Entrepreneurial optimism and creative destruction

Lars Persson and Thomas Seiler

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: Using textual analysis of annual reports of US-listed firms, we provide empirical evidence that uncertainty (rather than risk) and optimism are distinctive characteristics of high-impact entrepreneurial firms (recently listed firms) relative to old incumbent firms. We construct an entrepreneurial entry predation model with uncertainty based on this evidence. We show that optimistic entrepreneurs may enter markets that otherwise would be blocked from entry by incumbents’ predatory threats. Thus entrepreneurial optimism may be to the benefit of consumers. Entrepreneurial optimism can also create a strategic advantage for entrepreneurs since incumbents may react by being less aggressive in product market interactions, which will benefit the profitability of the entrepreneur’s venture and consumers via lower prices.

Keywords: Uncertainty; Optimism; High-impact entrepreneurial firms; Entry; Predatory threats; Welfare (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Working Paper: Entrepreneurial Optimism and Creative Destruction (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822000869

DOI: 10.1016/j.najef.2022.101737

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