Successful Entrepreneurship
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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.
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Chapter 9: Summary, Conclusions and Policy Recommendations

C. Mirjam van Praag


9 Human and financial capital Introduction The objective of this chapter is to answer the question: ‘To what extent is the performance of a small business venture, once started, affected by capital constraints at the time of inception and by the business founder’s investment in human capital?’. In particular, can we measure the distinct contribution of each of the human and financial capital factors, taking account of the possibility that human capital might also have an indirect effect on performance by making financial capital easier to access and so diluting any capital constraint (see Parker and van Praag, 2004)? Using a sample of data from a rich survey of entrepreneurs conducted in the Netherlands in 1995, we tested empirically three propositions that follow from a theoretical model: 1. 2. 3. Capital constraints have a decreasing effect on average on entrepreneurs’ performance. Greater human capital has an increasing effect on average on entrepreneurs’ performance. Greater human capital decreases capital constraints. The empirical contribution of this chapter is threefold. First, we model entrepreneurs’ capital constraints as an endogenous variable (measured on a continuous scale), and assess the effect of these constraints on entrepreneurs’ performance. We argue that treating capital constraints as endogenous yields useful insights into their composition, while enabling the effects of these constraints on entrepreneurs’ performance to be estimated consistently. After all, it is to be expected that the extent of capital constraints is endogenous because both actual and desired amounts of start-up...

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