Risk tolerance and entrepreneurship

Hvide, H. K. and Panos, G. A. (2014) Risk tolerance and entrepreneurship. Journal of Financial Economics, 111(1), pp. 200-223. (doi: 10.1016/j.jfineco.2013.06.001)

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A theoretical tradition argues that more risk tolerant individuals are more likely to become entrepreneurs but perform worse. We test and confirm these predictions with several risk tolerance proxies. Using investment data for 400,000 individuals, we find that common stock investors are around 50% more likely to subsequently start up a firm. Firms started up by common stock investors have about 25% lower sales and 15% lower return on assets. The results are similar using personal leverage and other risk-tolerance proxies. We do not find support for alternative explanations such as unobserved wealth or behavioral effects.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Panos, Professor Georgios
Authors: Hvide, H. K., and Panos, G. A.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Journal of Financial Economics
Publisher:Elsevier B.V.

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