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Title:Small-Scale Business Survival and Inheritance: Evidence from Germany PDF Logo
Authors:Schäfer, Dorothea
Talavera, Oleksandr
Issue Date:2006
Series/Report no.:DIW-Diskussionspapiere 636
Abstract:In this paper we investigate whether small-scale businesses face financial constraints that affect their survival. We develop a model of moral hazard in which financial constraints arise endogenously. The model predicts that higher private assets relax financial constraints and have a positive effect on the firm's probability of survival. We test this proposition using German Socio-Economic Panel (GSOEP) data, which cover the period 1984{2004. The release from financial constraints is measured by inheritance. The empirical analysis confirms that the entrepreneur has a higher propensity to stay in business when she inherits capital. This effect is particularly strong for entrepreneurs that switch from self-employment into wage employment. These results are consistent with hypothesis that financial frictions have a perceptible impact on bankruptcy among small business firms.
Subjects:Entrepreneurship
survival
financial constraints
JEL:G30
J20
L10
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
DIW-Diskussionspapiere

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