Entrepreneurship and Household Saving

64 Pages Posted: 8 Sep 2000 Last revised: 19 Oct 2010

See all articles by William M. Gentry

William M. Gentry

Williams College - Department of Economics

R. Glenn Hubbard

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: September 2000

Abstract

In this paper, we argue that costly external financing for entrepreneurial investments (coupled with potentially high returns on those investments) has important implications for the saving, investment, and entry decisions of continuing and potential entrepreneurs. These effects are similar in spirit to the role played by costly external financing on investment by corporations. Using data from the 1983 and 1989 Federal Reserve Board Surveys of Consumer Finances, we quantify three findings about entrepreneurial saving decisions and their role in household wealth accumulation. First, entrepreneurial households own a substantial share of household wealth and income, and this share increases throughout the wealth distribution and the income distribution. Second, the portfolios of entrepreneurial households, even wealthy ones, are very undiversified, with the bulk of assets held within active businesses. Third, wealth-income ratios and saving rates are higher for entrepreneurial households even after controlling for age and other demographic variables. Taken together, these findings suggest that studies of household saving decisions in general and of the savings decisions of wealthy or high-income households in particular have paid insufficient attention to the role of entrepreneurial decisions and their role in wealth accumulation. Our conclusion that entrepreneurial saving and investment decisions are interdependent raises three areas for future research: (1) measuring the role of entrepreneurs in aggregate wealth accumulation; (2) studying implications for portfolio allocation and asset pricing; and (3) analyzing consequences for tax policy toward entrepreneurial saving and investment.

Suggested Citation

Gentry, William M. and Hubbard, Robert Glenn, Entrepreneurship and Household Saving (September 2000). NBER Working Paper No. w7894. Available at SSRN: https://ssrn.com/abstract=241384

William M. Gentry (Contact Author)

Williams College - Department of Economics ( email )

Fernald House
Williamstown, MA 01267
United States
413-597-4257 (Phone)
413-597-4045 (Fax)

Robert Glenn Hubbard

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.gsb.columbia.edu/faculty/ghubbard

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
107
rank
248,723
Abstract Views
2,510
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information