This paper conducts a theoretical and quantitative analysis of how entrepreneurs choose firm size, capital structure, default, and owner consumption to manage firm risk, including how these choices change with risk aversion. We decompose an entrepreneur’s default decision into three elements:...

This paper assesses quantitatively the impact of legal institutions on entrepreneurial firm dynamics. Owners choose firm size, financial structure and default to manage risk. We find: (i) Less risk averse entrepreneurs run bigger firms and it is optimal for them to incorporate, while more risk...