IDEAS home Printed from https://ideas.repec.org/p/hhs/uunewp/2005_021.html
   My bibliography  Save this paper

Entrepreneurship and Liquidity Constraints: Evidence from Sweden

Author

Listed:
  • Nykvist, Jenny

    (Department of Economics)

Abstract

Do potential entrepreneurs face liquidity constraints? Or to put it differently, does a person have to be wealthy to start a new business? This question has been discussed in a large literature that has documented a positive relationship between initial wealth and entrepreneurship. However, in a recent paper Hurst and Lusardi (2004) use higher order of polynomials in wealth and find that there is no relationship between household initial wealth and the probability of starting an own business throughout most of the wealth distribution in the United States. In this paper we examine this relationship using similar methods on Swedish data. The data set used is LINDA, a register-based longitudinal data set for Sweden. The relationship is estimated using probit models with different specifications of wealth. However, the result that wealth is not important for new entrepreneurs cannot be replicated. Instead, the main finding of the paper is that the relationship between wealth and transition into entrepreneurship is positive but diminishing for the major part of the wealth distribution. Moreover, the relationship between wealth and entrepreneurship gets stronger as the models get less restricted with respect to wealth. Our result leads us to the conclusion that liquidity constraints do play a significant role when determining transition into entrepreneurship in Sweden.

Suggested Citation

  • Nykvist, Jenny, 2005. "Entrepreneurship and Liquidity Constraints: Evidence from Sweden," Working Paper Series 2005:21, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:2005_021
    as

    Download full text from publisher

    File URL: http://uu.diva-portal.org/smash/get/diva2:107266/FULLTEXT01.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    2. Holtz-Eakin Douglas & Rosen Harvey S, 2005. "Cash Constraints and Business Start-Ups: Deutschmarks Versus Dollars," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-26, February.
    3. Laura Bottazzi & Marco da Rin, 2003. "Financing Entrepreneurial Firms in Europe: Facts, Issues, and Research Agenda," CESifo Working Paper Series 958, CESifo.
    4. Parker,Simon C., 2006. "The Economics of Self-Employment and Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521030632, January.
    5. Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January.
    6. Thomas Lindh & Henry Ohlsson, 1998. "Self‐Employment And Wealth Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(1), pages 25-41, March.
    7. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-1526, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Per Engstrom & Bertil Holmlund, 2009. "Tax evasion and self-employment in a high-tax country: evidence from Sweden," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2419-2430.
    2. Hansson, Åsa, 2008. "Income taxes and the probability to become self-employed: The case of Sweden," Ratio Working Papers 122, The Ratio Institute.
    3. Robert W. Fairlie, 2013. "Entrepreneurship, Economic Conditions, and the Great Recession," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(2), pages 207-231, June.
    4. Hallberg, Daniel, 2006. "Cross-national differences in income poverty among Europe´s 50+," Working Paper Series 2006:14, Uppsala University, Department of Economics.
    5. Fredrik Johansson-Tormod & Anders Klevmarken, 2022. "Explaining the Size and Nature of Response in a Survey on Health Status and Economic Standard," International Journal of Microsimulation, International Microsimulation Association, vol. 15(1), pages 63-77.
    6. Gry Agnete Alsos & Espen John Isaksen & Elisabet Ljunggren, 2006. "New Venture Financing and Subsequent Business Growth in Men– and Women–Led Businesses," Entrepreneurship Theory and Practice, , vol. 30(5), pages 667-686, September.
    7. Robert W. Fairlie, 2013. "Minority and immigrant entrepreneurs: access to financial capital," Chapters, in: Amelie F. Constant & Klaus F. Zimmermann (ed.), International Handbook on the Economics of Migration, chapter 8, pages 153-175, Edward Elgar Publishing.
    8. Robert W. Fairlie & Alicia M. Robb, 2008. "Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States," MIT Press Books, The MIT Press, edition 1, volume 1, number 026206281x, December.
    9. Ågren, Martin, 2006. "Prospect Theory and Higher Moments," Working Paper Series 2006:24, Uppsala University, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jenny Nykvist, 2008. "Entrepreneurship and Liquidity Constraints: Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(1), pages 23-43, March.
    2. Robert W. Fairlie & Alicia M. Robb, 2008. "Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States," MIT Press Books, The MIT Press, edition 1, volume 1, number 026206281x, December.
    3. Nathalie Colombier & David Masclet, 2008. "Intergenerational correlation in self employment: some further evidence from French ECHP data," Small Business Economics, Springer, vol. 30(4), pages 423-437, April.
    4. Yannis Georgellis & Howard Wall, 2005. "Gender differences in self-employment," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(3), pages 321-342.
    5. Nadia Simoes & Nuno Crespo & Sandrina B. Moreira, 2016. "Individual Determinants Of Self-Employment Entry: What Do We Really Know?," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 783-806, September.
    6. Rafael P. Ribas, 2014. "Liquidity Constraints, Informal Financing, and Entrepreneurship: Direct and Indirect Effects of a Cash Transfer Programme," Working Papers 131, International Policy Centre for Inclusive Growth.
    7. Robert W. Fairlie, 2013. "Entrepreneurship, Economic Conditions, and the Great Recession," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(2), pages 207-231, June.
    8. Robert W. Fairlie, 2013. "Minority and immigrant entrepreneurs: access to financial capital," Chapters, in: Amelie F. Constant & Klaus F. Zimmermann (ed.), International Handbook on the Economics of Migration, chapter 8, pages 153-175, Edward Elgar Publishing.
    9. Altin Vejsiu, 2011. "Incentives to self-employment decision in Sweden," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(4), pages 379-403.
    10. Magnus Lofstrom, 2013. "Does self-employment increase the economic well-being of low-skilled workers?," Small Business Economics, Springer, vol. 40(4), pages 933-952, May.
    11. Robert W. Fairlie & Harry A. Krashinsky, 2012. "Liquidity Constraints, Household Wealth, And Entrepreneurship Revisited," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(2), pages 279-306, June.
    12. Christopher J. Boudreaux & Boris Nikolaev, 2019. "Capital is not enough: opportunity entrepreneurship and formal institutions," Small Business Economics, Springer, vol. 53(3), pages 709-738, October.
    13. Rafael P. Ribas, 2020. "Liquidity constraints, spillovers, and entrepreneurship: evidence from a cash transfer program," Small Business Economics, Springer, vol. 55(4), pages 1131-1158, December.
    14. Dongxu Wu & Zhongmin Wu, 2015. "Intergenerational links, gender differences, and determinants of self-employment," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(3), pages 400-414, August.
    15. McCann, Brian T. & Folta, Timothy B., 2012. "Entrepreneurial entry thresholds," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 782-800.
    16. Kapinos, Pavel & Gurley-Calvez, Tami & Kapinos, Kandice, 2016. "(Un)expected housing price changes: Identifying the drivers of small business finance," Journal of Economics and Business, Elsevier, vol. 84(C), pages 79-94.
    17. Werner, Arndt, 2008. "Do Credit Constraints Matter more for College Dropout Entrepreneurs?," MPRA Paper 11867, University Library of Munich, Germany.
    18. Flèche, Sarah & Lepinteur, Anthony & Powdthavee, Nattavudh, 2021. "The importance of capital in closing the entrepreneurial gender gap: A longitudinal study of lottery wins," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 591-607.
    19. Blanchflower, David G., 2000. "Self-employment in OECD countries," Labour Economics, Elsevier, vol. 7(5), pages 471-505, September.
    20. Niklas Elert, 2014. "What determines entry? Evidence from Sweden," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(1), pages 55-92, August.

    More about this item

    Keywords

    Liquidity constraints; wealth; entrepreneurship; starting capital; business ownership;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:uunewp:2005_021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ulrika Öjdeby (email available below). General contact details of provider: https://edirc.repec.org/data/nekuuse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.