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Financial literacy and entrepreneurial risk aversion

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  • Jan Riepe
  • Michelle Rudeloff
  • Theresa Veer

Abstract

We explore the interaction effects of financial literacy and risk aversion on becoming an entrepreneur. We use two independent datasets to provide evidence that the difference in risk aversion between entrepreneurs and wage earners is conditional on their financial literacy. First, we use the De Nederlandsche Bank’s Household Survey and find lower risk aversion only for entrepreneurs with lower financial literacy. The difference disappears for entrepreneurs with higher financial literacy. Second, we show that the results are robust in a fully incentivized field experiment with high-tech startups from three European countries. The results reveal a potential channel of how financial literacy can promote entrepreneurship.

Suggested Citation

  • Jan Riepe & Michelle Rudeloff & Theresa Veer, 2022. "Financial literacy and entrepreneurial risk aversion," Journal of Small Business Management, Taylor & Francis Journals, vol. 60(2), pages 289-308, March.
    • Handle: RePEc:taf:ujbmxx:v:60:y:2022:i:2:p:289-308
    DOI: 10.1080/00472778.2019.1709380
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    Cited by:

    1. Antonio Duréndez & Julio Dieguez-Soto & Antonia Madrid-Guijarro, 2023. "The influence of CEO’s financial literacy on SMEs technological innovation: the mediating effects of MCS and risk-taking," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-26, December.
    2. Erich Renz & Marvin M. Müller & Kim Leonardo Böhm, 2023. "When nudges promote neutral behavior: an experimental study of managerial decisions under risk and uncertainty," Journal of Business Economics, Springer, vol. 93(8), pages 1309-1354, October.

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