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                          Seminar

Title     : Why Entrepreneurial Firms Behave Differently From Large Firms? -- A Perspective From Time-inconsistent Preferences

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Abstract:
Based on a continuous-time model of quasi-hyperbolic discounting, this paper provides an
analytically tractable framework of entrepreneurial firms' investment and capital structure
decisions with time-inconsistent preferences. We show that the impact of time-inconsistent
preferences on investment depends not only on the
financing structures (all-equity financing or debt financing), but
also on the entrepreneurs' belief regarding their future
time-inconsistent behavior (sophisticated or naive). Time-inconsistent
preferences delay investment under both all-equity financing and debt
financing. However, the impact is weakened with debt financing,
because debt financing increases the payoff value upon investment and
accelerates investment.Naive entrepreneurs invest later and default earlier than
sophisticated entrepreneurs, leading to a shorter operating period.
Moreover, we find that naive entrepreneurs may choose higher leverage,
while sophisticated entrepreneurs always choose lower leverage,
compared to the time-consistent benchmark. These results support the
empirical findings in entrepreneurial finance.

Biography:
Masaaki Kijima is a Professor of Finance at Graduate School of Social Sciences,
Tokyo Metropolitan University. He received PhD from the Simon business school, University of
Rochester in 1986. Since then, he has held multiple professorships with the leading economic and
mathematical departments, including Tokyo Institute of Technology and
Kyoto University. He has written more than 95 academic papers and authored two books to
international acclaim. He serves as a council member of Bachelier Finance Society,
an advisory committee member of Society for Computational Economics,
and an associate editor of Journal of Economic Dynamics and Control.

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