Do Household Savings Encourage Entrepreneurship? Household Wealth, Parental Wealth, and the Transition in and Out of Entrepreneurship

25 Pages Posted: 13 Jun 2006

See all articles by Erik Hurst

Erik Hurst

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Date Written: June 2006

Abstract

Using data from three different surveys, we report several important facts about entrepreneurship and household savings. Moreover, we show that the propensity to become a business owner in the United States is a non-linear function of wealth. The relationship between wealth and entry into entrepreneurship is essentially flat over the majority of the wealth distribution. It is only at the top of the wealth distribution - after the 95th percentile - that a positive relationship can be found. Segmenting businesses into industries with high and low starting capital requirements, we find no evidence that wealth matters more for businesses requiring higher initial capital. We also exploit the regional variation in house prices as an instrument for liquidity. Households who lived in regions where housing prices appreciated strongly were no more likely to start a business than households in other regions. Not only household wealth but also parental wealth has not effect on business formation. Moreover, wealth has no effect on business survival. Thus, while liquidity constraints may be important for some households, they are not a major impediment to small business formation and business success in the United States.

Suggested Citation

Hurst, Erik and Lusardi, Annamaria, Do Household Savings Encourage Entrepreneurship? Household Wealth, Parental Wealth, and the Transition in and Out of Entrepreneurship (June 2006). Available at SSRN: https://ssrn.com/abstract=908364 or http://dx.doi.org/10.2139/ssrn.908364

Erik Hurst

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Annamaria Lusardi (Contact Author)

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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