Abstract
ABSTRACT Purpose: This research seeks to identify how entrepreneurs’ personality traits can influence the capital structure of micro and small private businesses in Brazil, which are important for the economic growth and the subsistence of their owners. Originality/value: The study of the behavioral dimension of business decisions can help financial agents to better understand client behavior, including the adoption of mechanisms that identify possible risky or inefficient decisions made by managers based on their personality traits. It can also assist the government and institutions supporting micro and small private businesses in developing strategies to reduce the mortality of such companies. Design/methodology/approach: The proposed model involves 19 expected relationships that evaluate the relationships between the optimism, risk tolerance, sense of control (external and internal), attitude towards debt, and entrepreneur gender constructs. The sample includes 625 micro and small entrepreneurs in the state of Rio Grande do Sul, Brazil. Confirmatory factor analysis and structural equation modeling were performed. Findings: Results showed that attitude towards debt and gender were the most significant constructs and had a direct influence on the capital structure, while optimism and internal locus of control exerted a negative indirect influence, while risk tolerance had a positive indirect effect. Female managers demonstrated higher optimism and internal locus of control than male managers, but they had a worse attitude towards debt.
Highlights
Capital structure is the combination of debt and equity that supports company assets (Tirole, 2006)
Through the use of confirmatory factor analysis (CFA) and structural equation modeling (SEM), the results revealed that all the analyzed traits save the non-validated external locus of control, exerted some kind of influence on the capital structure
The convergent validity of each construct was studied according to the magnitude and statistical significance of their standardized coefficients, as well as the absolute adjustment indices: chi-square (χ2), root mean square residual (RMSR), root mean square error of approximation (RMSEA), goodness-of-fit index (GFI), and the comparative adjustment indices: comparative fit index (CFI), normed fit index (NFI), and Tucker-Lewis index (TLI)
Summary
Capital structure is the combination of debt and equity that supports company assets (Tirole, 2006) In this context, micro and small private businesses differ from large companies because, due to personal financial guarantees and the legal framework, owners may not have the advantage of limited liability. According to Gider and Hackbarth (2010), some examples of personality traits are optimism and propensity to debt, and evidence suggests that the study of managerial personality traits can explain the residual variation of other theoretical approaches Based on these issues, this paper analyzes the impact of managerial personality traits on the capital structure of micro and small businesses. Female managers demonstrated higher optimism and greater internal locus of control than male managers, but showed a worse attitude towards debt
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