Entrepreneurial Motivation and Business Performance: Evidence from a French Microfinance Institution

Bourlès, R., & Cozarenco, A. (2017). Small Business Economics, 1-21.

Topics: Entrepreneurship, Entrepreneurial Motivation

Year: 2017

Country : France

 

Can the type of entrepreneurial motivation influence business performance? The authors of this study examine this relationship and distinguish between opportunity entrepreneurs (who start a business voluntarily for more independence or self-fulfilment) and necessity entrepreneurs (who start a business because they have difficulty remaining in the paid job market). 

Key takeaway: “Necessity entrepreneurs experience difficulties in loan repayment earlier than opportunity entrepreneurs”. 

Summary

The evidence regarding the impact of microfinance has been mixed. The present study examines the relationship between entrepreneurial motivation and business performance (loan repayment and business survival) in a microfinance institution in France. Microcredits are small business loans (intended for business start-up) or personal loans, “to poor individuals who cannot easily access mainstream financial markets”. The authors hypothesize that necessity (or employment-driven) entrepreneurs experience “more difficulties in repaying their loans”. 

Data

The dataset consists of a hand-collected data containing micro-firms started by the clients of Micro-Finance Institution (MFI) in France, created in 2006. To distinguish between the types of entrepreneurs, a survey was conducted among the clients of the MFI with a sample amounting to 294 micro-entrepreneurs. Finally, “the data on business cycles and unemployment rates was collected from the French National Institute of Statistics and Economic Studies (INSEE)”. 

Methodology

To test their hypotheses, the authors provide an indirect measure of entrepreneurial success through loan repayment performance. To control for endogeneity of entrepreneurial motivation, they use a bivariate probit model to examine the impact of “necessity” on entrepreneurial performance. To account for the endogeneity of the “necessity” variable, a dummy variable accounting for “avoiding unemployment” is used as an instrument. 

Findings

They find that ““necessity entrepreneurs” are more likely to have difficulty repaying their microcredits than “opportunity entrepreneurs””. After testing the robustness of the results, they demonstrate that necessity entrepreneurs encounter more difficulties in repaying their loans earlier than opportunity entrepreneurs, which confirms the initial results. In terms of policy implication, the paper shows the importance of subsidizing the microfinance sector where necessity entrepreneurs are numerous.  

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