Entrepreneurial Finance: Role of Financier Risk Aversion Heterogeneity & Search by Entrepreneurs

2015 ◽  
Author(s):  
Gurupdesh S. Pandher ◽  
Simon C. Parker
Keyword(s):  
Risk Aversion ◽  
Entrepreneurial Finance

scholarly journals Inclusive digital finance: the industry of equity crowdfunding

2021 ◽  
Author(s):  
Vincenzo Butticè ◽  
Silvio Vismara
Keyword(s):  
Visual Information ◽  
Entrepreneurial Finance ◽  
Industrial Dynamics ◽  
Relevant Research ◽  
Research Directions ◽  
Entrepreneurial Ventures ◽  
Equity Crowdfunding ◽  
Recent Developments

AbstractNowadays equity crowdfunding plays an important role in the entrepreneurial finance markets. To better understand the functioning of the industry, it is important to consider the entire equity crowdfunding process and all the actors involved. Equity crowdfunding platforms match indeed the demand of capital from entrepreneurial ventures with the supply of capital by investors. This manuscript is a first step in this direction, by (1) comparing equity crowdfunding with traditional sources of entrepreneurial finance; (2) discussing the potential and the perils of equity crowdfunding for inclusivity and democratization; (3) highlighting the role of visual information in digital finance; and (4) providing first insights on the industrial dynamics in equity crowdfunding. The paper gives researchers and practitioners orientation about recent developments in equity crowdfunding literature and provides relevant research directions.

scholarly journals Welfare Consequences of Information Aggregation and Optimal Market Size

2017 ◽  
Vol 9 (4) ◽  
pp. 303-323 ◽  
Author(s):  
Kei Kawakami
Keyword(s):  
Asymmetric Information ◽  
Risk Aversion ◽  
Risk Sharing ◽  
Information Aggregation ◽  
Market Size ◽  
Positive Externality ◽  
Trading Model ◽  
Welfare Implications ◽  
The Right

We analyze the welfare implications of information aggregation in a trading model where traders have both idiosyncratic endowment risk and asymmetric information about security payoffs. The optimal market size balances two forces: (i) the risk-sharing role of markets, which creates a positive externality amongst traders, against (ii) the information-aggregation role of prices, which leads to prices that are more correlated with security payoffs, thereby undermining the hedging function of markets. Our analysis indicates that a market with infinitely many traders may not be the right welfare benchmark in the presence of risk aversion and information aggregation. (JEL D43, D62, D82, D83)

Financial Reporting and Entrepreneurial Finance: Evidence from Equity Crowdfunding

2021 ◽  
Author(s):  
John Donovan
Keyword(s):  
Financial Reporting ◽  
Positive Association ◽  
Financial Statement ◽  
Entrepreneurial Finance ◽  
Ongoing Debate ◽  
Equity Crowdfunding ◽  
Macroeconomic Uncertainty ◽  
Ex Post ◽  
Insight Into

I study the role of accounting and financial reporting in entrepreneurial finance by examining whether financial statement disclosure increases capital raised through equity crowdfunding. On average, I find a positive association between financial reporting and capital raised, suggesting that accounting reduces information asymmetry with potential investors. Additionally, the importance of financial reporting in equity crowdfunding varies predictably in the cross-section. Specifically, financial reporting is associated with greater capital raised when the firm has longer historical operations, during periods of higher macroeconomic uncertainty, and when complemented by detailed shareholder agreements. Finally, using a mediation analysis, I find evidence that financial reporting is indirectly associated with better ex post performance by increasing the likelihood of raising capital. These results provide insight into the role of financial reporting in entrepreneurial finance and inform the ongoing debate over regulation and disclosure in the equity crowdfunding market. This paper was accepted by Brian Bushee, accounting.

Financier Search and Boundaries of the Angel and VC Markets

2018 ◽  
Vol 43 (6) ◽  
pp. 1223-1249
Author(s):  
Gurupdesh Pandher
Keyword(s):  
Risk Aversion ◽  
Risk Preferences ◽  
Venture Capitalists ◽  
Entrepreneurial Finance ◽  
Initial Value ◽  
Agency Model ◽  
Investment Return ◽  
Investment Returns ◽  
Venture Funding ◽  
Funding Cycle

This paper studies how critical entrepreneurial finance outcomes such as the investment return and equity division are shaped by venture characteristics, financier risk preferences, and competitive searching. Our analysis uses a double-hazard agency model in which financiers determine the equity division to maximize the expected utility of their investment return while entrepreneurs search for the best deal. Model results provide new theoretical insights on the venture funding cycle, the coexistence of angels/venture capitalists (VCs) with heterogeneous risk aversion, and risk separation in the entrepreneurial finance market. The model predicts that financiers with higher funding capacity and advisory capabilities (e.g., VC firms) will prefer to fund at later stages as their expected investment return rises with the venture’s initial value and financier productivity. Competitive searching by entrepreneurs enables financiers with a diverse set of risk preferences to coexist profitably by reducing the advantage (disadvantage) of lower (higher) risk aversion financiers and making investment returns more similar. Further, the model shows the emergence of a risk separation cutoff beyond which only angels/VCs with lower levels of risk aversion can profitably fund riskier ventures.

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