Multi-Firm Entrepreneurship and Financial Frictions

Chanont Banternghansa

No 56, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: An entrepreneur's ability to save is crucial to mitigating aggregate productivity losses caused by underdeveloped financial markets. Previous studies of this mechanism assume that an entrepreneur's savings come from income generated by only one firm. In contrast, this paper uses a large, novel dataset from Thailand and, using a legal mandate that Thai households have unique surnames, documents a large share of entrepreneurs with income from multiple firms. They can therefore accumulate wealth from various sources, allowing financially constrained firms that are owned by multi-firm entrepreneurs to grow faster and survive longer than those owned by single-firm entrepreneurs. Motivated by these facts, I develop a tractable model of multi-firm entrepreneurship in the presence of financial frictions and study its impact on aggregate productivity and the allocation of capital. After calibrating to match the salient features of the Thai data, I find that the aggregate productivity loss due to financial frictions would rise from 7% to 21% if entrepreneurs could not own multiple firms.

Keywords: Financial frictions; Entrepreneurship; Aggregate Productivity; Growth (search for similar items in EconPapers)
JEL-codes: E44 G32 L26 O16 O4 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2017-03
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