Abstract
This paper develops a dynamic incomplete-markets model of an entrepreneurial firm with unknown profitability and examines how risk aversion, idiosyncratic risk, and profitability uncertainty impact the entrepreneur's consumption and portfolio choice and entrepreneurial decisions. We find that risk aversion, idiosyncratic risk, and profitability uncertainty greatly affect the entrepreneurial firm value and the chance of establishing the entrepreneurial firm. Risk aversion and idiosyncratic risk accelerate the entrepreneur's exit, while profitability uncertainty delays it. Moreover, we find that asymmetric information greatly reduces the entrepreneurial firm value and partially explains the empirical phenomenon of undervaluing an entrepreneurial firm.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
