A Finance Perspective on Entrepreneurship Research
Posted: 17 Nov 2009
Date Written: 1992
Abstract
Entrepreneurship has been studied from numerous perspectives, most notably psychology, management, and marketing. Few studies, however, have utilized finance theory and methodology. Several finance based theories are explored as possible models for studying entrepreneurship, categorized as valuation and capital structure. Valuation theories and applications include such approaches as portfolio theory, capital asset pricing, efficient markets, and option pricing. The primary concepts of valuation theory are examined -- e.g., emphases on risk/return and time value of money -- as are the potential problems associated with the use of valuation theory. A second proposed approach is capital structure theory, which considers each of the following factors: leverage, taxes, and bankruptcy; agency costs; and information asymmetries. Potential limitations and implications of utilizing capital structure theory to examine entrepreneurial success are discussed, including the influence of factors like venture capital and the early stage growth/liquidity crisis. The implementation of chaos theory in studying entrepreneurship may also offer a different, valuable perspective. Overlapping areas of study for finance and entrepreneurship are identified as areas of opportunity for future research. (AKP)
Keywords: Entrepreneurship research, Finance theory, Agency theory, Complexity theory, Academic fields, Academic research, Capital structure, Valuation
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