Testing the Effects of Capital Structure on Entrepreneurial Effort
Yan Wendy Wu
published: 2010 | Research publication | Refereed Jounals
Yan Wendy Wu, (2010). "Testing the Effects of Capital Structure on Entrepreneurial Effort," Applied Financial Economics, Vol. 20, 785-794
ABSTRACT: Do entrepreneurs work less or harder when they borrow more? This paper tests how entrepreneurial effort is affected by the firm's financing choice. In line with the typical agency theory prediction, entrepreneur effort is negatively related to the magnitude of equity financing. Furthermore, accounting for firm and entrepreneur heterogeneities, I find that entrepreneurs work less when they use more debt financing, and higher firm risk leads to greater entrepreneurial effort reductions.
revised Jul 12/10
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