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Small Business Economics

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01-09-2012

Part-time entrepreneurship and financial constraints: evidence from the Panel Study of Entrepreneurial Dynamics

Author: Kameliia Petrova

Published in: Small Business Economics | Issue 2/2012

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Abstract

To date, entrepreneurship literature overlooks part-time entrepreneurs, i.e., those who devote time to entrepreneurial ventures and wage employment at the same time. In contrast, recent evidence from the Global Entrepreneurship Monitor, a large cross-national study on the level of entrepreneurial activity, establishes that 80% of nascent entrepreneurs also hold regular wage jobs. This paper offers a model of entrepreneurial entry under financial constraints where individuals choose between wage employment, part-time, and full-time entrepreneurship. Those who become nascent entrepreneurs must further decide how much capital to invest and what proportion of time to spend in business. I test this model using data from the Panel Study of Entrepreneurial Dynamics, which covers start-ups and nascent entrepreneurs. My findings show that part-time entrepreneurs are not affected by financial constraints. The analysis suggests that industry barriers, risk aversion, and learning by doing might be other factors worth investigating.

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For other studies see Blumberg and Letterie (2008), Freel (2007), Oliveira and Fortunato (2007), Hyytinen and Vnnen (2006), Henley (2005), and Parker (2000).

The GEM is a cross-country research program studying the national level of entrepreneurial activity on an annual basis. The program was initiated in 1999 with 10 countries and expanded later on. Currently, 42 countries are involved. The GEM essentially looks at the role of entrepreneurship in national economic growth using harmonized sociodemographic characteristics.

Other studies are Blanchflower and Oswald (1998), Evans and Leighton (1989), Holtz-Eakin et al. (1994), Cressy (1996), and more recently Xu (1998) and Hurst and Lusardi (2004). All of them include empirical work that relies extensively on household surveys, where respondents are classified as either self-employed or wage/salary workers. See also Bates (1999), Burke et al. (2002), and Rosti and Chelli (2005).

Other studies about nascent entrepreneurship abroad employ alternative sources of information about the creation of new businesses: Wennberg and Lindqvist (2010), Caliendo et al. (2009), Ashcroft et al. (2009), Wagner (2007), Caliendo and Kritikos (2010), Carod et al. (2008), Colombier and Masclet (2008), and Bergmann and Sternberg (2007).

Keeping the assumption of risk aversion would require investigating the connection between risk attitude and propensity to become an entrepreneur; this relationship is beyond the scope of the discussion. Kihlstrom and Laffont (1979) investigate the effect of risk aversion on entrepreneurial decisions in detail.

In Evans and Jovanovic (1989) and Xu (1998), w is not a part of the entrepreneur’s net income, because every individual is either an entrepreneur or a wage worker, but not both.

Harada and Kijima (2005) make the assumption that working hours are determined exogenously. This assumption is required because they found that, if a wage worker can choose hours freely, assets will not affect the choice between wage work and entrepreneurship.

Similar models have been estimated with self-employment data for other countries; for instance, see Rees and Shah (1986) and Dolton and Makepeace (1990) for self-employment in the UK, De Wit and Van Winden (1986) for The Netherlands, and Clark and Drinkwater (2000) for self-employment among ethnic minorities in England and Wales.

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I use the whole control group, without removing the unemployed. Both control group and nascent entrepreneurs include a small percentage of unemployed. Removing those individuals who are unemployed will result in misrepresentations.

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Title: Part-time entrepreneurship and financial constraints: evidence from the Panel Study of Entrepreneurial Dynamics
Author: Kameliia Petrova
Publication date: 01-09-2012
Publisher: Springer US
Published in: Small Business Economics / Issue 2/2012
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-010-9310-7

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