WP 2012-06 Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment

AUTHORS: Steffen Andersen and Kasper Meisner Nielsen

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. (JEL J23, L26, M13)