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Availability of Financing, Regulatory Business Costs and National Entrepreneurial Propensity

Author Info

  • Yuen Ping Ho

    (Entrepreneurship Centre, National University of Singapore)

  • Poh Kam Wong

    (Entrepreneurship Centre, National University of Singapore)

Abstract

In this paper, we focus on two barriers to entry that may hinder the formation of new firms: capital requirements and regulatory business cost. The contribution of this paper is twofold: we compare the availability of different types of financing sources to address the issue of capital requirement and we utilise a new measure of business cost by constructing a composite index using data from the World Bank’s Doing Business Database. Using cross-sectional data on 37 countries that participated in the 2002 Global Entrepreneurship Monitor, we examine the effect of availability of financing and regulatory business costs on the propensity of three different types of entrepreneurial activity:opportunity-driven, necessity driven and high-growth potential new firm formation. The availability of three types of financing sources is analysed: traditional debt financing, venture capital financing, and informal investments. The findings show that only informal investments significantly influence the propensity to be entrepreneurs. Regulatory business costs were found to deter opportunity driven entrepreneurship, but had no impact on other types of entrepreneurial activity.

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File URL: http://econwpa.repec.org/eps/io/papers/0504/0504025.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0504025.

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Length: 30 pages
Date of creation: 28 Apr 2005
Date of revision: 03 Aug 2005
Handle: RePEc:wpa:wuwpio:0504025
Note: Type of Document - pdf; pages: 30
Contact details of provider: Web page: http://econwpa.repec.org

Keywords: entrepreneurial activity; financing; venture capital; informal investment; business cost;

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  • L - Industrial Organization

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Cited by:

  1. Lambert Koch & Marc Grünhagen, 2009. "The value of delays: market- and policy-induced adjustment processes as a motivating factor in dynamic entrepreneurship," Journal of Evolutionary Economics, Springer, vol. 19(5), pages 701-724, October.
  2. László Szerb & Siri Terjesen & Gábor Rappai, 2007. "Seeding new ventures -- green thumbs and fertile fields: Individual and environmental drivers of informal investment," Venture Capital, Taylor & Francis Journals, vol. 9(4), pages 257-284, April.

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