Do liquidity constraints matter for new entrepreneurs?

Kevin B. Moore
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Kevin B. Moore: https://www.federalreserve.gov/econres/kevin-b-moore.htm

No 2004-42, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Numerous studies have found a positive relationship between wealth and entering entrepreneurship, and interpret this as evidence of the existence of liquidity constraints. However, recent research has shown that the relationship between wealth and entering entrepreneurship may be non-linear and only significant for high-wealth households; this result cannot be interpreted as evidence of liquidity constraints. Using data from the SCF, we construct a proxy for wealth based on the household's home equity wealth at the time of the entrepreneurial decision. The results provide further evidence that the relationship between wealth and entering entrepreneurship is only significant for high-wealth households and that liquidity constraints do not appear to bind for the majority of new entrepreneurs. Possible explanations for the relationship between wealth and becoming an entrepreneur include lower risk aversion and differences in the types of businesses started by high-wealth households.

Keywords: Liquidity; (Economics) (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-ent
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Citations: View citations in EconPapers (5)

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