Events

Mr. Grady Wallace Raines
Ph.D. Candidate in Management and Organizations
SC Johnson School of Business
Cornell University

What are the unintended consequences of lowering barriers to entrepreneurship? While prior research highlights the positive effects of lowering barriers on performance, growth and survival, this paper documents a counterintuitive effect: increased exits among marginalized entrepreneurs who are thought to benefit the most from lowering barriers. I examine this question in the context of the rapid expansion of Banco Azteca, that dramatically increased access to financing for entrepreneurs across Mexico. Leveraging municipality variation in branch openings in a difference-in-differences design, I find that the expansion enhanced firm survival and growth for male entrepreneurs while simultaneously increasing exits among female entrepreneurs, who were expected to benefit most from these changes. I explore two mechanisms driving these outcomes. First, a pull effect: expanded credit access fosters firm growth and labor demand, pulling marginalized entrepreneurs who entered entrepreneurship due labor market exclusion into formal wage employment. Second, a push effect: greater credit availability intensifies market competition, disproportionately pushing marginalized entrepreneurs out of entrepreneurship. Empirically, I present results most consistent with the pull mechanism and less consistent with the push mechanism and other alternatives. These findings show that while reducing barriers to entrepreneurship is expected to help marginalized entrepreneurs survive longer in entrepreneurship, they can also lead to higher exit rates among them, as improved employment alternatives make entrepreneurship less necessary.