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Effects of wealth inequality on entrepreneurship

Author

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  • Casey J. Frid

    (Pace University)

  • David M. Wyman

    (College of Charleston)

  • Bentley Coffey

    (Duke University)

Abstract

This study examines whether personal net worth affects new venture creation and performance. Prior research on wealth and entrepreneurial entry has relied on data providing only a snapshot of the transition into self-employment. The present study draws on a sample of US nascent entrepreneurs actively attempting to start new ventures. Controlling for a number of covariates and the endogenous accumulation of wealth, we find strong evidence of higher dropout rates among low-wealth and moderately wealthy nascent entrepreneurs. However, wealth appears to have no effect on venture creation for those managing to remain in gestation. This suggests liquidity constraints theory applies more toward entrepreneurial disengagement than entrepreneurial entry. Furthermore, the suggestion that the wealthy are able to aggressively grow their ventures is only partially supported by the data when we include a set of covariates correlated with wealth. Integrating these findings, we conclude that entrepreneurial success is concentrated at the top of the wealth distribution, despite notable evidence of capability for those at the lower end of the wealth distribution.

Suggested Citation

  • Casey J. Frid & David M. Wyman & Bentley Coffey, 2016. "Effects of wealth inequality on entrepreneurship," Small Business Economics, Springer, vol. 47(4), pages 895-920, December.
    • Handle: RePEc:kap:sbusec:v:47:y:2016:i:4:d:10.1007_s11187-016-9742-9
    DOI: 10.1007/s11187-016-9742-9
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    3. Roxana Gutiérrez-Romero & Luciana Méndez-Errico, 2017. "Does Inequality Foster or Hinder the Growth of Entrepreneurship in the Long Run?," Research on Economic Inequality, in: Research on Economic Inequality, volume 25, pages 299-341, Emerald Group Publishing Limited.
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    8. Hyejin Jung & Inseok Seo & Kyujin Jung, 2018. "Mediating Role of Entrepreneurship in Explaining the Association Between Income Inequality and Regional Economic Performance," Economic Development Quarterly, , vol. 32(2), pages 135-145, May.
    9. Halvarsson, Daniel & Korpi, Martin & Wennberg, Karl, 2018. "Entrepreneurship and income inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 275-293.
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