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Consumption Propensity and Entrepreneurship: Evidence from China

Mingzhi Hu, Jiaqi Liu and Xue Wang

A chapter in Asia-Pacific Contemporary Finance and Development, 2019, vol. 26, pp 265-286 from Emerald Publishing Ltd

Abstract: Abstract Individuals who spend a large percentage of their incomes on consumption are perceived to prefer risks. Since entrepreneurs are well recognized as risk-takers, this chapter investigates whether consumption propensity is associated with entrepreneurship. Using micro-level data from Chinese Household Income Project, we find that households with a higher income–consumption ratio on average have a higher preference for risk-seeking, while they have a lower probability to be entrepreneurs. However, households who have higher consumption–income ratio and are in the top 10% of the wealth distribution are more likely to embark on entrepreneurship. In addition, we find that in-system connection (relationship with government-related units) decreases the likelihood of starting new business, while out-system connection (relationship with market units) increases it. These findings suggest that in an imperfect financial market, start-up finance and connections play important roles for entrepreneurship.

Keywords: consumption; credit constraint; connection; entrepreneurship; risk preference; China; D01; D12; J40 (search for similar items in EconPapers)
Date: 2019
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