Effects of wealth inequality on entrepreneurship

This study examines whether personal net worth affects new venture creation and performance. Prior research on wealth and entrepreneurial entry has relied on data providing only a snapshot of the transition into self-employment. The present study draws on a sample of US nascent entrepreneurs actively attempting to start new ventures. Controlling for a number of covariates and the endogenous accumulation of wealth, we find strong evidence of higher dropout rates among low-wealth and moderately wealthy nascent entrepreneurs. However, wealth appears to have no effect on venture creation for those managing to remain in gestation. This suggests liquidity constraints theory applies more toward entrepreneurial disengagement than entrepreneurial entry. Furthermore, the suggestion that the wealthy are able to aggressively grow their ventures is only partially supported by the data when we include a set of covariates correlated with wealth. Integrating these findings, we conclude that entrepreneurial success is concentrated at the top of the wealth distribution, despite notable evidence of capability for those at the lower end of the wealth distribution.