ABSTRACT
Finance scholars have historically considered entrepreneurship as a separate field (Audretsch et al. 2016). The implicit idea was that the issues in entrepreneurial finance are different from those faced by public corporations so as to limit the applicability of traditional finance theory. On the one hand, entrepreneurial finance primarily refers to early-stage financing mechanisms, often supplied by the entrepreneur’s personal network as a consequence of his or her inability to access the public market. On the other hand, corporate finance literature tends to focus on publicly traded firms as the main unit of analysis. However, the evolution of both the real economy and academic research has clarified that this is no longer the case. Financial scholars have recognized that agency problems and information asymmetries, the basis of corporate finance and financial economics theory, are actually two fundamental issues of entrepreneurial finance. Information asymmetry (and related adverse selection problems) in the entrepreneurial setting is particularly pronounced due to the difficulty faced by entrepreneurs in conveying the quality of their new ventures to firm outsiders, resulting in potentially severe agency issues (and moral hazard problems). Contractual solutions adopted to prevent these issues are imperfect, more so in entrepreneurial ventures than in large established corporations.
