Lean and Hungry or Fat and Content? Entrepreneurs' Wealth and Start-Up Performance

If entrepreneurs are liquidity constrained and not able to borrow to operate on an e¢ cient scale, economic theory predicts that entrepreneurs with more personal wealth should do better than those with less wealth. We test this hypothesis using a novel dataset covering a large panel of start-ups from Norway. Consistent with liquidity constraints, we …nd a positive relationship between founder prior wealth and start-up size. The relationship between prior wealth and start-up performance, as measured by pro…tability on assets, increases in the …rst three wealth quartiles. In the top wealth quartile, however, pro…tability drops sharply in wealth. Our …ndings are consistent with a luxury good interpretation of entrepreneurship and that higher wealth may induce a less alert or a less dedicated management. We conclude that an abundance of resources might do more harm than good for start-ups. Keywords: Entrepreneurial motivation, Entrepreneurship, Financial constraints, Independence, Liquidity, Organizational slack, Start-ups, Survival, Pro…tability. z Corresponding author. University of Aberdeen, Business School. Email: [email protected] zz Norwegian School of Economics and Business Administration. Email: [email protected] This research has been supported by the ESRC, grant no RES-000-22-2080 (Hvide) and by the Research Council of Norway (Møen). Thanks to two anonymous referees, Jerker Denrell, Thomas Hellmann, Douglas HoltzEakin, Eirik G. Kristiansen, Josh Lerner, Jim March, and to seminar participants for comments and suggestions. Thanks also to Robert Holm at Brønnysundregisteret, and to Lena Mari Johnsen for excellent research assistance. Hvide is also a¢ liated with CEPR and NHH.