Which Entrepreneurs are Financially Constrained?
47 Pages Posted: 10 Apr 2020
Date Written: November 18, 2019
We study what type of entrepreneurs are affected by financial constraints. Our identification strategy exploits age-based discontinuities in the amount of funding available through a public program for unemployed workers. We find that access to funding increases the rate of entrepreneurship. The effect is stronger for entrepreneurs who incorporate their business, especially for those in the top decile of the wage distribution before unemployment. Tracking performance over time, we find that the effect is more pronounced for entrepreneurs in the top quintile of the firm size distribution across all businesses and in the middle of the firm size, growth and profitability distributions among incorporated businesses. Our findings suggest that financial constraints hamper growth-oriented entrepreneurship.
Keywords: Entrepreneurship, Unemployment insurance, Financial constraints, Incorporated firms
JEL Classification: G38, H74, J65, J68, L26
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