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Cost of entrepreneurial capital and under-diversification: A Euro-Mediterranean perspective

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  • Pattitoni, Pierpaolo
  • Petracci, Barbara
  • Potì, Valerio
  • Spisni, Massimo

Abstract

We assess how owner's commitment to a firm influences the firm cost of capital, and whether the relation between the former and the latter is the consequence of the owner's higher opportunity cost of capital resulting from under-diversification. Using data on private Mediterranean firms and clustering projects by country, industry, and Initial Public Offering-year, we show that the cost of capital is magnified by entrepreneur's commitment, project total risk, and correlation between project and market return.

Suggested Citation

  • Pattitoni, Pierpaolo & Petracci, Barbara & Potì, Valerio & Spisni, Massimo, 2013. "Cost of entrepreneurial capital and under-diversification: A Euro-Mediterranean perspective," Research in International Business and Finance, Elsevier, vol. 27(1), pages 12-27.
    • Handle: RePEc:eee:riibaf:v:27:y:2013:i:1:p:12-27
    DOI: 10.1016/j.ribaf.2012.04.004
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    1. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March.
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    Cited by:

    1. Tchankam, Jean-Paul & Feudjo, Jules Roger & Gandja, Serge Valant, 2016. "The determinants of financial structure: How to explain the “paradox of insolvency and debt” among SMEs in Cameroon?," Research in International Business and Finance, Elsevier, vol. 36(C), pages 73-84.
    2. Potì, Valerio & Pattitoni, Pierpaolo & Petracci, Barbara, 2020. "Precautionary motives for private firms’ cash holdings," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 150-166.
    3. Pierpaolo Pattitoni & Barbara Petracci & Massimo Spisni, 2014. "Determinants of profitability in the EU-15 area," Applied Financial Economics, Taylor & Francis Journals, vol. 24(11), pages 763-775, June.
    4. Enrico Maria Cervellati & Pierpaolo Pattitoni & Marco Savioli, 2013. "Entrepreneurial Under-Diversification: Over Optimism and Overconfidence," Working Paper series 09_13, Rimini Centre for Economic Analysis, revised May 2016.
    5. E. M. Cervellati & P. Pattitoni & M. Savioli, 2016. "Cognitive Biases and Entrepreneurial Under-Diversification," Working Papers wp1076, Dipartimento Scienze Economiche, Universita' di Bologna.
    6. Likitwongkajon, Napaporn & Vithessonthi, Chaiporn, 2020. "Do foreign investments increase firm value and firm performance? Evidence from Japan," Research in International Business and Finance, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    Opportunity cost of capital; Commitment; Small and Medium Business; Entrepreneurship;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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