Perceiving the Value of Business Planning

Anne Chwolka () and Matthias Raith ()
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Anne Chwolka: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg
Matthias Raith: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg

No 9017, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: The value of business planning has been subject to much controversy over the past years. In-deed, there appears to be an escalation in empirical research, with opposing implications and diverging approaches to teaching entrepreneurship. Most empirical studies have taken an ex-post, comparative view of the relationship between planning and performance. In this paper, we introduce an ex-ante perspective by formally characterizing the decision of the nascent entrepreneur whether or not to start a business and whether or not to plan beforehand. We focus on the evaluative function of business planning, define the information value of busi-ness planning, identify its influencing factors, and show how costs of business planning de-termine the quality of planning. We find as the crucial aspect of good evaluative business planning that it helps to identify and to sort out poor business ideas before they reach the mar-ket. We contrast our results with conclusions drawn from empirical studies that have been critical of planning. In a setting in which, by construction, planning has a positive value, we question several popular negative implications by showing how they result from an incom-plete sample of entrepreneurs.

Keywords: Business plan; Start-ups; Entrepreneurship; Decision Making; Uncertainty (search for similar items in EconPapers)
JEL-codes: C11 D81 L26 M13 O21 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-05
New Economics Papers: this item is included in nep-ent
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