Financial Constraints of Entrepreneurs and the Self-Employed

Vyacheslav Mikhed, Sahil Raina and Barry Scholnick

No 19-52, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Growth-oriented entrepreneurial start-ups generate more economic growth than other self-employed businesses, yet they only constitute a small fraction of start-ups. We examine whether financial constraints impede these types of start-ups by exploiting lottery wins as exogenous wealth shocks. We find that lottery-win magnitude increases winners? subsequent incorporation, implying that entrepreneurs face financial constraints, but not business registration, implying that financial constraints do not bind as much for the self-employed. Our results, that financial constraints bind for incorporations among men, for serial entrepreneurs, during economic booms, and in neighborhoods without local lenders, are important for understanding the financial impediments to entrepreneurial start-ups.

Keywords: entrepreneurship; self-employment; financial constraints (search for similar items in EconPapers)
JEL-codes: G21 L26 M13 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2019-12-11
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fdg and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:19-52

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DOI: 10.21799/frbp.wp.2019.52

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