Lean and hungry or fat and content? Entrepreneurs' wealth and start-up performance

Hans K Hvide, Jarle Møen

Research output: Contribution to journalArticle

26 Citations (Scopus)

Abstract

If entrepreneurs are liquidity constrained and not able to borrow to operate on an efficient scale, economic theory predicts that entrepreneurs with more personal wealth should do better than those with less wealth. We test this hypothesis using a novel dataset covering a large panel of start-ups from Norway. Consistent with liquidity constraints, we find a positive relationship between founder prior wealth and start-up size. The relationship between prior wealth and start-up performance, as measured by profitability on assets, increases in the first three wealth quartiles. In the top wealth quartile, however, profitability drops sharply in wealth. Our findings are consistent with a luxury good interpretation of entrepreneurship and that higher wealth may induce a less alert or a less dedicated management. We conclude that an abundance of resources might do more harm than good for start-ups.
Original languageEnglish
Pages (from-to)1242-1258
Number of pages17
JournalManagement Science
Volume56
Issue number8
DOIs
Publication statusPublished - Aug 2010

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Keywords

  • entrepreneurial motivation
  • entrepreneurship
  • financial constraints
  • liquidity
  • organizational slack
  • start-ups
  • survival
  • profitability

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