Entrepreneurs, Legal Institutions and Firm Dynamics
AbstractThis paper assesses quantitatively the impact of legal institutions on entrepreneurial firm dynamics. Owners choose firm size, financial structure and default to manage risk. We find: (i) Less risk averse entrepreneurs run bigger firms and it is optimal for them to incorporate, while more risk averse entrepreneurs run smaller firms and generally are better off remaining unincorporated. (ii) More risk-averse owners tend to default more often than the less risk averse, though they carry less debt. (iii) The model estimates a credit constraint, which binds for many but not all entrepreneurs and matches bank lending criteria. The model also finds modest differences in owner risk aversion, consistent with micro studies.
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Bibliographic InfoPaper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 128.
Length: 44 pages
Date of creation: 2009
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-07 (All new papers)
- NEP-BEC-2009-11-07 (Business Economics)
- NEP-ENT-2009-11-07 (Entrepreneurship)
- NEP-REG-2009-11-07 (Regulation)
- NEP-UPT-2009-11-07 (Utility Models & Prospect Theory)
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- Hui Chen & Jianjun Miao & Neng Wang, 2010.
"Entrepreneurial Finance and Nondiversifiable Risk,"
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- Jacob M. Short & Andy Glover, 2011. "Bankruptcy, Incorporation and the Nature of Entrepreneurial Risk," 2011 Meeting Papers 836, Society for Economic Dynamics.
- Nelson Souza-Sobrinho, 2010. "Macroeconomics of bank interest spreads: evidence from Brazil," Annals of Finance, Springer, vol. 6(1), pages 1-32, January.
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