Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1359: Financial Capital and Immigrant Self-Employment: Evidence from a Swedish Reform

Lina Aldén (), Mats Hammarstedt () and Chizheng Miao ()
Additional contact information
Lina Aldén: Department of Economics and Statistics, Postal: Linnaeus University
Mats Hammarstedt: Linnæus University and, Postal: and Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Chizheng Miao: Department of Economics and Statistics, Postal: Linnaeus University

Abstract: We study the role of capital requirement in immigrants’ self-employment decision with the help of a reform implemented in Sweden in 2010 which reduced capital requirements for limited liability companies. For both men and women, the reform increased both the probability of starting a limited liability firm and the probability of changing corporate form for those self-employed prior to the reform. We found that the reform affected immigrants and natives differently. Natives primarily responded to the reform by changing corporate form whereas immigrant men, especially those originating from the Middle East, responded to the reform by starting limited liability firms. Small differences emerge when we compare native women with immigrant women. Finally, it is the wage employed who start a limited liability business in the post-reform period, underlining the fact that access to financial capital is an obstacle for wage-employed individuals who opt for self-employment. This is true for both immigrants and natives. In contrast, more marginalised groups (i.e. unemployed immigrants), do not respond to the reform by starting limited liability firms.

Keywords: Self-employment; Financial capital; Limited liability; Immigrants

JEL-codes: J15; J68; L26; L51

39 pages, September 29, 2020

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