Do Credit Constraints Matter more for College Dropout Entrepreneurs?

Arndt Werner

MPRA Paper from University Library of Munich, Germany

Abstract: Start-ups and their respective market partners are faced with severe problems of asymmetric information due to their lack of prior production history and reputation. Given this situation, it is most likely that outside financiers will not be informed about the potential gains, losses, and risks of the new venture. In our paper, we study how banks screen the abilities of the entrepreneurs. We argue that specific characteristics of the educational history of individuals signal their quality as founders. Namely, we expect banks to also use “college dropout” as an indicator when deciding to extend credit to a founder. We empirically test our hypotheses using a dataset of 189 German start-ups collected in 1998/99. Our hypothesis is borne out by the data. Applying ordered probit techniques we find that college dropouts have more difficulties to obtain the credit they need in the beginning of their start-up than those without college dropout experience.

Keywords: adverse selection; financial constraints; entrepreneurship; education (search for similar items in EconPapers)
JEL-codes: D82 G14 M13 M21 (search for similar items in EconPapers)
Date: 2008-11-01
New Economics Papers: this item is included in nep-ban, nep-cta, nep-edu and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/11867/1/MPRA_paper_11867.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11867

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().