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EJIM
23,2 The economics of the
entrepreneur and the banker
historical roots and contributions
230 to the management of innovation
Received 27 August 2018
Revised 27 November 2018
Sophie Boutillier
11 March 2019 Department of Economics and Management,
5 April 2019
Accepted 21 April 2019
Universite du Littoral Cote D’Opale, Dunkerque, France

Abstract
Purpose – The purpose of this paper is to study the nature of the relationship between the entrepreneur and
the banker, which is central to any analysis of business creation and innovation management. The author’s
main purpose is to understand how this relationship has been studied by the pioneer economists of the
entrepreneur and to highlight their contribution to the understanding of today’s reality.
Design/methodology/approach – To do so, the author proposes a sketch of an entrepreneur and banker
economics based on the study of six economists (Cantillon, Smith, Bentham, Say, Schumpeter and Baumol)
known for their works on entrepreneur theory. In their works, they explained how the (often difficult)
relationship between the entrepreneur and the banker is built in a context of multi-uncertainty. They define
the entrepreneur in different ways (a risk-taker, a prudent man, a projector, etc.), and put forward different
behaviors facing uncertainty through social relations. The relationship between the entrepreneur and the
banker can be read according to the grid of analysis of strong or weak ties (Granovetter, 1973).
Findings – This analysis demonstrates the importance of trust between the two protagonists. This
contribution remains fundamental to study the behavior of financers and entrepreneurs today in the context
of business eco-systems, clusters, science parks ‒ in other words, the main places of emergence of innovation.
Research limitations/implications – This research leads to the proposal of the main basis of an
economics of the entrepreneur and the banker; it can be further developed with the addition of other
contributions of historical economists.
Practical implications – This research shows the importance of thinking about the ways to build trust
within the relation between entrepreneurs and their funders (bankers, venture capital, crowdfunding).
Social implications – The analysis of social ties (weak or strong) plays a major role in this relation.
Originality/value – The originality of the article is to come back to the works of pioneer economists and to
show their contributions to the understanding of today’s reality.
Keywords Innovation, Risk, Entrepreneur, Financing, Banker, Strong and weak ties
Paper type Research paper

European Journal of Innovation
Management
Vol. 23 No. 2, 2020
pp. 230-250
© Emerald Publishing Limited
1460-1060
DOI 10.1108/EJIM-08-2018-0184
1. Introduction
Today, entrepreneurs have a wide range of tools to finance the creation of an enterprise:
bank credit, venture capital, crowdfunding, public subsidies, etc. (Fellnhofer, 2017).
However, according to the Global Entrepreneurship Monitor (GEM) (Champenois, 2014), the
financing of business creation is largely based on the “3 F” (friends, family and foolhardy
strangers). The family (Casson, 1982) is the main funder of the enterprise, whether through
direct or indirect financing or through the social relationships that it helps to develop. But
family financing and the entrepreneur’s savings are not sufficient (Savignac, 2007). The
entrepreneur needs additional resources, primarily bank credit, which is currently the main
source of external financing, especially for small- and medium-sized enterprises (SMEs)
(Calme and Polge, 2018). In France, bank credit finances about 90 percent of the needs of
SMEs, compared to only 25 percent in the United States, mainly due to the increase in
crowdfunding (Mariage and Le Pendeven, 2015). On the contrary, the contribution of
venture capital to the financing of companies remains largely in the minority. According to
the OECD, it represents about 0.03 percent of GDP for France compared to 0.34 percent in
the United States in 2015 (Dubocage and Rédis, 2016). Bank credit basically involves two Management
protagonists, the entrepreneur and the banker. The success of business creation thus of innovation
depends on the creation of a relationship of trust between them. This observation justifies
our proposal, within the framework of this article, to build an economics of the entrepreneur
and the banker in order to clarify the nature of their social relations. These relationships are
studied from the entrepreneur’s economics, which has its roots in a literature that dates back
to the eighteen century, including the pioneering work of Richard Cantillon (Blaug, 1986; 231
Boutillier and Uzunidis, 2017; Landström and Lohrke, 2012). The methodology is based on a
historical epistemology (Bachelard, 1934) that allows to visualize the different strata of
knowledge. This literature highlights the difficulties faced by entrepreneurs in carrying out
their projects in a context of great uncertainty, whether economic, technological, or financial.
In this context, the entrepreneurs generally have to face the banker’s reluctance. However,
the latter is not their enemy, because their interests are by nature convergent. The
entrepreneur seeks business opportunities to make profits (Kirzner, 1973), whereas the
banker seeks entrepreneurs who have identified solid investment opportunities and
therefore offer good repayment guarantees. In this sense, the banker has an entrepreneurial
behavior. The study of the literature on the economics of the entrepreneur makes it possible
to study the relationship between the entrepreneur and the banker, and to show how
economists have, over a long history, understood their business relationship. This analysis
depends on the definition of the entrepreneur given by the economists: a risk-taker, a
prudent man, a projector, an opportunist, a revolutionary entrepreneur or a productive/
unproductive entrepreneur. The question of entrepreneurial ties is therefore fundamental. In
the context of a business relationship, the entrepreneur and the banker develop social ties
(strong and weak) that are based on trust to face uncertainty.
The issue of financing innovative companies remains crucial today as well, as evidenced
by the proliferation of new means of financing mentioned above. The mobilization of
historical economists is the means that have been chosen to build the economics of the
entrepreneur and the banker. To do this, six economists, whose work on the entrepreneur is
widely known, were selected and they were divided into three groups according to their
epistemological approach (individualist, functionalist and institutionalist). Then, the
research question is the following:
RQ1. How does the study of historical economists makes it possible to understand the
nature of the social ties (weak or strong) between the entrepreneur and the banker
to develop business relations in a context of uncertainty, and what is its topicality
in order to understand the questions relating to innovation management today?
In the second point, the economics of the entrepreneur and the banker will be presented on the
basis of the three epistemological dimensions mentioned above and two elements that structure
the relationship between the entrepreneur and the banker: consideration of the risk and
uncertainty associated with innovation and the nature of entrepreneur/banker social ties to
reduce information asymmetries. The third part explores these points in more detail on the basis
of the analysis of the work of selected economists. The fourth part proposes an update of this
subject, showing that even if capitalism has fundamentally evolved since the eighteen century,
trust relationships are still decisive for the success of entrepreneurial projects, for example, in
the context of the creation of business ecosystems or open innovation strategies involving a
wide range of stakeholders, of which entrepreneurs and financiers are the main actors.

2. The economics of the entrepreneur and the banker

This section will present the approach of the economics of the entrepreneur and the banker,
based on three epistemological dimensions: individualist, functionalist and institutionalist,
reflecting the different schools of thought in the economic literature (Berthelot, 2012).
EJIM The first favors individual initiative; the second aims to highlight the economic function that
23,2 is performed by a particular individual, in this case, entrepreneurial and banking functions;
the third is the institutional context in which individuals are embedded (2.1). The economics
of the entrepreneur and the banker is also based on the analysis of the social ties between
them in the context of uncertainty in which they are both embedded (2.2). The third
ingredient is the nature of social ties, between the strong and weak ties, that binds the
232 entrepreneur and the banker (2.3).

2.1 The three epistemological dimensions of the economics of the entrepreneur and the
banker
If the political economy is basically divided between a microeconomic approach,
emphasizing the individual, more or less rational, and a macroeconomic approach, based on
a global vision of the economy, the author has opted for a different taxonomy. It aims to
distinguish the microeconomic or individualist approach, which focuses on the analysis of
individual behaviors, the institutionalist approach, which emphasizes the role of the social
and political institutions in which individuals are embedded to understand their economic
behavior and the nature of their decisions, and the functionalist dimension.
2.1.1 The individualist epistemological dimension. The individualist epistemological
dimension is mainly inscribed in the paradigm of classical and neoclassical economics,
which places the individual at the heart of the economic process. For the classical and the
neoclassical political economy, the rational individual, as an entrepreneur, aims to maximize
his/her profit by achieving a given level of production through the combination of a given
amount of labor and capital. Classical and pre-classical economists (Physiocrats in
particular) emphasize the role of the individual and his/her ability to make decisions; the
emphasis is on his capacity for judgment, as Say underlines. In this category, the following
have been classified: Richard Cantillon (1680–1735), Adam Smith (1723–1791), Jeremy
Bentham (1748–1832), and Jean-Baptiste Say (1767–1832). For these four economists, the
entrepreneur is not a theoretical abstraction, a function representing innovation and/or
economic growth. The entrepreneur is a very real individual who creates an enterprise and
who is confronted with tangible difficulties. His/her enterprise may go bankrupt or prosper.
In concrete terms, he/she may have an aversion to risk and he/she may not make risky
decisions or, on the contrary, seek risk as a kind of life stimulant. But in the market
economy, the entrepreneur seeks to make a profit, otherwise he/she puts in danger his/her
own existence as entrepreneur. It is also distinguished by psychological qualities that make
this a human being in its own right, not a theoretical abstraction.
2.1.2 The functionalist epistemological dimension. The functionalist dimension of the
entrepreneur refers in particular to the work of Schumpeter (1911, 1942). The entrepreneur is
less an individual in the Schumpeterian analysis than an economic function that individuals
perform at different times in their life, because they are not entrepreneurs for life. Schumpeter
clearly emphasizes that “being an entrepreneur is not a profession” (Schumpeter, 1911, p. 78).
Schumpeter’s descriptions of the entrepreneur do not identify an entrepreneur, strictly speaking,
or at most an entrepreneur during a given period of his existence, for example when he
innovates. The entrepreneur, first of all, the revolutionary entrepreneur, embodies a
transformative vision of the economy, through the realization of new combinations of
production factors. The Schumpeterian entrepreneur is not a rational individual in the
Walrasian sense of the word, who maximizes his/her profit in a perfect market (by definition
without uncertainty); it is less the profit than the entrepreneurial game that guides him in his
actions, the desire to be the leader of a market, to innovate, in short to question the economic
situation in which he is incorporated. In this sense, “The entrepreneur is never the risk bearer”
(Schumpeter, 1911, p. 137) because his objective is to carry out his project.
 2.1.3 The institutionalist epistemological dimension. The institutionalist dimension refers Management
to the institutionalist paradigm that emerged at the beginning of the twentieth century with of innovation
the pioneering work of Thorstein Veblen (1898), and which subsequently developed, notably
with William Baumol (1990) and Douglass North (1991). They explain that institutions form
a kind of framework within which social activities and relationships take place. In a market
economy, which is by nature highly volatile, they make it possible to reduce the uncertainty
inherent in the functioning of the market. According to North, institutions play an important 233
role in collecting information and reducing market uncertainty (North, 1991). In a book he
co-edited, Baumol (2010), he studies entrepreneurship in time and space, from Roman
Antiquity to Imperial China and Medieval Europe. It shows that economies in which
entrepreneurship has not developed lack the appropriate institutions to define private
property law, trade, and appropriate taxation to support entrepreneurial activity, i.e. a set of
rules to enable entrepreneurial activity to flourish. “Good” institutions thus favor the
emergence of productive/innovative entrepreneurs, whereas “bad” institutions on the
contrary favor the emergence of unproductive/rentier entrepreneurs.

2.2 Between risk and uncertainty, what can the entrepreneur do?
Three key words summarize the economics of the entrepreneur and the banker: uncertainty,
risk, and innovation (Boutillier and Uzunidis, 2017). Risk and uncertainty have not the same
meaning in the economic literature. Knight (1921) in a famous analysis distinguishes “risk”
and “uncertainty.” Risk refers to a measurable uncertainty, whereas uncertainty cannot be
measured. In this paper, the possibility of measurement of uncertainty is not specially
referred. Uncertainty is considered as a state (a context of uncertainty), whereas a risk is
considered as an action (to take a risk). It is considered that the market economy is based on
uncertainty according to various elements: evolution of domestic and world trade, of
technological progress, of geopolitical relations. Thus, a “context of multi-uncertainty” is
considered, taking account of the various forms of uncertainty. The entrepreneur and the
banker are placed in a context of multi-uncertainty. They take risks because they do not
have access to reliable information that would allow them to make rational decisions
according to their profit objectives. Risk is associated with both profit and bankruptcy. The
decision taken by the entrepreneur to develop a particular technology can make his/her
fortune as well as his/her ruin. The entrepreneur must identify business opportunities:
invest, innovate, produce and find markets to sell his production. The banker is looking for
entrepreneurs who will allow him/her a return on his/her investment. Their interests are
therefore linked. To counter uncertainty, they are led to develop social ties so as not to rely
on market mechanisms.
In this paper, all the selected economists, regardless the epistemological dimension onto
which they rely, consider that the entrepreneur and the banker evolve in a context of
uncertainty. However, as will be shown, all studied entrepreneurs do not have not the same
behavior facing uncertainty. Within the individualist epistemological dimension, for
Cantillon, uncertainty is part of the very definition of the entrepreneur because he/she buys
at a certain price and sells at an uncertain price, depending on market fluctuations. For him,
the question of uncertainty is mainly a question trade relation. This idea is also present in
Smith’s work since he favors the prudent man among the three profiles that he has
established of the entrepreneur (see below), who does not go into debt and does not engage
in large-scale activities for which the opportunities are uncertain. This is not the case,
however, with the projector, who creates uncertainty through his/her reckless behavior. He/
she invests in new activities with uncertain market opportunities. It is also this taste for risk
that motivates the projector. Bentham’s analysis is more complex because individuals make
decisions based on a balance between pain and pleasure. The projector is therefore led to
take a risk, not because he/she likes risk, but because he/she takes pleasure in doing what
EJIM he/she does. He/she will therefore make a decision, even if it leads him/her to take a risk
23,2 (Leloup, 2002a, b). For Say, risk is also an integral part of entrepreneurial activity.
An entrepreneur has to constantly make decisions about which products to develop, with
which raw materials, on which markets. To deal with them, the entrepreneur must mobilize
a wide range of knowledge and information. The entrepreneur can take advantage of new
opportunities brought by the opening of a new market, the development of a new
234 technology or the appearance of a new invention (Tiran, 2017).
The Schumpeter’s analysis takes place in the functionalist epistemological dimension
wherein the individual dimension of human action is hidden by an economic
function embodied by individuals. Schumpeter emphasizes the uncertainty produced by
the change introduced by new innovations, which is at the origin of risks taken by the
entrepreneur. The entrepreneur is then led to make approximate forecasts to make decisions
that will have positive results, but the situation is particularly difficult because he/she
cannot rely on any previous knowledge, since the situation he/she is facing is unprecedented
because he/she innovates.
In the institutional epistemological dimension, social rules are defined by the
institutional context in which the entrepreneur is embedded (Baumol, 1990). The
innovative entrepreneur is born in an appropriate institutional (which reduces market
uncertainty) context that is characterized by incentives that will guide individuals to enrich
themselves by innovating and/or gaining social prestige. The concept defended by Baumol
is quite similar to Schumpeter’s, even if they do not rely to the same epistemological
approach. Concerned to escape the standard microeconomic theory that has turned the
entrepreneur into a “maximizing automaton” (where there is not uncertainty, because the
market is perfect), Baumol has stuck to a theoretical conception since he also attributes to
the entrepreneur an instrumental role in economic growth. The institutional epistemological
dimension considers that the social institutions define social rules and uncertainty is
reduced by this way.
According the three epistemological dimensions that we have defined, all the selected
economists argue that the entrepreneur, as an individual or an economic function, is
embedded in a context of uncertainty, and then has to take risky decisions.

2.3 Between the entrepreneur and the banker, strong or weak ties?
The relationship between entrepreneur and the banker takes place in a context of
uncertainty. Strong social ties contribute to the reduction of uncertainty: they allow the
sharing of information of resources and improve the decision making process. But the six
selected economists do not identify the same kind of social ties. The Granovetter’s analysis
is used in this paper to understand the nature of the social ties between them. Indeed
Granovetter (1973) identifies the nature of the social links between the entrepreneur and the
banker and proposes an analysis to understand how both manage the risk associated with
their professional activity. Granovetter’s theoretical framework is quite appropriate
for this purpose because it combines the three epistemological dimensions defined above.
Granovetter considers that individuals are embedded in a given social context
(institutionalist dimension). It means that the individuals (individualistic dimension) who
are incorporated in this context are by nature both economic and social agents. Granovetter
considers that individuals embody themselves in economic functions (functionalist
dimension). Seeking to analyze what makes a society coherent, Granovetter studies the
social ties that connect individuals and build this societal unity. These social ties are
of two types, strong and weak, depending on the combination of time spent together,
emotional intensity, and the intensity of reciprocity between two individuals. “The strength
of a tie, a (probably linear) combination of the amount of time, the emotional intensity, the
intimacy (mutual confiding), and the reciprocal services which characterize the tie”
(Granovetter, 1973, p. 1361). Strong ties are thus social ties developed between socially close Management
individuals (family, friends, etc.). Weak ties correspond to a brief contact between of innovation
individuals, who are generally located in very different social spaces.
The relationship between the entrepreneur and the banker is generally understood in the
economic literature as one of weak ties. This is particularly the case in agency theory
( Jensen and Meckling, 1976; Alchian and Demsetz, 1972), based on an economic calculation
in a context of uncertainty wherein the “principal” hires an “agent” whom he/she seeks to 235
control in a context of asymmetric information (Amit et al., 1990; Burchardt et al., 2016;
Perrin Boulonne, 2018). But the relationship between the entrepreneur and the banker can be
seen as the one based on trust built on networks of social reciprocity that is based on mutual
learning between the two individuals, as shown by the theories of the six selected
economists, an analysis aimed at favoring a strong relationship approach (see the third
part). In the same vein, Wirtz (2011) shows the role of trust relationships between the
entrepreneur and the banker in reducing information asymmetries to develop
entrepreneurial activities. This tends to show that a business relationship is based on a
combination of weak and strong ties.
Based on this brief presentation of the economics of the entrepreneur and the banker, two
theoretical proposals are formulated, which will be discussed in more detail in the third part:
P1. Entrepreneurs and bankers are confronted with an uncertain economic, technological
and financial context (multi-uncertainty), generating asymmetries of information,
impacting their ability to manage the risk associated with entrepreneurial activities;
P2. Entrepreneurs and bankers develop social relationships to manage uncertainty and
reduce risk by creating a relationship of trust. The entrepreneur is looking for
investment opportunities and the banker is looking for innovative entrepreneurs
who offer strong repayment guarantees.

3. Analysis of the weak and strong links between the entrepreneur and the
banker: the contributions of the economics of the entrepreneur and the banker
The purpose is now to analyze the contributions of the six economists selected with regard
to the two proposals above. Thus, the respective behaviors of the entrepreneur and the
banker will be studied in a context of uncertainty (first theoretical proposal ‒ P1) (3.1), to
show how weak or strong ties develop between the two protagonists to achieve their
business relationship (second theoretical proposal P2) (3.2).

3.1 The entrepreneur and the banker in a context of uncertainty

3.1.1 Perception and nature of uncertainty dependent on the definition of the entrepreneur.
Although the term “entrepreneur” can be considered as a generic term that represents the
creation of an enterprise, it covers very different situations. Not all economists define the
entrepreneur in the same terms and assign him (or her) the same function or role, according
to the epistemological dimension in which they are embedded.
The economists selected have their own definition of the entrepreneur. Within the
individualist dimension, Cantillon (1755) connects him/her directly to risk-taking. The
entrepreneur is an individual who buys at a certain price to resell at an uncertain price. His/
her income is by definition uncertain. Smith is not strictly speaking about an economist of
the entrepreneur, but in his two major works, “Theory of Moral Sentiments” (1759) and “The
Wealth of Nations” (1776), there are three profiles of individuals who distinguish themselves
by different entrepreneurial behavior: the “son of the poor man,” the “prudent man” and the
“projector,” whose behavior differs, but who have in common that they make decisions in
order to best satisfy their own interests, whether it is to set up a small business (the son of
EJIM the poor man or the prudent man) or, on the contrary, to embark on projects that Smith
23,2 describes as “extravagant” (the projector). As will be seen later, Smith is wary of the project
maker and considers that the prudent man corresponds to the standard ideal that Smith
likes (Facchini, 2007). This has an impact on the entrepreneur/banker relationship, as will be
seen later. For Bentham, on the contrary, the project maker is a cautious man because he
makes his decisions on the basis of a calculation between pain and pleasure. The
236 entrepreneur, for example, must work (pain) to ensure the success of his/her business
(pleasure). Bentham’s economy is an economy of happiness. The State must create the
conditions for all individuals to have the opportunity to flourish, in short to have a happy
life. Finally, Say sees the entrepreneur as the central figure in the economy. He/she has a
calculating mind and a capacity for judgment. But fundamentally, Say defines the
entrepreneur as the intermediary between the scientist who produces knowledge and the
worker who applies it to industry (Say, 1803), in which case the entrepreneur takes on a
metaphorical dimension. However, not all entrepreneurs are enterprising and some
entrepreneurial adventures end badly (Tiran, 2017). In any case, Say’s entrepreneur is
clearly an individual who makes decisions to develop commercial and/or industrial
activities. For Say, the entrepreneur is indeed an individual, not an economic function.
The entrepreneur’s behavior varies according to his/her professional background and
social origin. For Smith (1776, 1790), the prudent man reinvests what he has earned and does
not seek to develop “extravagant” projects. It is in this sense that the prudent man is for
Smith the ideal entrepreneur, unlike the project maker who behaves opportunistically,
manipulates information to carry out extravagant projects, and can be guilty of lying. The
project maker acts according to his passions and instincts, without calculation. In contrast,
the son of the poor man represents what the GEM[1] calls entrepreneurship out of necessity.
He creates his enterprise to create his job, even to climb the social ladder. To do this, he
seeks to develop his network of social relationships, especially his weak ties, as he seeks to
maintain relationships with rich people whom he envies and admires. On the contrary, the
project maker is characterized by excessive ambition. His decisions are not based on reason
(Haig, 2011). The project maker takes a high risk in investing in an emerging activity, for
example, the project maker would correspond to GEM opportunity entrepreneurship. This is
also the image given by Bentham to the projector : “I mean projectors, […], in particular, all
such persons as, in the pursuit of wealth, strike out into any new channel, and more
especially into any channel of invention” (Bentham, 1787, p. 132).
This conception of the entrepreneur‒projector is shared by Say for whom the
entrepreneur by nature has an enterprising behavior. Say resolutely attributes to
the entrepreneur an important role as a transformer of the economy, like Schumpeter. The
translation of “Traité d’économie politique” into English, published in an American edition
in 1880, reveals the complexity of the term “entrepreneur” and its different uses. Indeed, the
translator translates “entrepreneur” in French as “adventurer” in English (Verin, 1982). Does
this mean that the entrepreneur is an adventurer in industry and science? This can be
assumed when Say (1803) defines the entrepreneur as the intermediary between the scientist
who produces knowledge and the worker who applies it to industry: “It may be remembered
that the occupation of adventurer is included in the second class of operations specified as
being necessary for setting in motion every class of industry whatever; that is to say, the
application of acquired knowledge to the creation of a product for human consumption”
(Say, 1880, p. 176). Say’s entrepreneur is by nature a risk-taker, a projector. But his
conception of the projector is similar to that of Bentham, not Smith.
This position of the entrepreneur‒projector, of the revolutionary entrepreneur, is also
that of Schumpeter (1911, 1942) who belongs to the functionalist epistemological dimension
and sees the entrepreneur as a “gambler” who can put his/her existence at risk for his/her
enterprise. His/her behavior as a projector is perceived positively by Schumpeter. Management
The Schumpeterian entrepreneur is an economic agent who makes new combinations of of innovation
factors of production, in other words, someone who innovates a: “new good, new method of
production, new market, new source of supply of raw materials of half-manufactured goods,
carrying out of new organization of any industry” (Schumpeter, 1911, p. 66). The banker, on
the other contrary, has a passive role because he/she has no choice but to follow him/her.
According to the institutional epistemological dimension, Baumol argues that there are 237
two kinds of entrepreneurs, productive and unproductive. The productive one matches to
the same definition of the innovative entrepreneur of Schumpeter, which is according
to Baumol the only who plays a positive economic role. According to Baumol, the main
question is to define adequate public policy to reduce uncertainty and induce entrepreneurs
to develop an innovative behavior.
3.1.2 The role of the banker in financing the enterprise. Faced with the entrepreneur, the
banker plays an important role because he/she brings the capital that the entrepreneur
needs, his/her behavior is also similar to that of an entrepreneur. He/she is indeed driven to
innovate by creating new financial products and services, such as bills of exchange,
something that Cantillon and Say highlight. The banker thus actively participates in
financing the economy by facilitating payment transactions. Generally speaking, for
Cantillon, Smith, Bentham and Say, the banker’s activity is to collect savings and lend them
in order to make a profit. He/she is thus led to finance entrepreneurial activities, tries to
reduce uncertainty and takes risks. But in practice, entrepreneur/banker relationships can
generate conflicts because, on the one hand, the entrepreneur withholds major information
from the banker and, on the other hand, the banker refuses to finance the entrepreneur’s
extravagant projects. The relationship between the entrepreneur and the banker can be
conflictual, as conceived by Schumpeter, who clearly highlights the difficulty with which the
entrepreneur is confronted in convincing the banker.
Analyses on the role of the banker with the entrepreneur are immensely varied. He/she
can be seen as an innovator, but also as a simple passive intermediary who does not create
value, or even sometimes refuses to finance the innovative entrepreneur. The banker can
also be seen as an innovator who thus has an entrepreneurial attitude. His/her objective is to
make a profit. As an entrepreneur, the banker seeks to manage the uncertainty that is
produced by a situation of information asymmetry. He/she does not know if the information
given to him/her by the entrepreneur about himself/herself and his/her project is accurate.
But, in fact, he/she has no alternative but to make profits, at the risk of disappearing as a
banker/entrepreneur in a capitalist economy based on profit. But how acceptable are the
banker’s profits? Can his/her recklessness in certain circumstances not lead to serious
financial crises?
Within the individualist epistemological dimension, Smith does not seem to share
Cantillon’s optimism about the positive role of the banker. He has a negative opinion of
him, considering that he/she may in certain circumstances engage in opportunistic
behavior. The banker’s only objective is to become rich. The banker can also be a projector
and make decisions under the influence of his/her passions (Walraevens, 2014). This
behavior can have negative consequences because the extraordinary profits expected are
not always realized: “the establishment of any new manufacture, of any new branch of
commerce, or of any new practice in agriculture, is always a speculation, from which the
projector promises itself extraordinary profits. These profits sometimes are very great,
and sometimes, more frequently perhaps, they are quite otherwise” (Smith, 1776,
pp. 242-243). The entrepreneur, as a projector, and the banker can both engage in
opportunistic behavior that has negative consequences for the entire economy. According
to Smith, the real danger is that the banker, unlike the entrepreneur, does not participate
EJIM directly in the production of value. He/she is only an intermediary as a lender. On the
23,2 contrary, according to Bentham, the banker behaves in a similar way to the entrepreneur,
making decisions based on a convergence of interests with the entrepreneur. For Bentham,
individuals are rational because they make decisions based on a balance between pain and
pleasure they expect. The banker is no exception.
According to Say, Cantillon and Say, the role of the banker is to finance the entrepreneur.
238 They also highlight the banker’s ability to innovate in terms of payment methods that
facilitate business. But, according to Say, the first source of financing for the enterprise
remains the savings of the entrepreneur, who may also have to invest his/her assets to
finance his/her enterprise. In the event of bankruptcy, he/she can therefore lose everything,
his/her fortune and his/her honor. The entrepreneur may thus be confronted with both a
significant financial and moral uncertainty. The banker’s behavior is similar to that of the
entrepreneur, knowing that his function lies in his ability to facilitate financial transactions
in an economy: “[…] to receive or pay on account of other people, or give bills, orders, or
letters of credit, payable elsewhere than at the place where they are given. This is sometimes
called the banking trade” (Say, 1880, p. 42).
To reduce the risk taken by the banker, Smith recommends collecting a number of pieces
of information on the entrepreneur, his/her social origin, his/her professional project, or
whether he/she was the creator of debts. This is not the case for the prudent man who does
not go into debt. He finances his company with his own savings: “The prudent man is not
willing to subject himself to any responsibility which his duty does not impose upon him. He
is not a butler in business where he has no concern; is not a meddler in other people’s affairs;
is not a professed counsellor or adviser, who obtrudes his advice where nobody is asking
it…” (Smith, 1759, p. 194). In “The Theory of Moral Sentiments” and “The Wealth of
Nations,” Smith develops a different approach to explain economic analysis (Sen, 2010).
In the first book, he emphasizes social relationships based on social proximity and
sympathy, whereas in the second, he emphasizes competitive relationships and individual
interest. In addition, to counter the recklessness of some bankers (who behave like project
developers), Smith advocates regulating the credit market by regulating usury. This
position is rejected by Bentham, precisely because he considers that the project maker,
entrepreneur or banker, is a prudent man, and makes decisions balancing pain and pleasure.
Bankruptcy is not a pleasure! Say shares Bentham’s opinion. He considers that the banker
and the entrepreneur are linked by a systemic relationship based on the principle of
convergence of interests.
According the functionalist epistemological dimension, credit also plays a key role, as it
is the case for Schumpeter. The Schumpeter’s analysis is global, he does not talk about the
banker (as an individual) but more about the credit (as a function). Without credit, neither
capitalism nor the entrepreneur exists: “the essential function of credit in our sense consists
in enabling the entrepreneur to withdraw the producers’ goods which he needs from their
previous employments, by exercising a demand for them, and thereby to force the economic
system into new channels” (Schumpeter, 1911, p. 106). Credit creates purchasing power: It is
“essentially the creation of purchasing power for the purpose of transferring it to the
entrepreneur, but not simply the transfer of existing purchasing power […] by credit,
entrepreneurs are given access to the social stream of goods before they have acquired the
normal claim to it. […] Granting credit in this sense operates as an order on the economic
system to accommodate itself to the purpose of the entrepreneur, as an order on the goods
that he needs: it means entrusting him with productive forces” (Schumpeter, 1911, p. 107).
The interests of the banker and the entrepreneur are linked. The Schumpeterian
entrepreneur is a kind of projector, as defined by Bentham. The entrepreneur identifies the
business opportunities that the banker is financing explaining the process of “creative
destruction.” Credit is the driving force behind economic development as the funder Management
of the innovative and imitative entrepreneur. The role of the banker is to finance the of innovation
entrepreneur’s new combinations (Ebner, 2006). Schumpeter (1911, 1942) insists on
the difficulty for the entrepreneur (as an entrepreneurial function) to convince the banker
(as a financing function) of the merits of his project, whose function is to finance the
entrepreneur’s activities. The banker turns in a privileged way to traditional activities,
to the detriment of the entrepreneur’s sometimes futuristic projects. The banker will only 239
finance the entrepreneur if he/she also has an interest in it. Schumpeter, on the contrary, is
more skeptical. He points out that it is rather difficult to convince the banker (Schumpeter,
1911, p. 89): he (the entrepreneur) “heads the means of production into new channels.
But this he does not, not by convincing people of the desirability of accruing of a political
leader – the only man he has to convince or to impress is the banker who is to finance
him – but by buying them or their services, and then using them as he sees fit.”
According the institutionalist epistemological dimension, the banker can be reckless
and opportunistic, following Baumol’s (1990) definition of the unproductive entrepreneur
who exploits annuity situations. This attitude can lead to serious financial crises. In this
case also, the public policy plays an important role to reduce deviant behaviors. To sum
up, according to the individualist epistemological dimension, the banker’s behavior is
generally positive. The banker has to finance the entrepreneurial projects (Cantillon,
Bentham and Say). Nevertheless, according to Smith, the banker’s behavior can be
negative and produces financial crisis, if the banker behaves as a projector and takes
decisions without calculation. According to Schumpeter, the banker is an economic
function to finance innovation. The Schumpeter’s analysis is more abstracted. He analyses
capitalism in an historical dimension wherein the entrepreneur plays an historical role as
economic engine of capitalism. Of course, with the institutionalist epistemological
dimension, Baumol underlines the basical role of social and public institutions. The
financing activity of entrepreneurial activity must take place within a given institutional
framework in order to avoid unproductive and inherently unproductive rent behavior on
the part of both the entrepreneur and the banker.
So, the evolution of the economics of the entrepreneur and the banker can be understood
as a new combination of three elements: the individual, the economic function and the
institutional context. The economic reasoning becomes more and more abstract, reflecting
the character more and more socialized economic relations, as will be demonstrated in the
fourth part of this paper.

3.2 Development of social ties between the entrepreneur and the banker
3.2.1 Creating a climate of trust. How can a climate of trust be created between the
entrepreneur and the banker to facilitate the financing of business start-ups, without the
risk of bankruptcy for either of them? The major issue is to reduce the resulting
uncertainty taking by both sides. According the individualist dimension, Smith studies
closely individual relations between the entrepreneur and the banker. Smith emphasizes
strong relationships, which are based on mutual trust between the two protagonists. It is
therefore by knowing each other that a climate of trust can emerge by reducing
information asymmetries. Smith also notes that entrepreneurs often lack perspective on
their own situation, such that they are not able to assess their real professional capacities,
as well as their weaknesses. This situation is common for the projector who takes
“extravagant” risks. Smith believes that the banker must develop close relationships
with the projector to reduce the intensity of his passions. On the contrary, to succeed,
the son of a poor man seeks to develop his network of social relations, especially his
weak ties because he seeks to maintain relations with rich people whom he envies and
EJIM does not know. But he not only focuses on social relationships that are difficult to build, he
23,2 knows that he must work hard to succeed: “the poor man’s son, whom heaven in its
anger has visited with ambition, when he begins to look around him, admires the condition
of the rich. He finds the cottage of his father too small for his accommodation, and
fancies he should be lodged more at his ease in a palace. […] He sees his superiors carried
about in machines and imagines that in one of these he could travel with less
240 inconvenience. […] With the most unrelenting industry he labors night and day to acquire
talents superior to all his competitors. […] For this purpose, he makes his court to all
mankind; he serves those who he hates and is obsequious to those whom he despises”
(Smith, 1759, p. 162). As for the prudent man, he has no social ambitions like the son of the
poor man. He just started a small business. He does not want to get rich, just to ensure the
sustainability of his enterprise.
For Bentham, the credit market does not need the visible hand of the State, it regulates
itself. A convergence of interests stabilizes the relationship between the entrepreneur and
the banker. Say’s analysis is in the same direction. Although the banker maintains close ties
with the entrepreneurial dynamic in a relationship of convergence of interests, the
entrepreneur may have difficulty convincing the banker. But in a context of high
uncertainty, according to the functionalist dimension of Schumpeter, the banker can refuse
to finance entrepreneurial projects that are based on new technologies that nobody knows
and that Schumpeter does not consider as “extravagant” projects, contrary to Smith.
According the institutionalist dimension, the relationship between the entrepreneur and
the banker is part of a given institutional context (taxation, private property law, intellectual
property law, trade law, etc.) from which the rules of the social game are defined, which can
lead to productive or unproductive behavior. The productive entrepreneur of Baumol looks
like the innovative entrepreneur of Schumpeter who also underlines the role of the
institutional context to develop innovative entrepreneurship. Schumpeter also focuses his
analysis on social and cultural values.
Baumol is deeply concerned about the speculative behavior of unproductive
entrepreneurs who can amass fortunes by speculating: “[…] the reward of unproductive,
occasionally illegal but entrepreneurial acts” (Baumol, 1990, p. 915). Baumol is also very
critical of taxation because it can block entrepreneurial activity and can serve to redirect
entrepreneurial effort (Baumol, 1990, p. 915). This means that significant funds are lost for
productive investments. The contractor’s efforts may be lost due to inappropriate
institutions. Baumol favors a minimum role for the State so as not to limit individual
initiative. Good institutions are institutions that create the necessary conditions for the
convergence of interests between the entrepreneur and the banker. This institutional
framework will create weak links between the banker and the entrepreneur.
Table I summarizes the three epistemological dimensions of entrepreneur and banker
economics by showing how the six selected economists define the respective functions of the
entrepreneur and the banker that will be developed in depth in the third part.
3.2.2 Dialectic of strong and weak ties. The author has relied on Granovetter’s (1973)
theory on the strength of weak ties in this article. The strength of the ties is determined by
the time spent together, the emotional intensity, and the intensity of reciprocity. The two
individuals have maintained a working relationship or friendship for a long time, helping to
create a relationship of trust between them. On the contrary, two individuals who do not
have long-standing close relationships may have to trust each other because of the quality
of the project for which the entrepreneur is seeking financing.
In reviewing the work of the six selected economists, the author was able to see
the importance they attach to the social ties that can be used to create a climate of trust.
The economists in the first group (individualist), Cantillon, Smith, Bentham and Say,
 Individualist Institutionalist Functionalist
Management
of innovation
Economists Richard Cantillon, Adam Smith, William Baumol Joseph
Jeremy Bentham, Jean-Baptiste Say Schumpeter
Objectives of the To increase his/her income To create an enterprise according To create an
entrepreneur To be a leader to the rules of game enterprise and
To be a market maker To discover market opportunities to innovate
To innovate 241
Objectives of the To amass savings and to lend these Entrepreneurial and banker To finance
banker to improve the conditions of profit activities must be developed in entrepreneurial
To invest in entrepreneurial activities an appropriate institutional creation
with a significant potential for growth context Table I.
in a context of high uncertainty The three
The kind of social Convergence of interests based on a relation of trust in an appropriate context epistemological
ties between the dimensions of the
entrepreneur and entrepreneur’s and
the banker banker’s economy

emphasize the strong relationship between the entrepreneur and the banker. They are led
to emphasize the emotional intensity and mutual trust that bind two individuals.
According to them, the entrepreneur and the banker must built a relation of trust (based
on strong ties) to develop good business relations. On the contrary, for the economists of
the second and the third groups, Schumpeter and Baumol favor weak ties, considering
that what seals an agreement is the solidity of the project. Of course, Schumpeter and
Baumol’s analyses are indeed quite similar, since both understand the innovative
entrepreneur as the driving force of the economy, although Baumol questions the quality
of the institutional context so that it does not generate unproductive entrepreneurs, who
have an annuitant behavior. The most important according to Schumpeter and Baumol is
to have a good project, which will create a relation of trust between the entrepreneur and
the banker (weak ties).
However, with strong (favoring inter-individual relationships) or weak (favoring the
nature of the project) ties, the relationship of trust is essential, which acts as a kind of
“lubricant” (Arrow, 1974) by helping social mechanisms to function more effectively.
Table II summarizes the positions of the six economists according to their assessment of the
nature of the social ties between the entrepreneur and the banker.
Constructing the economics of the entrepreneur and the banker led the author to review
the works of six historical economists. They have been divided into three groups, according
to a given epistemological dimension: individualist, functionalist and institutionalist.

Epistemological Uncertainty Social relations Social ties

dimensions Economists and risk of the entrepreneur Weak ties Strong ties

Individualist Cantillon X Significant to get X

Smith X resources and information X
Bentham X X
Say X X
Functionalist Schumpeter X The revolutionary entrepreneur is on X Table II.
Weak and
the margins of society
strong ties between
Institutionalist Baumol X Good institutions to create X the entrepreneur and
productive entrepreneurs the banker to manage
Note: “X” means that we can observe in these different cases the risk
EJIM The individualist dimension views the entrepreneur and the banker as individuals who
23,2 either have the objective of starting a business or who can contribute to its financing.
Cantillon, Smith, Bentham, and Say identify clearly the entrepreneur and the banker as
individuals characterized by given resources and their psychology. In the functionalist
dimension, a more abstract view of the entrepreneur and the banker is developed, based on
the entrepreneurial/creative function of the entrepreneur and the banker’s financing. But in
242 either case, these are abstract functions that can be embodied by individuals at different
stages of their professional careers. In this case, the focus is on how the activities of the
entrepreneur and the banker contribute to economic growth and business development.
The institutionalist dimension focuses on the institutional context in which individuals are
incorporated, which leads them to perform given economic functions. But whatever the
epistemological dimension considered, all the economists selected focus on the context of
uncertainty in which the entrepreneur and the banker are incorporated. To reduce the
uncertainty, they develop social relationships that allow them to collect information about
each other, in order to know if it is possible to establish a relationship of trust. On the other
contrary, social ties can also lead both the entrepreneur and the banker to discover
information on markets, products or innovations that will generate profits. In all the cases,
the relationship of trust between the protagonists is established on the basis of a
convergence of interests, within a given institutional framework.

4. Updating the economy of entrepreneurs and bankers: contribution to

innovation management
Since the end of the twentieth century, the theory of the entrepreneur has evolved
considerably, reflecting the role of the entrepreneur who according to different periods is
considered as a revolutionary of the economy (nineteenth century, beginning of the
twentieth) or a survivor of the past (1950‒1970s). But since the end of the twentieth
century, the entrepreneur has become again a revolutionary of the economy. At the same
time, innovation is more than ever at the heart of corporate strategies (Laperche, 2017)
that, with the support of governments, develop very close cooperative relationships with
universities (Leydesdorff and Etzkowitz, 1996), and university knowledge spillovers
conceived as positive externalities that entrepreneurs transform into innovations
(Audretsch and Link, 2017). Crowdsourcing makes it possible to multiply the participants
in an innovative process, whereas the development of business and/or innovation eco-
systems (Moore, 1993; Jacobides et al., 2018), in the form of science parks, incubators,
clusters or more informal structures, shows that trust relationships are more than ever at
the heart of entrepreneurial success.

4.1 Transformation of capitalism into a network capitalism

Schumpeter (1942) had announced “the obsolescence of the entrepreneurial function”: “the
management of industry and trade would become a matter of current administration, and
the personnel would unavoidably acquire the characteristics of a bureaucracy” (Schumpeter,
1942, p. 131). The entrepreneur would disappear to the benefit of the organization (the
enterprise). This development was denounced by Baumol (1968) a few years later. He notes
the disappearance of the entrepreneur (as an individual) from economic theory, the reason
for which is the rise of managerial capitalism in which the entrepreneur has become a
“passive calculator” in accordance with the Schumpeterian prophecy: “(…) the entrepreneur
has been read out of the model. There is no room for enterprise or initiative. The
management group becomes a passive calculator that reacts mechanically to change
imposed on it by fortuitous external development over which it does not exert, and does not
even attempt to exert, any influence” (Baumol, 1968, p. 67). The entrepreneur has thus
become a kind of ghost that haunts economic theory: “the entrepreneur is the specter who Management
haunts our economic models” (Baumol, 1993, p. 197). The entrepreneur would even have to of innovation
become invisible (Baumol, 2010).
However, at the beginning of the twenty-first century, Audretsch (2009, p. 510) explains
that the future of capitalism lies in the “entrepreneurial society”: “the entrepreneurial society
exists in places where entrepreneurship is now the focal point for economic growth,
sustainable job creation, and competitiveness in global markets. The emergence of the 243
entrepreneurial society in the 1990s reversed a decades-long decline in America’s economic
performance. The resurgence not only prevented America from being surpassed but
enabled it to pull ahead of its European and Asian competitors.” For many economists, the
driving force of capitalism is clearly the entrepreneur, not the firm or the industrial economy
that has been developing since the beginning of the twentieth century (Bain, 1956). The end
of the twentieth century was marked by a major transformation of capitalism, a period
during which innovation became a real necessity. In a global economic context, marked by
increasingly strong competitive relationships, large companies are looking for new solutions
to increase their capacity for innovation (Laperche, 2017). The linear model of innovation is
being challenged in favor of a decentralized model, with companies favoring contractual
relationships to find new resources. These contractual relationships are developed with
universities and research centers according to the logic of the triple helix (Leydesdorff,
Etzkowitz, 1996) or with other companies, sometimes very small companies, as part of open
innovation strategies (Chesbrough, 2003). It is within the framework of the new strategies of
large companies that a new role of the entrepreneur has been shaped since the end of the
twentieth century, helping to reactivate the theory of social networks. In this increasingly
flexible institutional context wherein cooperation relations between stakeholders are ever
more closely codified, cooperation and business networks are developing in which the role of
the human factor remains predominant, along with trust.

4.2 Entrepreneur/banker relations, renewed importance of trust

Like Smith’s prudent man, the entrepreneur must show a positive image of himself, based on a
good reputation that is essential to raise the necessary means of financing. Casson (1982, 2005),
a famous contemporary economist of the entrepreneur, shows that there is a clear link between
entrepreneur theory and the industrial economy, because it is the entrepreneur who creates the
enterprise. He thus defines the entrepreneur as a “market maker” with a set of qualities already
highlighted by Say, emphasizing the entrepreneur’s capacity for judgment and his ability to
collect information: “the market-making entrepreneur also provides a vital theoretical link
between the world of information flow, in which entrepreneurs implement their ideas by making
decisions on what and where to produce. This link has so far been portrayed as a fixed link in
which an entrepreneur who has developed a market-making project must take responsibility for
implementing it himself” (Casson, 2005, p. 338). Information is not only a question of quantity,
but also of quality because it is by collecting reliable information, including assessing one’s own
capabilities, that the entrepreneur will be able to circumvent risk and succeed, or on the contrary
fail: “the entrepreneur’s perception may be right or wrong. If the optimism is warranted his
investment will be profitable, while if it is not, he will endure a loss. In the long run an
entrepreneur with good judgment will, on average, be successful, while an entrepreneur with
bad judgment is likely to be unsuccessful. Successful entrepreneurship is sustainable because it
generates profits that can be used to finance subsequent investments and build up reputation,
whereas unsuccessful entrepreneurship is not sustainable because it eventually destroys
reputation and uses up all available funds” (Casson, 2005, p. 342). The perception of risk is
subjective because it depends on the assurance that the entrepreneur can have in his own
abilities: “a confident entrepreneur invested when others do not because he is both optimistic
and confident in his own judgment, relative to others” (Casson, 2005, p. 331). Entrepreneurs
EJIM must not be opportunist and should be shaneattentive to their image, as they run the risk of not
23,2 finding financing. Trust is therefore essential. The entrepreneur “requires a reputation for
honesty, and such a reputation can be costly and time-consuming to acquire” (Casson, 2005,
p. 341). The relationship between the entrepreneur and the banker must be based on a
relationship of mutual trust, including the case of weak ties, based primarily on a convergence of
interests. Shane (2003) develops a renewed analysis of the entrepreneur by combining the
244 contributions of Schumpeter, Kirzner and Granovetter. He considers that the decisions taken by
the entrepreneur are the result of a combination of psychological (motivation, core evaluation,
cognition), and non-psychological (education, work experience, age, social position, and
opportunity cost) factors (Shane, 2003, p. 62). But the entrepreneur is a social agent, his decisions
are influenced by the economic, social, political, and technological context in which he is
embedded, as shown by Shane, another famous contemporary thinker of the entrepreneur.
According to him, the context has an impact on the definition of entrepreneurial opportunities
(supply, demand, industry, life cycle, industrial structure) (Shane, 2003, p. 121). Shane focuses on
the social ties that unite individuals belonging to the same society, and also distinguishes
between strong and weak ties: “strong ties, or ties to people that one trusts, are also beneficial to
opportunity discovery. Because strong ties are trustworthy, they provide people with
information that the recipients believe to be accurate” (Shane, 2003, p. 49).
The entrepreneur is frequently helped by his family (strong ties), and thus bypasses the
banker’s mistrust. Casson (1982, p. 338) notes that there are barriers to entry (a term
borrowed from the industrial economy) to become an entrepreneur: “[…] financial
endowments and organizational skills are both significant barriers to entry. The problem of
financial resources may be overcome in various ways (for example, by mortgaging a house
to obtain a business loan, or marrying a wealthy heiress) but all such strategies still require
the entrepreneur to possess certain resources from the outset (for example, a house in which
he holds positive equity, or social connections and good looks).” But not all entrepreneurs
have a significant fortune, which can be a guarantee to access other means of financing,
especially bank credit. As Schumpeter points out, not all entrepreneurs have the same
wealth and face significant inequalities in access to credit. Also, more recently, the banker’s
reluctance has led to the development of alternative means of financing such as
crowdfunding (Corbel et al., 2018; Mariage and Le Pendeven, 2015), which is largely based
on the trust that the various financers have in the entrepreneur and in his project, whether
or not they are close to each other. Moreover, the increase in the supply of entrepreneurs
since the 1980s is basically the result of rising unemployment. Many of these individuals
become entrepreneurs out of necessity and face significant financing problems. Table III
summarizes the contributions of Casson and Shane, who have been instrumental in
reformulating the entrepreneur’s economics. They both position themselves in the
institutionalist dimension and both underline the importance of the different social ties that
link the entrepreneur and the banker in a multi-uncertain institutional context.

4.3 The role of trust in entrepreneurial networks

Generally speaking, there are currently two theoretical schools that study social
entrepreneurial networks (Brown et al., 2018). The first is based on the study of social
ties per se, the second on business networks. The first is firmly rooted in sociological
literature. The second is closely linked to the literature on entrepreneurship. Whereas the
first school studies how the entrepreneur builds his own social network to create a start-up,
for example, the second focuses on business growth and how entrepreneurs collect new
resources to develop their business. A large number of recent articles clearly show the
current relevance of social network theory in entrepreneurial activities, highlighting
the relationship of trust that is built between stakeholders. These contemporary authors
are part of the institutionalist dimension from which the rules of the game are defined.
Institutionalist Economists and Entrepreneur Social ties between the entrepreneur
Management
dimension main works definition and the banker of innovation
Marc Casson The entrepreneur is A combination of convergence of interests
“The a specialized between the entrepreneur and the banker, which
Entrepreneur” individual who is based on a relation of trust between them
(1982) takes decisions for Importance of the role of banks and more generally
Entrepreneurship the coordination of of institutions to finance the entrepreneurial 245
and the Theory of rare resources and function to reduce asymmetry of information
the Firm, Journal of information between the entrepreneur and the banker
Economic Behavior The entrepreneur is The image and the honesty of the entrepreneur are
& Organization, Vol. a market maker important to finance entrepreneurial activities
58, 327-348 (2005)
Scott Shane “Entrepreneurship A combination of convergence of interests
“A General is an activity that between the entrepreneur and the banker, which
Theory of involves the is based on a relation of trust between them
Entrepreneurship” discovery, The bank is not the only source of financing for
(2003) evaluation and the entrepreneur, there are other sources also:
exploitation of friends and family members, business angels,
opportunities to venture capital firms, governments, and public
introduce new markets
goods and services, Strong ties are based on trust. They provide
ways of organizing, information for people that they need to discover
markets, processes, business opportunities
and raw material There are two kinds of social ties: direct and
through organizing indirect Table III.
efforts that “Direct ties are personal relationships between Casson and Shane or
previously had not the entrepreneur and the investor” updating the
existed” (2003, p. 4) “Indirect ties are direct tie relations between an economics of the
entrepreneur and a third party who is also entrepreneur
connected to an investor” (2003, p. 183) and the banker

Shu et al. (2018) stress the importance of social relationships in the development of
entrepreneurial activities, but they also stress that “network ties are not born naturally”
(Shu et al., 2018, p. 198), they are a social construct. Social networks are built by
entrepreneurs according to their own professional background and social origin. They allow
them to collect resources to create and develop a business. They question the ability of
entrepreneurs to build their own social networks and how they can use them to collect
resources to develop their activities. They note that information retrieval is the first task of
the entrepreneur in order to reduce information asymmetry. The access to quality
information is a guarantee for the future success of the entrepreneur. The role of social
networks and the trust they imply are not only important in bilateral relations between the
entrepreneur and the banker but also in multilateral relations, in venture capital, or
crowdfunding operations. Hoan (2017) particularly highlights the role of peers in social
networks in venture capital operations, thus demonstrating the importance of trusting
relationships between stakeholders, which are increasingly easy to build between
individuals who belong to the same environment. In the same context, many recent studies
show that in a crowdfunding campaign, the first contributors are located in the same social
space as the entrepreneur. These are generally family members or individuals who know the
entrepreneur directly (Agrawal et al., 2011; Bessière and Stéphany, 2017; Hermer, 2011;
Mollick, 2014). It is also from this first restricted circle that the relationship of trust is
strongest. Agrawal et al. (2011) even point out that most of the first contributors to a
crowdfunding campaign are located in the same territory as the entrepreneur. They are
family members or close friends. It is a strong tie. Other studies, on the contrary, emphasize
EJIM the importance of the diversity of social networks and the fact that networks can play a
23,2 different role, depending on the entrepreneur’s objective (Upson et al., 2017). But the
question of trust remains paramount because some entrepreneurs may select false
information to seek and find funders or deliberately use certain information to exert
pressure on potential funders (Pollack and Bosse, 2014). This behavior creates a situation of
information asymmetry that hinders the creation of a relationship of trust between
246 entrepreneurs and financiers. Opportunist behavior always has a negative impact on
business because it hinders the creation of a climate of trust.

5. Conclusion
The purpose of the economy of the entrepreneur and the banker proposed in this article was to
study the relationships between these two economic functions, which are entrepreneurship, on
the one hand, and its financing by the banker, on the other. But beyond the generic definition
of these two functions, there is a wide variety of definitions of the entrepreneur, which has an
impact on the way uncertainty is understood and risk is managed, coming back to the
contribution of pioneer economists of the entrepreneur in helping to understand this. Is the
entrepreneur a risk-taker, a prudent man, a projector, a revolutionary, a productive or
unproductive entrepreneur? If the entrepreneur’s projects are extravagant, he can go into debt
for no reason; the risk of a financial crisis is even greater if the banker behaves in the same
way. Hence, the interest is in favoring strong links through which a relationship of trust can
be built. But other cases show that the banker may be reluctant to finance the innovative
entrepreneurs’ projects and opt for financing that is not risky because it is known.
The economic evolution over the past 30 years has given the entrepreneur a major
position again. Managerial capitalism is transforming itself into an entrepreneurial society.
But twenty-first century capitalism is not that of the eighteen or nineteenth century: the
entrepreneur is incorporated in professional networks in which the contributions of
entrepreneurs, enterprises, research centers, universities and public institutions are
combined, in which trust plays always a fundamental role to develop business activities.
The economics of the entrepreneur and the banker based on the analysis of their
historical roots highlights various invariables that can used today to understand the
financing relation related to the management of innovation. Since the twentieth century,
economic relations have become more and more interdependent, as shown by the creation of
business ecosytems, the development of strategies of open innovation in which firms
cooperate with a large number of stakeholders (enterprises, entrepreneurs, public
institutions, universities, etc.). Although strong ties always play a role in the quest for new
financing resources, the increase in the number of stakeholders enables weak ties to have a
greater importance. The quality of the project will thus be essential to find new financing
resources. This shows the importance to develop assistance and support for business
creation to advise the entrepreneur so that he/she develops a good project.

Note
1. www.gemconsortium.org/

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Further reading
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Boutillier, S. (2018), “Points saillants des relations entre l’entrepreneur et le banquier dans la
pensée économique: entre convergence des intérêts et divergences stratégiques”, RRI Working
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entrepreneurship”, Journal of Innovation, Economics & Management, Vol. 2 No. 14, pp. 9-40.
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f89bec5e9

Corresponding author
Sophie Boutillier can be contacted at: sophie.boutillier@univ-littoral.fr

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