Entrepreneurship and the discipline of external finance
By: Ramana Nanda
Contributors: Harvard Business School
Edition: Rev.
Series: Working paper / Harvard Business School -- 08-047; Working paper (Harvard Business School) -- 08-047
Publisher: Harvard Business School
Published: 2009
Place of publication: Boston]
Language: eng
Number of pages: 23
Description: I exploit a tax reform and use unique micro-data from Denmark to study how an exogenous increase in the cost of external finance impacted individuals' entry into entrepreneurship. Differences-in-differences estimates show a 40% fall in entry rates for individuals whose cost of finance increased. However, the greatest decline in entry came from individuals with lower human capital, particularly among those who were wealthy. The findings suggests that an important part of the positive relationship between personal wealth and entrepreneurship may be driven by the fact that wealthy individuals with lower ability can start new businesses because they do not face the disciplining effect of external finance.
Notes: "Revised March 2009"--Publisher's web site.

Originally published as: Cost of external finance and selection into entrepreneurship. c2008.

Includes bibliographical references.