Risk Tolerance and Entrepreneurship

61 Pages Posted: 16 Feb 2013

See all articles by Hans K. Hvide

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Georgios A. Panos

University of Glasgow - Adam Smith Business School

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A tradition from Knight (1921) argues that more risk tolerant individuals are more likely to become entrepreneurs, but perform worse. We test these predictions with two risk tolerance proxies: stock market participation and personal leverage. Using investment data for 400,000 individuals, we find that common stock investors are around 50 percent more likely to subsequently start up a firm. Firms started up by stock market investors have about 25 percent lower sales and 15 percent lower return on assets. The results are similar using personal leverage as risk tolerance proxy. We consider alternative explanations including unobserved wealth and behavioral effects.

Keywords: entrepreneurial entry, entrepreneurial performance, firm entry, firm performance, firm productivity, firm survival, overconfidence, risk aversion, risk tolerance, stock market participation

JEL Classification: L26

Suggested Citation

Hvide, Hans and Panos, Georgios A., Risk Tolerance and Entrepreneurship. Available at SSRN: https://ssrn.com/abstract=2219131 or http://dx.doi.org/10.2139/ssrn.2219131

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

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N-5007 Bergen, 5007

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072

Georgios A. Panos

University of Glasgow - Adam Smith Business School ( email )

Gilbert Scott Building
University Avenue
Glasgow, Scotland G128QQ
United Kingdom

HOME PAGE: http://https://sites.google.com/site/georgiosapanos/

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