Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18529
Authors: 
Schäfer, Dorothea
Talavera, Oleksandr
Year of Publication: 
2006
Series/Report no.: 
DIW Discussion Papers 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

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