Sara Jonsson

The Development of Social Capital and Financing of Entrepreneurial Firms: From Financial Bootstrapping to Bank Funding

This paper uses a three–dimensional perspective on social capital to investigate how entrepreneurs develop their social capital when relying on bootstrapping strategies becomes insufficient and financing needs to be acquired from external debt and equity financiers. Findings from six case studies of entrepreneurs in the fashion industry show that to acquire funding, due to perceived deficiency in the existing network, entrepreneurs develop the structural dimension by adding relationships based on function. However, when seeking financial information that is perceived as sufficient in the existing network, they do so by developing cognitive and relational dimensions to preexisting network ties.

Entrepreneurs’ network evolution – the relevance of cognitive social capital

Purpose – The purpose of this paper is to investigate entrepreneurs’ network evolution in the start-up phase. Design/methodology/approach – Based on the case studies of six fashion start-up firms, this study uses a three-dimensional perspective on social capital (structural, relational, cognitive) to investigate entrepreneurs’ network evolution (i.e. initiation of new relationships) in the start-up phase so as to acquire resources and support for firms’ goals. The study focuses particularly on the understudied cognitive dimension of social capital. The fashion industry provides a relevant research setting because it is characterised by changes in demand, which generate opportunities for entrepreneurship. Findings – The findings show that the display of cognitive attributes is important for the creation of structural social capital (the establishment of new relationships). The findings also indicate that relationships initiated based on the cognitive dimension have a high probability of developing into emb...

Industry‐embedded financial decision making: The case of a fashion firm

Purpose – The purpose of this paper is to study organisational characteristics and formations that are important to the establishment of a strong embedded relationship between the small to medium‐sized enterprise (SME) and the financier, which in turn influences the firms financial decision‐making process.Design/methodology/approach – The study is conducted as a longitudinal, single case study of a fashion firm. The firm prefers equity to debt financing, thus constituting an interesting case of deviation from the pecking order theory of finance. The present paper investigates the rationale behind the firms financial decision making.Findings – The findings suggest that identity field embeddedness is relevant in the firms financial decision‐making process because field identification facilitates the formation of embedded relationships between the SME and the financier. The notion of belonging to the same identity field as the supplier of equity finance, while experiencing a distance to the bank, motivate...

Credit risk: an agent-based model of post-credit decision actions and credit losses in banks

The credit crisis in 2007/2008 has increased the focus on bank credit risk. This paper uses an agent-based model (ABM) to investigate the impact of bankers’ post-credit decision actions on bank credit losses that are induced by lending to corporate clients. The banker agents are modelled according to results obtained from a survey that was distributed to bankers who are permitted to grant credit to firms. The results show that post-credit decision actions have substantial effects on bank credit losses, thus implying that regulators should consider organizational factors as a complement to bank assets when assigning capital requirements to banks. The study also aims to point to a new area of application of ABMs for both researchers and practitioners. Whereas previous research has used ABMs to simulate financial markets, this study suggests that financial organizations could be a vital area of application.

Investigating explanatory theories on laypeople’s risk perception of personal economic collapse in a bank crisis – the Cyprus case

We investigate the explanatory power of decision, psychometric, and trust theory to describe laypeople’s risk perception of personal economic collapse in a bank crisis. The aim of this investigation is to improve the understanding of the effects of national initiatives for crisis fighting taken to prevent systemic risk. Using a stratified sample of 738 Cypriote citizens, we conducted an investigation in Cyprus in the spring of 2013 when the country was facing a bank crisis. At that point in time, the Cypriote Government had imposed capital controls to prevent a bank run. We find that decision theory variables alone have low explanatory value on laypeople’s risk perception, and that laypeople’s risk perception in this situation is affected primarily by psychometric variables. Further, confidence in one’s own bank also explains risk perception. Our findings contribute novel knowledge about risk perceptions in a financial crisis, with practical crisis management implications for regulators.

An investigation of the impact of financial literacy, risk attitude, and saving motives on the attenuation of mutual fund investors’ disposition bias

Purpose - The purpose of this paper is to investigate the impact of financial literacy, risk attitude, and saving motives on the attenuation of mutual fund investors’ disposition bias. Specifically, the authors focus on individual characteristics explaining the investors’ propensity to sell shares in a poorly performing mutual fund. Design/methodology/approach - The study relies on survey data collected from 1,564 Swedish households in 2013. The authors test the hypotheses considering three different portfolio compositions and portfolio performances. Each composition corresponds to a dependent variable and a separate model which are estimated using ordinal logistic regression. Findings - The authors find that different forms of financial literacy affect attenuation of the disposition effect. Specifically, the authors find that knowledge about mutual funds and knowledge about current market conditions affect the attenuation of the disposition effect, whereas the authors find no support for the effect of “technical financial knowledge” (e.g. the ability to calculate compound interest rates). The authors also find no support for the effects of risk attitude and saving motives on the attenuation of the disposition bias. Originality/value - The findings suggest a need for a more fine-grained conceptualization of the financial literacy concept and its effect on investors’ disposition bias. Since an important implication of the findings is that financial literacy could potentially help people overcome behavioral bias, the study provides insights for policymakers as well as into the discussion on the design of consumer education programs.

The effects of reward system on bank credit losses – an agent-based model

Purpose - – The purpose of this paper is to investigate how the design of loan officer reward systems affects bank credit losses caused by commercial clients. Design/methodology/approach - – This paper uses an agent-based model to investigate how the design of reward systems affects bank credit losses. Two different systems are compared: competitive and a cooperative. The model is designed according to the theoretically derived assumption that a cooperative reward system will make agents more likely to share knowledge with each other in the processes of granting and monitoring credit. Findings - – The results show that a cooperative reward system have potential to reduce bank credit losses. The reduction of errors in evaluating company’s probability of default thus mitigates variations induced by variations in industry, region, and firm-specific returns. Practical implications - – The findings imply that reward system design should be considered in credit risk management. Further, managerial issues (e.g. reward systems) should be considered in risk modeling. Originality/value - – The results presented in this paper provide evidence to the value of considering the downside (e.g. loss) when designing reward systems in banks.