Abstract

This paper investigates the affect of overconfidence on entrepreneurial investment. Overconfidence in this study describes a positive bias in self-perception, which can manifest in regard to an individual’s knowledge, accuracy of predictions, and personal abilities (Hayward, Shepherd and Griffin, 2006). Overconfidence has been shown in other management and finance domains to be associated with greater riskiness of product introductions (Simon and Houghton, 2003), greater persistence in developmental efforts of technologies (Lowe and Ziedonis, 2006), and greater cash-flow sensitivity of corporate investment (Malmendier and Tate, 2005). In this paper, we argue that overconfidence will influence the decision to begin operating the venture, the time and financial capital invested, the propensity to seek outside funding, and the riskiness of the investment.

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