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Risk tolerance and entrepreneurship

  • Hvide, Hans K.
  • Panos, Georgios A.

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.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 111 (2014)
Issue (Month): 1 ()
Pages: 200-223

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Handle: RePEc:eee:jfinec:v:111:y:2014:i:1:p:200-223
DOI: 10.1016/j.jfineco.2013.06.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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