Small-Scale Business Survival and Inheritance: Evidence from Germany

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 636

Classification and Topics

• Classification: Wirtschaft ; Corporate Finance and Governance: General ; Demand and Supply of Labor: General ; Market Structure, Firm Strategy, and Market Performance: General
• Subject: Entrepreneurship ; survival ; financial constraints

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schäfer, Dorothea ; Talavera, Oleksandr
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/18529
• Last update: 10.03.2025, 11:42 AM CET