Consumption Propensity and Entrepreneurship: Evidence from China

Abstract

Individuals who spend a large percentage of their incomes on consumption are perceived to prefer risks. Since entrepreneurs are well recognized as risk-takers, this chapter investigates whether consumption propensity is associated with entrepreneurship. Using micro-level data from Chinese Household Income Project, we find that households with a higher income–consumption ratio on average have a higher preference for risk-seeking, while they have a lower probability to be entrepreneurs. However, households who have higher consumption–income ratio and are in the top 10% of the wealth distribution are more likely to embark on entrepreneurship. In addition, we find that in-system connection (relationship with government-related units) decreases the likelihood of starting new business, while out-system connection (relationship with market units) increases it. These findings suggest that in an imperfect financial market, start-up finance and connections play important roles for entrepreneurship.

Citation

Hu, M., Liu, J. and Wang, X. (2019), "Consumption Propensity and Entrepreneurship: Evidence from China", Asia-Pacific Contemporary Finance and Development (International Symposia in Economic Theory and Econometrics, Vol. 26), Emerald Publishing Limited, Leeds, pp. 265-286. https://doi.org/10.1108/S1571-038620190000026013