Financial Constraint, Entrepreneurship and Sectoral Migrations

Pierrick Baraton () and Florian Leon
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Pierrick Baraton: CERDI - University of Auvergne

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: Using an original database of over 3,000 micro and small enterprises (MSEs) that were micro finance institution (MFI) clients in Madagascar over the period of 2008-2014, we observe that around one third of these entrepreneurs switched business sectors in the first five years after starting their business. We find that the probability of an entrepreneur's changing sectors is highly correlated with the size of the first loan obtained from the MFI. This result survives multiple robustness checks, including treatment for endogeneity and attrition. We interpret this finding in terms of financial constraint: a lack of financing prevents an entrepreneur from initially investing in his first choice sector, causing him to change sectors only when he has become financially able to do so. This result challenges the classic distinction made between necessity entrepreneurs" and "opportunity entrepreneurs" and raises important questions concerning entrepreneurial talent allocation.

Keywords: Entrepreneurship; Financial constraint; firm dynamics; Madagascar (search for similar items in EconPapers)
JEL-codes: L26 M13 O16 O55 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-mfd and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:16-09

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