The Determinants of Bootstrap Financing in Crises: Evidence from Entrepreneurial Ventures in the COVID-19 Pandemic

Small Business Economics, in press, SBEJ-D-20-00758R1

34 Pages Posted: 19 May 2020 Last revised: 10 Dec 2020

See all articles by Jorn H. Block

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Christian Fisch

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Department of Applied Economics; Erasmus Research Institute of Management (ERIM)

Mirko Hirschmann

University of Trier - Faculty of Management

Date Written: May 12, 2020

Abstract

Bootstrap financing refers to measures that entrepreneurial ventures undertake to preserve li-quidity (e.g., reducing expenses, collecting receivables, delaying payments, preselling). Prior research shows that bootstrap financing is an important enabler for the growth of resource-constrained early-stage ventures. However, little is known about the use of bootstrap financing in crises, during which the preservation of liquidity is particularly salient. We investigate the determinants of bootstrap financing in the 2020 COVID-19 crisis using a sample of 17,046 German entrepreneurial ventures. We formulate hypotheses about the determinants of bootstrap financing from a necessity, human capital, and opportunity cost perspective. Amongst others, our results show that the severity of the crisis for the venture, the level of private consumption, and self-employment experience are positively associated with an increased use of bootstrap financing measures. Our study contributes to the literature on bootstrap financing and illuminates how entrepreneurial ventures maintain liquidity in crises.

Keywords: Entrepreneurship, bootstrap finance, COVID-19, crises, coronavirus

JEL Classification: G30, L26, M13

Suggested Citation

Block, Jorn Hendrich and Fisch, Christian and Hirschmann, Mirko, The Determinants of Bootstrap Financing in Crises: Evidence from Entrepreneurial Ventures in the COVID-19 Pandemic (May 12, 2020). Small Business Economics, in press, SBEJ-D-20-00758R1, Available at SSRN: https://ssrn.com/abstract=3598818 or http://dx.doi.org/10.2139/ssrn.3598818

Jorn Hendrich Block

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Christian Fisch

University of Trier - Faculty of Management ( email )

Universit├Ątring 15
Trier, 54296
Germany
0049 651 2013033 (Phone)

HOME PAGE: http://www.unternehmensfuehrung.uni-trier.de

Erasmus University Rotterdam (EUR) - Department of Applied Economics ( email )

Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Mirko Hirschmann (Contact Author)

University of Trier - Faculty of Management ( email )

Universit├Ątsring 15
Trier, Rhineland-Palatinate 54296
Germany

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