entrepreneurship

Abstract

We examine why some individuals survive as entrepreneurs and others do not. In
addition. we analyze the growth of entrepreneurial enterprises, conditional on surviving. Our
focus is on the role of access to capital--to what extent do liquidity constraints increase the
likelihood of entrepreneurial failure?
The empirical strategy is based on the following logic: If entrepreneurs cannot borrow
to attain their profit-maximizing levels of capital, then those entrepreneurs who have substantial
personal financial resources will be more successful than those who do not. The data consist of
the 1981 and 1985 federal individual income tax returns of a group of people who received
inheritances. These data allow us to identify those individuals who were sole proprietors in
1981, and to determine the extent to which the decision to remain a sole proprietor was
influenced by the magnitude of the inheritance-induced increase in liquidity.
The results are consistent with the notion that liquidity constraints exert a noticeable
influence on the viability of entrepreneurial enterprises. For example, a $150,000 inheritance
increases the probability that an individual will continue as a sole proprietor by 1.3 percentage
points, and conditional on surviving, the receipts of the enterprise increase by almost 20
percent.

Year of Publication
1993
Number
319
Date Published
10/1993
Publication Language
eng
Citation Key
Journal of Political Economy, February 1994
Rosen, H., Holtz-Eakin, D., & Joulfaian, D. (1993). Sticking It Out: Entrepreneurial Survival and Liquidity Constraints. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01pr76f342p (Original work published October 1993)
Working Papers