Joel M. Shulman

A Finance Perspective on Entrepreneurship Research

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)

Financial Factors Which Stimulate Innovation

Because Innovation requires the commitment of resources to a development with highly uncertain net returns, the methodology of financial economics Is useful In understanding innovation, even to the point of suggesting a relationship between the Incidence and rate of Innovation and the state of key financial factors. Our model posits such a relationship, grouping the key financial factors under the headings of investment valuation and financing: the fundamental components of financial economics. The model argues that the incidence and rate of innovation are related to both valuation and financing factors as well as the Interactions between them. We present a structure for this model and suggest a LISREL methodology for empirically testing these financial factors.

ENTREPRENEURS AND BANK LENDING IN CANADA

ABSTRACT Many Canadian entrepreneurs believe that bank debt is more difficult to obtain, in Canada, compared to other countries, particularly in the early stages of company growth. Research reported upon in this paper indicates that Canadian entrepreneurs, on the average, appear to enjoy equal or better access to bank debt compared to entrepreneurs in at least five other developed countries (including the US).

The strategic entrepreneurial growth model

Purpose – The purpose of this paper is to present the development of the model of the strategic entrepreneurial unit (SEU) as an alternative means for large firms to harness the entrepreneurial spirit and creation of intellectual property.Design/methodology/approach – Several competing organizational models are critiqued based on factors that will impact the growth and return performance of the unit. The organizational units examined include corporate intrapreneurship, corporate spinout, corporate venturing, corporate venturing with venture capitalist participation, and the SEU.Findings – Theoretically, by design, the SEU is a superior growth model to incubate newly created intellectual property. The achievement of greater growth and return with the SEU is shown because of equity compensation incentives, facilitator as liaison between the parent and new SEU with no control over harvest timing, lifeline back to parent for employees, intellectual property settlement prior to unit formation, and the financin...

The Rich Get Richer and So Can You:Investing in a Billionaires’ Index

Are the rich getting richer? Our data suggest so. Rather than complaining about the unfairness of it all, this article offers a simple approach for the average investor to get richer, too. An index of publicly traded stocks controlled, created, or managed by the world’s wealthiest individuals, known as the Billionaires’ Index, tracks the annual list compiled by Forbes magazine. It doesn’t work every year, but on average, it seems to provide excellent results. Will the new Index work in the future for you?

A New Investment Style: Featuring an Index ofEntrepreneurial Companies

In these tumultuous times in which investors do not know when or where to place their funds for maximum benefit,one investment index should be considered:Global Entrepreneurs. Our research of 33,000 publicly traded global companies, examined over the past 5+ years, demonstrates that entrepreneurial companies consistently outperform peer non-entrepreneur companies by a wide margin. They perform especially well during periods in which the markets are positive. The investment community now has a new index to track this performance. Is this the start of a new money management style?

Leadership Matters: Crafting a Smart Beta Portfolio with a Founder-CEO Twist

Smart beta strategies have attracted considerable interest among institutional investors, and it appears this trend has not yet abated. This article suggests an alternative weighting mechanism based on specific management characteristics. In particular, we focus on publicly traded founder-CEO–led companies. Virtually all U.S. large-cap indexes contain at least some founder-CEO–led companies, and recent academic research suggests this variable may be responsible for significant portfolio alpha generation. Our evidence suggests that the founder-CEO factor may be significant not only in building a U.S. large-cap portfolio, it could also very well be one of the most significant factors in explaining excess returns. If true, then a smart beta orientation would be to simply overweight founder-CEO securities within the benchmark index or reduce the allocation to the benchmark index and add an incremental investment in a founder-CEO index. We provide a detailed analysis of a founder-CEO index, spanning several positive and negative economic cycles, and discuss the merits of pursuing this investment strategy. Our evidence suggests that investment managers would be wise to consider this strategy, especially if they can commit to a longer-term investment horizon.

The Ephemeral Life of an Emerging Fund Manager

The investment industry has been undergoing massive transformation. Traditionally, members followed a predictable path from graduate school to portfolio manager. Wall Street firms would pluck fresh MBAs from leading business schools, such as Harvard, Wharton, or Chicago, and groom a lucky few for a privileged existence. Salaries and bonuses were not extraordinary by national standards, but they provided a stable, enviable career. This tranquil path no longer exists. It has been replaced by one filled with unpredictable change and heartache. Many still enjoy a fulfilling, perhaps even extraordinary, career. But survival has been made more challenging with market upheaval, technological advances, consolidation, and excess talent. In order to survive, all investment professionals need to adapt to the changing environment or shift energies to an entrepreneurial paradigm.