Risk tolerance and entrepreneurship

Citation

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

Abstract
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.

Keywords
Entrepreneurial entry; Entrepreneurial performance; Risk tolerance; Risk aversion; Stock market participation

Journal
Journal of Financial Economics: Volume 111, Issue 1