Which Entrepreneurs Are Placed under Severe Liquidity Constraints?
-A study based on Japanese entrepreneurship data

Case studies on startups and preceding studies in Japan and abroad on entrepreneurs have frequently noted that entrepreneurs suffer financial constraints when they start a business. Based on these research findings, this paper analyzes exactly what kinds of entrepreneurs actually suffer particularly severe liquidity constraints.



First I clarify the relationship between the amount of capital and the entrepreneur's attributes at the time of startup. This analysis illustrates that when controlled for the amount of the entrepreneur's assets at startup and the motivation for establishing a business, the entrepreneur's age, academic background, parents' occupations, and entrepreneurial experience all influence the amount of capital at startup.



Secondly, regarding the performance after startup, I conduct two regression analyses to (1) clarify its relationship with the entrepreneur's attributes when controlled for the amount of capital derived in the first step of the analysis, and (2) clarify its relationship with the attributes when not controlled for the amount of capital. I then compare these analytical results. The findings suggest that the determinants of the business performance after startup vary depending on whether or not the amount of capital is added to the explanatory variables. For example, the entrepreneur's academic background has a statistically significant positive effect on the business performance when not controlled for the amount of capital, but this influence disappears when controlled for the amount of funds.



This result indicates that while the entrepreneur's academic background has a positive influence on business performance via startup funds, having a high level of academic achievement itself does not necessarily imply strong management aptitude. Conversely, this result also indicates that even if entrepreneurs with low levels of education are not inferior in their management aptitude compared with entrepreneurs with high levels of education, they are highly likely to suffer liquidity constraints in terms of facing difficulties in procuring desirable levels of funds for starting up their businesses.



Incidentally, examining funding by government-affiliated financial institutions - which may be said to exist to improve such conditions - the performance does not indicate that entrepreneurs with low levels of education find it easier to receive funding approval compared with those with stronger academic backgrounds. While the system for policy-based loans for business startups is being rapidly revised, for example, through the establishment of the "New Startup Financing System" in 2001, there are still many outstanding practical issues, at least from this perspective.