NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Entrepreneurial Decisions and Liquidity Constraints

Douglas Holtz-Eakin, David Joulfaian, Harvey S. Rosen

NBER Working Paper No. 4526 (Also Reprint No. r1891)
Issued in November 1993
NBER Program(s):   PE

This paper analyzes the role of liquidity constraints in the formation of new entrepreneurial enterprises. The basic empirical strategy is to determine whether an individual's wealth affects the probability of becoming an entrepreneur, and the conditional amounts of depreciable assets, ceteris paribus. If so, liquidity constraints are likely to be present. To be successful, such a research strategy requires a measure of asset variation that is both precisely measured and exogenous to the entrepreneurial decision. Our data are uniquely well-suited for this purpose. The sample consists of the 1981 and 1985 federal income tax returns of a group of people who received inheritances in 1982 and 1983, along with information on the size of those inheritances from a matched set of estate tax returns. Hence, we can examine how the exogenous receipt of capital affects the decision to become an entrepreneur and important financial characteristics of new enterprises. Our results suggest that the size of the inheritance has a substantial effect on the probability of becoming an entrepreneur, and that conditional on becoming an entrepreneur, the size of the inheritance has a statistically significant and quantitatively important effect on the amount of capital employed. These findings are consistent with the presence of liquidity constraints.

download in pdf format
   (1909 K)

download in djvu format
   (225 K)

email paper

This paper is available as PDF (1909 K) or DjVu (225 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4526

Published: RAND Journal of Economics, vo. 25, no. 2, pp. 334-347, (Summer 1994). citation courtesy of

Users who downloaded this paper also downloaded these:
Holtz-Eakin, Joulfaian, and Rosen w4494 Sticking it Out: Entrepreneurial Survival and Liquidity Constraints
Blanchflower and Oswald w3252 What Makes an Entrepreneur? Evidence on Inheritance and Capital Constraints
Dunn and Holtz-Eakin w5622 Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links
Gentry and Hubbard w7894 Entrepreneurship and Household Saving
Meyer w3537 Why Are There So Few Black Entrepreneurs?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us