ENTREPRENEURIAL OPTIMISM, THE NATURE OF ENTREPRENEURIAL EXPERIENCE AND DEBT DECISION FOR BUSINESS START-UP

Hédia Fourati and Rihab Ben Attitalah
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Hédia Fourati: Faculty of Economic and Management, University of Sfax, Tunisia, North Africa
Rihab Ben Attitalah: Faculty of Economics and Management, University of Sfax, North Africa

International Journal of Innovation Management (ijim), 2018, vol. 22, issue 03, 1-26

Abstract: This paper studies the entrepreneurial optimism and debt decisions for business start-up. By analysing a sample of 160 business start-up and by using the panel data estimation, we study entrepreneurs’ optimism and its impact on debt decision of business start-up. The measure of entrepreneurial optimism is based on the entrepreneur earnings forecasts initiated by Lin et al. (2005). Meanwhile, the nature of entrepreneurial experience (serial and portfolio entrepreneur) has an effect on entrepreneurial optimism and leads to more or less optimistic entrepreneur. The results reveal that optimistic entrepreneur prefers equity in funding the financial deficit. Serial entrepreneurs tend to use more debt funding. In the dynamic model, the entrepreneur acquiring business concurrently adjusts slowly to debt ratio. Nevertheless, the sequential entrepreneurial experience leads to more optimism and so on more debt use. Given the governance role played by banks, the high adjustment cost for start-up is a consequence of the efficiency of the quality of control exercised by banks that in spite of entrepreneurial optimism, the entrepreneur does not convince the financiers to be so confident on the prospect of the business.

Keywords: Behavioural corporate finance; start-up; overconfidence; dynamic trade-off theory; deficit; experience (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S136391961850024X

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