Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 03-2012: Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment

Steffen Andersen () and Kasper Meisner Nielsen ()
Additional contact information
Steffen Andersen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Porcelænshaven 16, 1. floor, DK-2000 Frederiksberg, Denmark
Kasper Meisner Nielsen: Department of Finance, Hong Kong University of Science and Technology

Abstract: We use a natural experiment in Denmark to test the hypothesis that aspiring entrepreneurs face financial constraints because of low entrepreneurial quality. We identify 304 constrained entrepreneurs who start a business after receiving windfall wealth and examine the performance of these marginal entrepreneurs. We find that constrained entrepreneurs have significantly lower survival rates and lower profits when compared with a matched sample of unconstrained entrepreneurs. These results are consistent with the hypothesis that the marginal entrepreneur is of low quality

Keywords: entrepreneurship; natural experiments

JEL-codes: L26

44 pages, August 1, 2012

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