The determinants of entrepreneurial success

1 11 2007

The determinants of entrepreneurial success are a matter of public and academic interest, as researchers debate whether entrepreneurs are uniquely optimistic and more willing to assume risks or whether environmental factors (such as like bankruptcy laws and the availability of credit) are more significant.  However, economics researchers Anne Villamil and Stefan Krasa of the University of Illinois at Urbana-Champaign have developed a model that considers individual differences in willingness to bear risk and optimism and that can evaluate the effect of bankruptcy rules on small firms.

They applied the model to data from the Survey of Small Business Finance (SSBF), and used the Teragrid computing resources at the National Center for Supercomputing Applications to determine if the behavioral predictions of a particular theory could be reconciled with economic data.   Their results indicate that the environment in which businesses operate influences success more than personal characteristics, and that entrepreneurs are not excessive risk-takers. For example, their model suggests that owners of small firms tend to use personal assets to support their business, often opting to “bail out” their companies rather than declare bankruptcy. Villamil noted that this research explains puzzling trends in the SSBF data

The research was supported by grants from the National Science Foundation’s Social, Behavioral and Economic Sciences Directorate, the Ewing Marion Kauffman Foundation, and the University of Illinois’ Academy for Entrepreneurial Leadership.
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