Sticking it Out: Entrepreneurial Survival and Liquidity Constraints / Douglas Holtz-Eakin, David Joulfaian, Harvey S. Rosen.

Format:

Book

Author/Creator:

Holtz-Eakin, Douglas.

Contributor:

National Bureau of Economic Research.

Joulfaian, David.

Rosen, Harvey S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4494.

NBER working paper series no. w4494

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Sticking it Out

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1993.

Summary:

This paper analyzes the role of liquidity constraints in the formation of new entrepreneurial enterprises. The basic empirical strategy is to determine whether an individual's wealth affects the probability of becoming an entrepreneur, and the conditional amounts of depreciable assets, ceteris paribus. If so, liquidity constraints are likely to be present. To be successful, such a research strategy requires a measure of asset variation that is both precisely measured and exogenous to the entrepreneurial decision. Our data are uniquely well-suited for this purpose. The sample consists of the 1981 and 1985 federal income tax returns of a group of people who received inheritances in 1982 and 1983, along with information on the size of those inheritances from a matched set of estate tax returns. Hence, we can examine how the exogenous receipt of capital affects the decision to become an entrepreneur and important financial characteristics of new enterprises. Our results suggest that the size of the inheritance has a substantial effect on the probability of becoming an entrepreneur, and that conditional on becoming an entrepreneur, the size of the inheritance has a statistically significant and quantitatively important effect on the amount of capital employed. These findings are consistent with the presence of liquidity constraints.

Notes:

Print version record

October 1993.