Why Are Some People More Likely to Become Small-Businesses Owners than Others: Entrepreneurship Entry and Industry-Specific Barriers

59 Pages Posted: 14 Mar 2018

See all articles by Magnus Lofstrom

Magnus Lofstrom

Public Policy Institute of California; Institute for the Study of Labor (IZA)

Timothy Bates

Wayne State University - College of Urban, Labor, & Metropolitan Affairs; University of Vermont - College of Arts and Sciences

Simon C. Parker

University of Western Ontario; Durham University - Department of Economics and Finance; IZA Institute of Labor Economics

Date Written: January 24, 2014

Abstract

We classify industries using measures of entry barriers and proceed to investigate how determinants of entry vary in high- as opposed to low-barrier fields. The wealth and educational background characteristics potential entrepreneurs possess, we found, predispose them to make distinctly different industry choices, both because of the differing rewards available to them and the very different entry barriers they face. The characteristics of potential entrants, in other words, draw them toward some industries and away from others.

The top 2 quintiles of the personal wealth distribution consistently predict entry into high-barrier lines of business. Thus, across a wide range of the distribution, wealth appears to alleviate borrowing constraints, facilitating entry into high-barrier lines of business. College-education level strongly predicts entry into high-barrier industries, yet the opposite outcome describes low-barrier fields. College graduates positively select into industries where entry barriers elevate the expected earnings of firm ownership, while steering clear of low-remuneration fields. We conclude that industry context heavily shapes impacts of entrant resource endowments on entrepreneurial entry choices.

Keywords: entrepreneurship entry, entry barriers

JEL Classification: J24, L26, M13

Suggested Citation

Lofstrom, Magnus and Bates, Timothy and Parker, Simon C., Why Are Some People More Likely to Become Small-Businesses Owners than Others: Entrepreneurship Entry and Industry-Specific Barriers (January 24, 2014). Journal of Business Venturing, Vol. 29, No. 2, 2014. Available at SSRN: https://ssrn.com/abstract=2384847

Magnus Lofstrom (Contact Author)

Public Policy Institute of California ( email )

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

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Germany
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+49 228 3894 210 (Fax)

Timothy Bates

Wayne State University - College of Urban, Labor, & Metropolitan Affairs ( email )

Detroit, MI 48202
United States

University of Vermont - College of Arts and Sciences ( email )

United States

Simon C. Parker

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Durham University - Department of Economics and Finance ( email )

23/26 Old Elvet
Durham DH1 3HY
United Kingdom
+44 191 3747271 (Phone)

IZA Institute of Labor Economics

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

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