Table Of ContentAdvances in Entrepreneurial Finance
Rassoul Yazdipour
Advances in Entrepreneurial
Finance
With Applications from Behavioral Finance
and Economics
Rassoul Yazdipour
California State University
Fresno, CA,
USA
[email protected]
ISBN 978-1-4419-7526-3 e-ISBN 978-1-4419-7527-0
DOI 10.1007/978-1-4419-7527-0
Springer New York Dordrecht Heidelberg London
Library of Congress Control Number: 2010938798
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Foreword
The study of entrepreneurship is vital to continued growth and innovation in our
society. At its most basic level, entrepreneurship is a means for individuals to lift
themselves out of poverty and to create jobs for others. The new businesses that are
started each year offer the promise of wealth and independence to the entrepreneurs
who take on the inherent risks. At a broader level, however, the entrepreneurs who
bring truly new and innovative products and services to the market offer something
even more important to all members of the community. These are the new busi-
nesses that are responsible for much of the economic growth in our economy and
the progress in our standard of living. The long history of new business ideas that
changed our daily lives is familiar to all of us. From the radio and the television to
the personal computer and new medical technologies, these innovations benefited
– and continue to benefit – many more people than the entrepreneurs and their
employees. Innovations promise greater prosperity for society as a whole.
A greater understanding of entrepreneurship and its drivers is critical to the
continued growth of our economy. It is only through the study of new businesses
and their founders that we will identify the motivation to start a business and under-
stand the entrepreneurial process, the financing of these businesses, the challenges
entrepreneurs face, and the policies and institutions that encourage greater entrepre-
neurial activity. The Ewing Marion Kauffman Foundation has devoted significant
resources toward this effort at an academic level, working with economists and oth-
ers who study this important phenomenon. In addition to supporting research on the
topic, we have sponsored new efforts to collect data on entrepreneurial activity.
These initiatives have proven fruitful. There has been increased attention to
entrepreneurship among academics in recent years. The strength of the work in this
book testifies to the growing interest in this work among academics from a variety
of perspectives. Furthermore, the summary of statistical databases for small busi-
ness financial research, the discussions of data sources within individual chapters,
and the use of new data herein suggest that efforts to improve data sources for the
study of entrepreneurship are progressing as well. This book, in fact, includes an
analysis of Kauffman Firm Survey data, a panel study of businesses founded in
2004 that tracks them over their early years of operation.
v
vi Foreword
Empirical research on entrepreneurship has much to offer us from a policy per-
spective. Among many other topics, economists have elucidated a great deal about
firm formation, growth, and death; the financing of new businesses; the institutional
influences on entrepreneurship; the demographic characteristics of entrepreneurs;
and the important role of entrepreneurship in economic growth. The Academy of
Entrepreneurial Finance community has contributed significantly to our under-
standing of how new businesses are financed, and this book presents an important
summary of the current state of this knowledge.
This volume is evidence of the importance of interdisciplinary works on entre-
preneurship that bring together insights from different perspectives. The focus here
is at the intersection of psychology and neuroscience and economics, an important
junction as entrepreneurs’ and investors’ decisions do not always seem to follow
traditional economic models. Among other topics, these chapters bring to light the
importance of exploring entrepreneur–investor relations from a cognitive perspec-
tive, suggest that emotion and heuristics play an important role in entrepreneurs’
and investors’ risk perceptions, identify some common psychological characteris-
tics of entrepreneurs (and the non-pecuniary benefits of entrepreneurship), and
indicate that broader approaches to financial risk metrics are necessary. The contri-
butions from neuroscience in this book allow for a more direct examination of the
“internal landscape” of decision making.
Ultimately, the works in this book bring out the human element of firm decision-
making, and bring the teaching of psychology and neuroscience to bear on it. This
understanding certainly pushes us toward a new understanding of entrepreneurship,
and it reminds us that bringing together a wide range of disciplines will allow us to
achieve both a broader and deeper understanding of this important topi
Robert Strom, Ph.D.
Director of Research and Policy, Ewing Marion Kauffman Foundation
Contents
1 Introduction ............................................................................................. 1
Rassoul Yazdipour
Part I Theoretical Foundation
2 A Behavioral Finance Approach to Decision Making
in Entrepreneurial Finance .................................................................... 11
Rassoul Yazdipour
3 Beyond Agency Theory: Value Creation and the Role
of Cognition in the Relationship between Entrepreneurs
and Venture Capitalists .......................................................................... 31
Peter Wirtz
4 Financial Risk Perceptions: A Behavioral Perspective ........................ 45
Robert A. Olsen
5 Contribution of Neuroscience to Financial Decision-Making ............. 69
Richard W. Ackley and Lukasz M. Konopka
6 Uncertainty Is Psychologically Uncomfortable: A Theoretic
Framework for Studying Judgments and Decision Making
under Uncertainty and Risk ................................................................... 93
William P. Neace, Kate Deer, Steven Michaud, and Lauren Bolling
Part II Issues in Financing Startups and Small Firms
7 The Changing Landscape of Small Firm-Finance ............................... 121
William Dunkelberg and Jonathan A. Scott
8 Applications of Behavioral Finance to Entrepreneurs and Venture
Capitalists: Decision Making Under Risk and Uncertainty
in Futures and Options Markets............................................................ 141
Fabio Mattos and Philip Garcia
vii
viii Contents
9 Insights into the Psychological Profiles of Entrepreneurs ................... 173
Hersh Shefrin
Part III Issues in Growth and Beyond
10 Firm Failure Prediction Models: A Critique
and a Review of Recent Developments .................................................. 185
Richard L. Constand and Rassoul Yazdipour
11 The Evolution of Entrepreneurs and Venture Capitalists ................... 205
Martin Sewell
12 Statistical Databases for Research on the Financing
of Small and Start-Up Firms in the United States:
An Update and Review ........................................................................... 219
Charles Ou
Author Index.................................................................................................... 251
Subject Index ................................................................................................... 253
Contributors
Richard W. Ackley Ph.D.
Professor, The Chicago School of Professional Psychology, Chicago, IL, USA
Richard L. Constand Ph.D.
California State University, Fresno, CA, USA
William Dunkelberg Ph.D.
Temple University, Philadelphia, PA, USA
and
National Federation for Independent Businesses, Nashville, TN, USA
Philip Garcia Ph.D.
Professor, University of Illinois at Urbana – Champaign, Chicago, IL, USA
Lukasz M. Konopka Ph.D., ECNS, BCIA-EEG
Professor, Loyola Stritch School of Medicine and The Chicago School of
Professional Psychology, Chicago, IL, USA
Fabio Mattos Ph.D.
Professor, University of Manitoba, Winnipeg, MB, Canada
William P. Neace Ph.D.
Professor, University of Hartford, West Hartford, CT, USA
Robert A. Olsen Ph.D.
Decision Research, Eugene, OR, USA
Charles Ou Ph.D.
Office of Advocacy, The US Small Business Administration,
Washington, DC, USA
Jonathan A. Scott Ph.D.
Professor, Temple University, Philadelphia, PA, USA
Martin Sewell
University of Cambridge, Cambridge, UK
ix
x Contibutors
Hersh Shefrin Ph.D.
Santa Clara University, Santa Clara, CA, USA
Robert Strom Ph.D.
Director of Research Entrepreneurship Research and Policy, Ewing Marion
Kauffman Foundation, Kansas City, MO, USA
Peter Wirtz Ph.D.
Professor, Université Lumière, Lyon 2, France
Rassoul Yazdipour Ph.D.
California State University, Fresno, CA, USA
and
The Academy of Entrepreneurial Finance, Los Angeles, CA, USA
