CORVALLIS, Ore. – A new study suggests that for entrepreneurs, both wealth and attitude toward risk matter, but in different ways, depending on the source of funding sought by the entrepreneur.
Julie Elston, a business faculty member of OSU Cascades campus, has been invited to present on her findings from this study regarding the role of risk and individual wealth at a major conference in Washington D.C. on Nov. 2.
Elston will present at a joint conference between the National Academy of Sciences and the German DIW, DC held on Nov. 1 and 2. DIW DC is a private, nonprofit, nonpartisan economics institution focused on bridging the gap between academic research and public policy. Its partner institution is DIW Berlin, or Deutsches Institut für Wirtschaftsforschung (German Institute for Economic Research).
Elston, an associate professor at OSU Cascades, is an expert on international business, finance and entrepreneurship. In 2008 she was selected as a Fulbright Scholar to study the impact of science on policy formation in the European Union.
Elston’s presentation in Washington D.C. comes from her recent paper in the current issue of the
Journal of Economic Behavior and Organization. In a paper titled, “Risk attitudes, wealth and sources of entrepreneurial start-up capital,” Elston suggests that lower levels of wealth increase the probability of using a Small Business Innovation Research (SBIR) grant, but lower levels of wealth also reduce the probability of using loan financing.
“This indicates that collateral is still important in the lenders decision to finance small firms,” Elston said.
For those entrepreneurs financing firm start-ups with earnings from a second job, the study found it is not wealth but risk aversion which causes individuals to seek this source of financing. According to Elston, this underscores the importance of risk attitudes in the financing choice of the entrepreneur. The study noted that 58 percent of U.S. firms in the study used earnings from a second job as the primary source of funds for start-up capital -the most common funding source, in contrast to findings for the United Kingdom, where the most common external funding source (73 percent) was bank loans.
“More generally, this suggests that country-specific institutional differences may also impact funding choices,” Elston said.
Overall, findings suggest that both wealth and risk attitudes may play an important role in the financing choice of entrepreneurs.