School)

We investigate the link between the propensity to become an entrepreneur and exogenous release from financial constraints in Germany. This is defined in terms of the movement from employment to self-employment on receipt of a financial windfall. A theoretical framework developing Evans and Jovanovic (1989) is set up and tested with panel data from German households. The results show that financial constraints do exist given that individuals are more likely to start a personal business after receiving a windfall gain. The value of windfall gains has a significant but non linear effect on the decision to become self employed. The data reveal that differences in ability and income affect the change in employment status. We also report that there is no evidence that becoming self employed involves the anticipation of windfall gains.

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Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Applied and Financial Economics Working Paper Series with number 009.

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Date of creation: 03 May 2010
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Handle: RePEc:uea:aepppr:2010_9
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  1. Holtz-Eakin, D. & Joulfaian, D. & Rosen, H.S., 1992. "Entrepreneurial Decisions and Liquidity Constraints," Papers 129, Princeton, Department of Economics - Financial Research Center.
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