Entrepreneurs, Financial Risk and Wealth

Abstract

Using 1989 to 2007 Survey of Consumer Finances data, this paper addresses three questions: 1) Are entrepreneurs are generally more or less financially conservative than their non-entrepreneurial counterparts? 2) Do entrepreneurs accumulate more wealth? and 3) Do entrepreneurs hold a smaller share of their financial assets in risky stock holdings? Results indicate that entrepreneurs are financially conservative based on borrowing and savings questions but are more likely to assume risk for financial gain. Consistent with earlier evidence that entrepreneurs save more, they also accumulate more wealth over time. Entrepreneurs and non-entrepreneurs invest similar shares of their financial portfolios in safe assets. Taken together, the results suggest that policies aimed at increasing entrepreneurship should focus on helping households identify high-value business opportunities through transparent tax, legal, and regulatory systems. Efforts to reduce entrepreneurial risk should focus on the business venture, such as full loss offsets, rather than focusing on reductions in other financial risks.