Does overconfidence affect venture capital firms’ investment?

Salma Ben Amor and Maher Kooli

Journal of Behavioral and Experimental Finance, 2024, vol. 41, issue C

Abstract: We examine the effect of overconfidence bias on VC firms’ investment. Using a sample of U.S. venture capital exits by IPOs and M&As between 2000 and 2019, we construct an overconfidence index and find a strong positive relationship between the follow-on funds and the degree of overconfidence. We also find that the higher the VC’s overconfidence, the shorter the time to raise new capital. Further, we show that overconfident VCs are more likely to exit their investments via IPOs rather than M&As and that the degree of overconfidence negatively and significantly affects the time to exit.

Keywords: Venture capital; Overconfidence; Exit; IPO; M&A (search for similar items in EconPapers)
JEL-codes: G11 G24 G30 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:41:y:2024:i:c:s2214635023000989

DOI: 10.1016/j.jbef.2023.100884

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