Journal article
Entrepreneurs, Risk Aversion, and Dynamic Firms
The Journal of political economy, Vol.123(5), pp.1133-1176
10/01/2015
DOI: 10.1086/682678
Abstract
How do entrepreneurs vary firm size, capital structure, and default to manage risk? We show that more risk-averse entrepreneurs run smaller, more highly leveraged firms and default less, because running a smaller firm with higher debt reduces personal funds at risk in the firm. Optimal default depends on ex ante debt, consumption forgone from firm liquidation, and owner capacity to inject funds. We show that entrepreneurs sacrifice current consumption in the hope of future success that never materializes for the bottom 25 percent, but entrepreneurship is a path toward great wealth and high consumption for the top quartile.
Details
- Title: Subtitle
- Entrepreneurs, Risk Aversion, and Dynamic Firms
- Creators
- Neus Herranz - University of IllinoisStefan Krasa - University of IllinoisAnne P Villamil - University of Iowa
- Resource Type
- Journal article
- Publication Details
- The Journal of political economy, Vol.123(5), pp.1133-1176
- Publisher
- University of Chicago Press
- DOI
- 10.1086/682678
- ISSN
- 0022-3808
- eISSN
- 1537-534X
- Language
- English
- Date published
- 10/01/2015
- Academic Unit
- Economics
- Record Identifier
- 9984083245302771
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