Entrepreneurial Spirit and Entrepreneurial Finance

Xindong Cheng, Yingjue Wang and Jinqiang Yang ()
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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

Annals of Economics and Finance, 2021, vol. 22, issue 2, 367-388

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.

Keywords: The Spirit of capitalism; Credit spreads; Default time; Consumption; Portfolio allocation; Capital structure; Investment (search for similar items in EconPapers)
JEL-codes: D91 E22 G32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2021:v:22:i:2:chengwangyang

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