FINANCIAL STARTUP CAPITAL AND INDUSTRY
Several previous studies find that asset levels play an important role in
determining who enters into or exits from self-employment.22 Furthermore, small
business outcomes vary across industries. Certain industries have higher business
turnover rates than others, most notably retail and services (Robb 2000, Reynolds and
White 1997, and Humphreys and McClung 1981). Those with higher capital
requirements for entry, such as manufacturing and wholesale, typically have lower
turnover rates. Barriers of entry into specific industries can result for many reasons.
First, capital constraints can limit which industries an individual can enter due to higher
capital requirements of certain industries (Bates, 1997). In addition, industry choice may
be constrained due to a lack of relevant skills, discrimination, or differences in
preferences (Boden, 1996, Boden and Nucci 2000, and Robb 2000). Cooper et al. (1994)
shows that industry-specific knowledge contributes to higher survival prospects. The
distributions of these variables may be correlated with the family background variables
implying that their omission from the regressions may bias the coefficient estimates on
the family background variables.
To further explore this concern, we estimate a second set of small business
outcome regressions that include dummy variables for different levels of startup capital
and major industry categories in addition to the independent variables included in the
previous equations. The CBO contains categorical information on "the total amount of
capital required to start/acquire the business" (U.S. Department of Commerce 1997, p. C-
( S c h a f e r a n d O l s e n 1 9 9 8 ) . 2 2 See Evans and Jovanovic (1989), Evans and Leighton (1989), Bates (1990a), Holtz-Eakin, Joulfaian, and Rosen (1994a,1994b), Fairlie (1999), Dunn and Holtz-Eakin (2000), and Blanchflower and Oswald (1998).