On the relationship between household wealth and entrepreneurship

Motivated by a substantial number of startup owners with negative household net worth, I present a model that incorporates credit borrowing into Evans and Jovanovic [1989]. The estimated model generates no relationship between household wealth and the propensity for business entry. Ignoring credit b...

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Main Author: LEE, Jungho
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2017
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Online Access:https://ink.library.smu.edu.sg/soe_research/2104
https://ink.library.smu.edu.sg/context/soe_research/article/3104/viewcontent/Entrepreneurship_Wealth_2017_wp.pdf
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spelling sg-smu-ink.soe_research-31042019-06-10T06:13:08Z On the relationship between household wealth and entrepreneurship LEE, Jungho Motivated by a substantial number of startup owners with negative household net worth, I present a model that incorporates credit borrowing into Evans and Jovanovic [1989]. The estimated model generates no relationship between household wealth and the propensity for business entry. Ignoring credit borrowing for potential business owners substantially overstates the efficiency loss from financial constraints in business entry. However, the efficiency loss in investments by the entrants is large even if credit borrowing is allowed. Individuals who start a business once credit borrowing is available are those whose business ideas are of a high-enough quality to compensate high financing costs associated with credit borrowing. They start a business with a sub-optimal amount of investments, and those agents’ unrealized investments are considerable. 2017-08-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/2104 https://ink.library.smu.edu.sg/context/soe_research/article/3104/viewcontent/Entrepreneurship_Wealth_2017_wp.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University entrepreneurship financial constraints credit borrowing Behavioral Economics Entrepreneurial and Small Business Operations Industrial Organization
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic entrepreneurship
financial constraints
credit borrowing
Behavioral Economics
Entrepreneurial and Small Business Operations
Industrial Organization
spellingShingle entrepreneurship
financial constraints
credit borrowing
Behavioral Economics
Entrepreneurial and Small Business Operations
Industrial Organization
LEE, Jungho
On the relationship between household wealth and entrepreneurship
description Motivated by a substantial number of startup owners with negative household net worth, I present a model that incorporates credit borrowing into Evans and Jovanovic [1989]. The estimated model generates no relationship between household wealth and the propensity for business entry. Ignoring credit borrowing for potential business owners substantially overstates the efficiency loss from financial constraints in business entry. However, the efficiency loss in investments by the entrants is large even if credit borrowing is allowed. Individuals who start a business once credit borrowing is available are those whose business ideas are of a high-enough quality to compensate high financing costs associated with credit borrowing. They start a business with a sub-optimal amount of investments, and those agents’ unrealized investments are considerable.
format text
author LEE, Jungho
author_facet LEE, Jungho
author_sort LEE, Jungho
title On the relationship between household wealth and entrepreneurship
title_short On the relationship between household wealth and entrepreneurship
title_full On the relationship between household wealth and entrepreneurship
title_fullStr On the relationship between household wealth and entrepreneurship
title_full_unstemmed On the relationship between household wealth and entrepreneurship
title_sort on the relationship between household wealth and entrepreneurship
publisher Institutional Knowledge at Singapore Management University
publishDate 2017
url https://ink.library.smu.edu.sg/soe_research/2104
https://ink.library.smu.edu.sg/context/soe_research/article/3104/viewcontent/Entrepreneurship_Wealth_2017_wp.pdf
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