Working Papers

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"How Did Entrepreneurs Self-finance New Ventures After the Financial Crisis?" (Job Market Paper) [pdf]

This study examines how founders of new businesses changed their portfolios in the aftermath of the 2007–2008 financial crisis. Using the Survey of Consumer Finances 2007–2009 panel data, we find evidence that those who became entrepreneurs (entrants) reduced financial portfolio risk compared to those who remained paid employees. We identify a movement away from stockholdings for entrants, whereby a 1% increase in the business share resulted in nearly a 0.7% percentage point decrease in the share of stocks. This decline cannot be explained by less risk taking as a result of future liquidity needs of the business (Faig and Shum 2002), and it provides support for a response to the background risk arising from privately held businesses. Business ownership was also associated with changes in the real estate holdings of entrants. Entry predicted a rise in the likelihood of selling homes from 5.7% to 9.2%. This is consistent with tightened credit constraints in the period following the crisis, which could have led to houses losing value as collateral. Our results highlight the link between private and public equity markets through entrepreneurs’ portfolio choices and introduce a connection between housing and entrepreneurship through changes in home ownership.

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"Who Are Angel Investors?" (with Barton H. Hamilton) [pdf]

We study the trends in angel investment in a representative sample of the U.S. economy and explore the characteristics of these individual private investors. Our results suggest that angel investment is highly concentrated among the wealthiest households, and wealth plays an important role in participation even among the top 1% of wealth distribution. These wealthy households, who own the majority of the economy’s angel equity, steadily increased their participation in the angel investment market during the 1998–2010 period, unaffected by the recessions and financial crisis. In our representative sample, self-employment plays an important role in predicting the incidence of being an angel and angel equity share, but the relationship is mixed for the top 1%. Self-reported willingness to take financial risk is generally associated with a higher likelihood of being an angel investor and a larger share of angel equity in different specifications, especially for the 1%. The angels are likely to be more financially disciplined as measured by their credit card balances and how much effort they put into choosing their investments. Angels’ affluence together with our findings of relatively low shares of angel equity in their portfolios, their higher financial discipline and more risk tolerance might suggest calculated risk taking on the part of an average angel investor.

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Work in Progress

 

"Entrepreneurship as a Portfolio Decision"

Why do some people gamble away years of steady income or the savings of a life time to start a business? To understand this decision, we estimate a model of entry into entrepreneurship. The model considers both the prospect of business failure and volatility of business income. Taking into account the risks and heterogeneity in risk tolerance and entrepreneurial ability makes the model suitable for evaluating a wide range of entrepreneurship policies. In particular, we use the model to assess the effect of change in access to public equity as an alternative investment for entrepreneurs. We evaluate how trends in risk and return of public equity affect entry into entrepreneurship, which may help explain the decline in entrepreneurial activity during recent decades.

“How Do Entrepreneurs’ Networks Affect Their Financing Chances?”

“A Generalization of the Method of Endogenous Grid-Points”

 

Other Research

“Infant Mortality and Fertility in the Barro-Becker Model: Theoretical Foundations”
“Child Health, Human Capital Development and Demographic Transition”
“Reputational Herding in Anticipation of a Crisis”
“Political Cycles in Expenditure Composition: A Cross-Country Study”, M.Sc. Thesis, 2008
“Automation of Milling on CNC Machines: an Algorithm and Software”, B.Sc. Thesis, 2005