Sticking it Out: Entrepreneurial Survival and Liquidity Constraints

Posted: 17 Nov 2009

See all articles by David Joulfaian

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA); Georgetown University - Department of Economics

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 1994

Abstract

Investigates whether US entrepreneurs are undercapitalized and why some individuals survive as entrepreneurs while others do not. The hypothesis posited is that, if entrepreneurs are unable to borrow enough to attain their profit-maximizing levels of capital, then entrepreneurs with enough personal money available to finance their ventures will succeed more often than those who do not have similar resources. In particular, receiving an external influx of capital will affect an enterprise's success rate and performance. Data were comprised of 1981 and 1985 federal individual income tax returns from people who had received inheritances. Results indicate that the effect of an inheritance on a firm's chances of survival is noticeable: a $150,000 inheritance raises the probability a firm will survive by approximately 1.3%. Also noticeable is the substantial impact made on a firm's performance if it does survive: the same $150,000 inheritance is associated with almost a 20% increase in an enterprise's receipts. Findings also show that US entrepreneurs are undercapitalized. (SFL)

Keywords: Firm performance, Firm growth, Firm survival, Personal success, Inheritance, Liquidity, Sole proprietorships, Access to capital

Suggested Citation

Joulfaian, David and Rosen, Harvey S., Sticking it Out: Entrepreneurial Survival and Liquidity Constraints (1994). Journal of Political Economy, Vol. 102, Issue 1, p. 53-74 1994. Available at SSRN: https://ssrn.com/abstract=1504484

David Joulfaian (Contact Author)

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Georgetown University - Department of Economics ( email )

37th St NW & O St NW
Washington, DC 20007
United States

Harvey S. Rosen

Princeton University - Department of Economics ( email )

001 Fisher Hall
Princeton, NJ 08544
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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