Entrepreneurship, Windfall Gains and Financial Constraints: Evidence from Germany

We investigate the link between the propensity to become an entrepreneur and exogenous release from nancial constraints in Germany. This is de ned in terms of the movement from employment to self employment on receipt of a nancial windfall. A theoretical framework developing Evans and Jovanovic (1989) is set up and tested with panel data from German households. The results show that nancial constraints do exist given that individuals are more likely to start a personal business after receiving a windfall gain. The value of windfall gains has a signi cant but non linear eect on the decision to become self employed. The data reveal that dierences in ability and income aect the change in employment status. We also report that there is no evidence that becoming self employed involves the anticipation of windfall gains.