Financial Constraints of Entrepreneurs and the Self-Employed

71 Pages Posted: 12 Dec 2019

See all articles by Vyacheslav Mikhed

Vyacheslav Mikhed

Federal Reserve Bank of Philadelphia

Sahil Raina

Alberta School of Business, University of Alberta

Barry Scholnick

University of Alberta - Department of Marketing, Business Economics & Law

Date Written: 2019-12-11

Abstract

Growth-oriented entrepreneurial start-ups generate more economic growth than other self-employed businesses, yet they only constitute a small fraction of start-ups. We examine whether financial constraints impede these types of start-ups by exploiting lottery wins as exogenous wealth shocks. We find that lottery-win magnitude increases winners’ subsequent incorporation, implying that entrepreneurs face financial constraints, but not business registration, implying that financial constraints do not bind as much for the self-employed. Our results, that financial constraints bind for incorporations among men, for serial entrepreneurs, during economic booms, and in neighborhoods without local lenders, are important for understanding the financial impediments to entrepreneurial start-ups.

Keywords: entrepreneurship, self-employment, financial constraints

JEL Classification: G21, L26, M13

Suggested Citation

Mikhed, Vyacheslav and Raina, Sahil and Scholnick, Barry, Financial Constraints of Entrepreneurs and the Self-Employed (2019-12-11). FRB of Philadelphia Working Paper No. 19-52. Available at SSRN: https://ssrn.com/abstract=3502650 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2019.52

Vyacheslav Mikhed (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Sahil Raina

Alberta School of Business, University of Alberta ( email )

2-32B Business Building
Edmonton, Alberta T6G 2R6
Canada

HOME PAGE: http://sites.ualberta.ca/~sraina/

Barry Scholnick

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

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