Successful Entrepreneurship

Successful Entrepreneurship

Confronting Economic Theory with Empirical Practice

C. Mirjam van Praag

Mirjam van Praag compares and contrasts the economic theory of entrepreneurship with determinants of successful entrepreneurship derived from empirical evidence, in an attempt to discover what makes for an accomplished entrepreneur. The author’s state-of-the-art historical, theoretical and empirical research on successful entrepreneurship – all from an explicit economic perspective – comprehensively addresses questions such as: ‘What are the factors that influence individuals’ decisions to start a business venture as opposed to working as an employee?’ and ‘What are the individual characteristics that make one successful as an entrepreneur?’ thereby supporting or dispelling various existing myths. Individual factors contributing to the success of entrepreneurs that are considered include, amongst others, human capital, financial capital and psychological traits. The importance of such factors for the various phases of entrepreneurship, including start-up, delivery and performance is also measured.

Chapter 8: Financial Capital

C. Mirjam van Praag

Subjects: business and management, entrepreneurship


Introduction The observation of resource spending by governments for the sake of increasing the number of higher qualified entrepreneurs is explained not only by the social benefit pertaining to entrepreneurial endeavour, but also by the perceived existence of undesirable impediments to the supply of entrepreneurs. A lack of capital is one of these factors and is the focus of this chapter. The objective of this chapter is to answer the questions: ‘To what extent is the performance of a small business founder’s entrepreneurial venture, once started, affected by capital constraints at the time of inception?’, and, ‘What happens to performance when an entrepreneur has insufficient capital to reach the optimal investment level or timing?’. Financial capital constraints might prevent entrepreneurs from creating buffers against random shocks, thereby affecting the timing of investments negatively. Moreover, capital constraints might debar entrepreneurs from the pursuit of more capital-intensive strategies. Thus, what I am aiming at is measuring the effect of initial capital constraints on venture performance. Merely measuring the correlation between capital constraints and performance would not be sufficient, since it would (wrongly) include spurious factors that affect access to capital as well as performance directly, such as ability and motivation. The distinction between causal and spurious factors is crucial since policy implications diverge. In the first case, supplying more capital to entrepreneurs who are hindered from following the optimal investment scheme would improve performance. In the second case, it will not,...

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