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Entrepreneurial Spirit and Entrepreneurial Finance

Author

Listed:
  • Xindong Cheng

    (School of Finance, Shanghai University of Finance and Economics)

  • Yingjue Wang

    (School of Finance, Shanghai University of Finance and Economics)

  • Jinqiang Yang

    (School of Finance, Shanghai University of Finance and Economics)

Abstract

We introduce entrepreneurial spirit into an incomplete markets model of entrepreneurial firms and explain how it influences entrepreneurs' allocation of wealth between consumption and asset portfolios, capital structure, investment, and business exit decisions with nondiversifiable risks. The study shows that entrepreneurs with an entrepreneurial spirit prefer to choose a relatively high debt level and tend to sell their firms earlier than those without an entrepreneurial spirit, which increases the default risk and credit spreads and leads to a higher discount rate of corporate bonds. Hence, our paper provides an alternative explanation for the credit spread puzzle and firms' excessive risk management.

Suggested Citation

  • Xindong Cheng & Yingjue Wang & Jinqiang Yang, 2021. "Entrepreneurial Spirit and Entrepreneurial Finance," Annals of Economics and Finance, Society for AEF, vol. 22(2), pages 367-388, November.
    • Handle: RePEc:cuf:journl:y:2021:v:22:i:2:chengwangyang
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    References listed on IDEAS

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    More about this item

    Keywords

    The Spirit of capitalism; Credit spreads; Default time; Consumption; Portfolio allocation; Capital structure; Investment;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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