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Testing the effects of capital structure on entrepreneurial effort

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  • Yan Wendy Wu

Abstract

Do entrepreneurs work less or harder when they borrow more? This article tests how entrepreneurial effort is affected by the firm's financing choice. In line with the typical agency theory prediction, entrepreneurial effort is negatively related to the magnitude of the equity financing. Furthermore, accounting for firm and entrepreneur heterogeneities, I find that entrepreneurs work less when they use more debt financing, and higher firm risk leads to greater entrepreneurial effort reductions.

Suggested Citation

  • Yan Wendy Wu, 2010. "Testing the effects of capital structure on entrepreneurial effort," Applied Financial Economics, Taylor & Francis Journals, vol. 20(10), pages 785-794.
    • Handle: RePEc:taf:apfiec:v:20:y:2010:i:10:p:785-794
    DOI: 10.1080/09603101003652391
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