Financing and advising with (over)confident entrepreneurs: an experimental investigation

Laurent Vilanova (), Nadège Marchand () and Walid Hichri
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Nadège Marchand: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique

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Abstract: We test in the laboratory how entrepreneurs' skill perceptions influence the design of financing and advising contracts. Our theoretical framework proposes that selfconfident entrepreneurs prefer issuing debt whereas low self-confident ones prefer equity which induces strong investor assistance. The prevalence of overconfidence makes investors more reluctant to accept debt offers and constrains self-confident entrepreneurs to finance through mixed securities. Experimental results show that self-confident entrepreneurs issue more debt-like securities and receive less assistance. We also show that entrepreneurs learn not to offer pure debt and that initial ignorance of their own skills reinforces entrepreneurs' ability to learn through risky choices.

Keywords: Entrepreneurs; investment decision; learning; overconfidence; venture capital (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ent, nep-exp and nep-ger
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01154514v1
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Working Paper: Financing and advising with (over)confident entrepreneurs: an experimental investigation (2016)
Working Paper: Financing and advising with (over)confident entrepreneurs: an experimental investigation (2015)
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