Saving to Overcome Borrowing Constraints: Implications for Small Business Entry and Exit

Saving to Overcome Borrowing Constraints: Implications for Small Business Entry and Exit This paper shows how a dynamic analysis of entrepreneurial choice, in which inter-temporal savings plans can be adjusted to build up capital, allows agents to overcome borrowing constraints. This casts fresh doubt on the notion that borrowing constraints deter entrepreneurial entry in the long run. Impatient agents are shown to voluntarily remain constrained indefinitely, whereas patient agents become entrepreneurs. The model also explains temporary and permanent closures of viable businesses. The model's predictions are consistent with evidence of greater savings behaviour by entrepreneurs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Saving to Overcome Borrowing Constraints: Implications for Small Business Entry and Exit

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Publisher
Springer Journals
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1023/A:1008161529526
Publisher site
See Article on Publisher Site

Abstract

This paper shows how a dynamic analysis of entrepreneurial choice, in which inter-temporal savings plans can be adjusted to build up capital, allows agents to overcome borrowing constraints. This casts fresh doubt on the notion that borrowing constraints deter entrepreneurial entry in the long run. Impatient agents are shown to voluntarily remain constrained indefinitely, whereas patient agents become entrepreneurs. The model also explains temporary and permanent closures of viable businesses. The model's predictions are consistent with evidence of greater savings behaviour by entrepreneurs.

Journal

Small Business EconomicsSpringer Journals

Published: Oct 8, 2004

References

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