Entrepreneurs bear substantial risk, but empirical evidence shows no sign of a positive premium. This paper develops a theory of endogenous entrepreneurial risk taking that explains why self-financed entrepreneurs may find it optimal to invest into risky projects offering no risk premium. The model has also a number of implications for firm dynamics supported by empirical evidence, such as a positive correlation between survival, size, and firm age.
- G32 - Corporate finance and governance - Financing policy ; Financial risk and risk management ; Capital and ownership structure
- L25 - Firm objectives, organization, and behavior - Firm performance : Size, diversification, and scope
- L26 - Firm objectives, organization, and behavior - Entrepreneurship
- E21 - Macroeconomics : Consumption, saving, production, employment, and investment - Consumption ; Saving ; Wealth
- Federal Reserve Bank of Minneapolis. Research Department.
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