Advances in Entrepreneurial Finance (eBook)

With Applications from Behavioral Finance and Economics

Rassoul Yazdipour (Autor)

eBook Download: PDF

2010 | 2011
X, 254 Seiten
Springer New York (Verlag)
978-1-4419-7527-0 (ISBN)

Infos

Advances in Entrepreneurial Finance brings together contributions from researchers from the fields of entrepreneurship, behavioral finance, psychology, and neuroscience to shed new light on the dynamics of decision making and risk taking by entrepreneurs and venture capitalists (VCs). Every new venture requires access to capital at competitive interest rates, and much has been written on general entrepreneurship by management scholars and financial contracting by financial economists using traditional finance theory with all its highly restrictive assumptions regarding decision makers' cognitive capabilities and behavior. But recent developments in behavioral finance can now be applied to understand how entrepreneurs and VCs perceive risk and uncertainty and how they decide and act accordingly. Showcasing the latest research, this volume demonstrates that findings from the behavioral and neuroscience arenas can and do explain decision making by entrepreneurs and venture investors in the real world. Consequently, such findings have practical implications not only for entrepreneurs, venture capitalists, and their advisors, but also all government agencies and NGOs that want to support product and technological innovation, capital formation, job creation, and economic development.

Rassoual Yazdipour is Professor of Finance at California State University-Fresno, Craig School of Business, Department of Finance and Business Law. He is a founding member of the CSU Teaching Business Faculty Council, a system-wide faculty group with much interest in using technology in education. A veteran online educator and researcher, he co-founded and chaired the First Annual CSU Business Conference on Online Teaching and Learning in 2008. He also serves as President and CEO of the Academy of Entrepreneurial Finance, which offers a dedicated forum for exchange of research ideas related to the ever-growing field of entrepreneurial and small business finance, and on the editorial advisory board of the Journal of Entrepreneurial Finance. He has published articles in such journals as Small Business Economics (Springer) and Strategic Change (Wiley) and edited the book, Advances in Small Business Finance (Kluwer, 1991). He holds a Ph.D. from Ohio State University.

Inhalt

Advances in Entrepreneurial Finance 3
Foreword 5
Contents 7
Contributors 9
Chapter 1: Introduction 11
1.1 Part I: The Theoretical Foundation of Entrepreneurial Finance 12
1.2 Part II: Issues in Financing Start-ups and SMEs 15
1.3 Part III: Issues in Growth and Beyond 17
References 18
Part I: Theoretical Foundation 19
Chapter 2: A Behavioral Finance Approach to Decision Making in Entrepreneurial Finance 20
2.1 Introduction 21
2.2 The Entry/Seed Funding Decisions: Problems and Existing Solutions 22
2.2.1 Central Questions in a Launch Decision 22
2.2.2 Markets for Venture Capital 23
2.2.3 Traditional Finance and Economics’ Response to Launch Decisions 23
2.3 A Behavioral Approach to Decision Making in Entrepreneurial Finance 24
2.3.1 Perception Asymmetry 25
2.3.2 Resident Risks and Behavioral Risks: Toward a Behavioral Risk Model 26
2.3.2.1 Resident Risk: Risk as the “Other Side of a Business Opportunity Coin” 27
2.3.2.2 Determinants of Resident Risk 27
2.3.2.3 Behavioral Risks 28
2.3.2.4 Behavioral Risk Processes 28
2.3.3 Individual Decision Making in Highly Uncertain Entrepreneurial Settings: A Discussion and Some Final Thoughts 29
2.4 Summary and Some Suggestions for Future Research 30
2.5 Appendix 1: The Prospect Theory 31
2.5.1 The Editing or Framing Phase 31
2.5.2 Editing Operations 32
2.5.3 The Evaluation Phase 32
2.6 Appendix 2: The Affect Heuristic 32
2.7 Appendix 3: Other Heuristics and Biases 33
2.7.1 Representativeness (Similarity) 34
2.7.2 Availability 35
2.7.3 Anchoring, Adjustment, and Contamination 36
2.7.4 Overconfidence Heuristics and Calibration 36
2.7.5 Hindsight Heuristics 37
2.7.6 Others: Black Swan Phenomenon 37
References 38
Chapter 3: Beyond Agency Theory: Value Creation and the Role of Cognition in the Relationship Between Entrepreneurs and Ventur 39
3.1 Introduction 39
3.1.1 Background and Overview 39
3.2 Entrepreneurial Ventures and Value Creation in an Agency Setting 41
3.3 Cognitive Cost and Cognitive Value Inherent in Entrepreneur–Investor Relations 43
3.4 Conditions of Value Creation in Entrepreneur-VC Relationships 46
3.5 Conclusion and Implications 49
References 50
Chapter 4: Financial Risk Perceptions: A Behavioral Perspective 52
4.1 Introduction 52
4.2 Neoclassical Financial Risk: A Prequel 53
4.3 Fear: The Foundation of Perceived Risk 55
4.4 Dual Decision Processes: Thinking and Feeling 58
4.5 Risk: For Me or for Others Also? 61
4.6 Amplification 62
4.7 Implications and Evidence 64
4.8 Entrepreneurs: Confirmation About the Risk Perception Process 67
4.9 Conclusion 68
References 69
Chapter 5: Contribution of Neuroscience to Financial Decision-Making 75
5.1 Introduction 76
5.2 Overview of Technologies and Methods 77
5.2.1 Methods 77
5.3 Brain Process Involved in Decision-Making 82
5.3.1 The Unconscious Brain 82
5.3.2 The Conscious Brain 83
5.4 How Decisions Are Made 84
5.4.1 Do People Act Primarily in Regards to Cognition? 85
5.4.2 The Interaction of Affect and Cognition 86
5.4.3 Dopamine: The Neurotransmitter of Reward 88
5.5 Looking at the Biases, Errors, and Distortions That Impact Decision-Making 90
5.6 Summary and Conclusions 94
References 96
Chapter 6: Uncertainty Is Psychologically Uncomfortable: A Theoretic Framework for Studying Judgments and Decision Making Under 99
6.1 Introduction 99
6.2 Forming a Subjective Problem Representation 101
6.2.1 Verbal Versus Numeric Probability Labels and the Meaning of “Uncertainty” 104
6.2.2 Problem Format: Frequency Versus Probability and the Meaning of “Uncertainty” 105
6.3 Decision Strategies and Coping with Uncertainty 106
6.4 Uncertainty and Psychological Discomfort 108
6.5 A Proposed Theoretic Framework for Studying Judgments Under Uncertainty 111
6.6 Implications of the Proposed Framework and Some Suggestions for Future Research 113
6.6.1 Implications for the Subjective Representation of Uncertainty 114
6.6.2 Implications for Strategy Selection During Decision Making 115
6.6.3 Implications for Cognitive Versus Affective Components in Decision Making 117
6.7 Conclusion 118
References 119
Part II: Issues in Financing Startups and Small Firms 124
Chapter 7: The Changing Landscape of Small-Firm Finance 125
7.1 Introduction 125
7.2 Time-Series Perspective on Credit Availability and Cost 128
7.3 Current Sources of Funding 132
7.3.1 Start-up Financing 133
7.3.2 Ongoing Small-Firm Financing 134
7.4 Current Issues in Small Firm Financing 136
7.4.1 Bank Consolidation and Small Firm Finance 136
7.4.2 Credit Crisis of 2007–2010 and Small Firm Finance 138
7.5 Suggestions for Future Research 139
7.6 Conclusions 140
References 141
Chapter 8: Applications of Behavioral Financeto Entrepreneurs and Venture Capitalists: Decision Making Under Risk and Uncertai 144
8.1 Introduction 144
8.2 Theoretical Framework 146
8.3 Previous Studies 147
8.4 Data 149
8.5 Research Method 150
8.5.1 Risk Premiums 150
8.5.2 Uncertainty Premiums 152
8.6 Results 152
8.6.1 Value and Weighting Functions Under Risk 152
8.6.2 Risk Premiums 153
8.6.3 Value and Weighting Functions Under Uncertainty 156
8.6.4 Uncertainty Premiums 157
8.6.5 Comparison Between Behavioral PremiumsUnder Risk and Uncertainty 158
8.7 Summary and Conclusions 159
8.8Appendix 1 161
8.9Appendix 2 165
8.10 Appendix 3 166
8.11Appendix 4 167
8.12 Appendix 5 169
8.13 Appendix 6 170
8.14Appendix 7 172
References 173
Chapter 9: Insights into the Psychological Profiles of Entrepreneurs 176
9.1 Introduction 176
9.2 Analysis 178
9.2.1 Data 178
9.2.2 Desire for Control 179
9.2.3 Social Anxiousness and Self-Monitoring 179
9.2.4 Affect and Well-Being 180
9.2.5 Optimism 181
9.2.6 Demographics and Correlations 181
9.2.7 Preferences 182
9.3 Conclusion 183
References 183
Part III: Issues in Growth and Beyond 185
Chapter 10: Firm Failure Prediction Models: A Critique and a Review of Recent Developments 186
10.1 Introduction 186
10.2 Classical Statistical Models 188
10.2.1 Multiple Discriminant Analysis 189
10.2.2 LOGIT Models, PROBIT Models, and Other Classical Statistical Models 190
10.2.3 Artificial Intelligence and Expert Systems Approaches 192
10.3 Small Firm Failure Prediction Studies 195
10.3.1 The Early Literature 195
10.3.2 Impact of Basel II and Recent Small Firm Studies 196
10.3.3 Existing Research on Small Business Failure 198
10.4 Psychological Phenomena as Possible Predictors of Business Success or Failure 199
10.4.1 The Importance of the Human Decision 199
10.4.2 The Role of Heuristics 199
10.4.2.1 The Affect Heuristic 200
10.4.2.2 The Representative (Similarity) Heuristic 201
10.4.2.3 The Availability or Recency Heuristic 201
10.4.2.4 Anchoring and Adjustment 202
10.5 Summary and Some Suggestions for Future Research 202
References 203
Chapter 11: The Evolution of Entrepreneurs and Venture Capitalists 206
11.1 Introduction 206
11.1.1 Background and Overview 206
11.2 Normative Model 207
11.2.1 Uncertainty 207
11.2.2 Expected Utility Model 207
11.2.3 Risk Attitude 207
11.3 The Evolution of Cognitive Biases 208
11.3.1 Evolutionary Psychology 208
11.3.2 Risk Preferences 208
11.3.3 Overconfidence and Optimism 210
11.3.4 Representativeness 211
11.3.5 Availability 211
11.3.6 Underreaction and Overreaction 212
11.3.7 Herding 212
11.4 The Effect of Cognitive Biases 213
11.4.1 Entrepreneurs 213
11.4.2 Venture Capitalists 215
11.5 Conclusion and Implications 215
References 216
Chapter 12: Statistical Databases for Research on the Financing of Small and Start-Up Firms in the United States: An Update a 219
12.1 Introduction 220
12.1.1 What Is a Statistical Database? 221
12.2 Major Statistics on Start-up Financing in the USA 222
12.2.1 The Kauffman Firm Survey (KFS) 222
12.2.2 Panel Study of Entrepreneurial Dynamics (PSED II) 224
12.2.3 Survey of Business Owners (SBO) 2002 226
12.3 Conclusions 228
12.4 Major Statistical Databases for Small Firm Financial Research in the USA—A Summary 229
12.4.1 Survey of Small Business Finances (NSSBF, 1987 and 1993 and SSBF, 1998) 229
12.4.2 Loans to Small Businesses by US Depository Institutions 231
12.4.2.1 June Call Reports on Lending to Small Firms 231
12.4.2.2 The Community Reinvestment Act (CRA) Database 233
12.4.3 The Survey of Consumer Finances (SCF) 235
12.4.4 Tax Return Data from the Statistics of Income Division of the Internal Revenue Service 237
12.4.5 NFIB Survey of Credit, Banks, and Small Business 239
12.5 Statistics for Time-Series Analysis of Small Business Financing Issues in the USA 240
12.5.1 Flow of Funds Accounts for Non-farm, Non-corporate Business in the USA 241
12.5.2 Senior Loan Officer Opinion Survey on Bank Lending Practices 242
12.5.3 Survey of Terms of Business Lending 242
12.5.4 Bureau of the Census, Quarterly Financial Reports 243
12.5.5 NFIB Survey on Small Business Trends 244
12.5.6 National Venture Capital Association (NVCA)/Thomson Financial Venture Capital Yearbook www.pwcmoneytree.com/moneytre 244
12.5.7 Center for Venture Research, University of New Hampshire, Angel Capital 245
12.5.8 Thomson Financial, Initial Public Offerings (IPOs) of Small Issuers 246
12.6 Conclusion 246
12.6.1 Survey of Small Business Finances 247
12.6.2 Call Reports and CRA Data 247
12.6.3 Survey of Terms of Business Lending 248
12.6.4 Survey of Consumer Finances 248
12.6.5 Finance Company Survey 248
References 249
Author Index 251
Subject Index 253

Produkt-Details

• Erscheint lt. Verlag: 17.12.2010
• Zusatzinfo: X, 254 p.
• Verlagsort: New York
• Sprache: englisch
• Themenwelt: Geisteswissenschaften ► Psychologie ► Allgemeine Psychologie
• Themenwelt: Geisteswissenschaften ► Psychologie ► Verhaltenstherapie
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Unternehmensführung / Management
• Themenwelt: Wirtschaft ► Volkswirtschaftslehre
• Schlagworte: Behavioral Economics • Behavioral Finance • Entrepreneurial Finance • Entrepreneurial psychology • Entrepreneurship • Risk • Small Business Finance • Venture Capital
• ISBN-10: 1-4419-7527-6 / 1441975276
• ISBN-13: 978-1-4419-7527-0 / 9781441975270