Business Owners, Financial Risk, and Wealth

Abstract

Using 1989 to 2007 Survey of Consumer Finances data, this paper addresses three questions: 1) Are business owners generally more or less financially conservative than their non-business-owning counterparts?; 2) Do business owners accumulate more wealth?; and, 3) Do business owners hold a smaller share of their financial assets in risky stock holdings? Results indicate that business owners are financially conservative based on borrowing and savings questions but are more likely to be willing to assume above-average risk for financial gain. Consistent with earlier evidence that entrepreneurs save more, business owners accumulate more wealth over time. Business owners and non-business owners invest similar shares of their financial portfolios in safe assets. Taken together, the results suggest that policies aimed at increasing business ownership should focus on helping households identify high-value business opportunities through transparent tax, legal, and regulatory systems. Efforts to reduce risk should focus on the business venture, such as full loss offsets, rather than focusing on reductions in other financial risks.