Lean and Hungry or Fat and Content? Entrepreneur Wealth and Start-up Performance

51 Pages Posted: 7 Sep 2007 Last revised: 6 May 2010

See all articles by Hans K. Hvide

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Jarle Møen

Norwegian School of Economics (NHH) - Department of Business and Management Science

Date Written: April 21, 2008

Abstract

If entrepreneurs are liquidity constrained and not able to borrow to operate on an efficient scale, economic theory predicts that entrepreneurs with more personal wealth should do better than those with less wealth. We test this hypothesis using a novel dataset covering a large panel of start-ups from Norway. Consistent with liquidity constraints, we find a positive relationship between founder prior wealth and start-up size. The relationship between prior wealth and start-up performance, as measured by profitability on assets, increases in the first three wealth quartiles. In the top wealth quartile, however, profitability drops sharply in wealth. Our findings are consistent with a luxury good interpretation of entrepreneurship and that higher wealth may induce a less alert or a less dedicated management. We conclude that an abundance of resources might do more harm than good for start-ups. (Forthcoming, Management Science)

Keywords: Entrepreneurial motivation, Independence, Luxury Good, Organizational slack, Start-ups

JEL Classification: G14, L26, M13

Suggested Citation

Hvide, Hans and Moen, Jarle, Lean and Hungry or Fat and Content? Entrepreneur Wealth and Start-up Performance (April 21, 2008). Available at SSRN: https://ssrn.com/abstract=1012012 or http://dx.doi.org/10.2139/ssrn.1012012

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Jarle Moen

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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