Decision biases and entrepreneurial finance

Gordon K. Adomdza, Thomas Astebro and Kevyn Yong
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Gordon K. Adomdza: Ashesi University College
Kevyn Yong: ESSEC Business School

Small Business Economics, 2016, vol. 47, issue 4, No 1, 819-834

Abstract: Abstract We study the effects of three cognitive biases by the entrepreneur on obtaining funding. We find planning fallacy to increase funding amounts, whereas optimism and overconfidence by the entrepreneur have no effects on funding amounts from others. Further, planning fallacy positively impacts the probability of strong-tie (inside) investments but negatively impacts the probability of weak-tie (outside) investments. Mediation analyses further show that planning fallacy positively impacts venture performance through both self and other investor funding amounts. Our findings are not consistent with the pecking order theory of informal finance and suggest positive effects of at least one cognitive bias on entrepreneurial business success through increased funding.

Keywords: Entrepreneurship; Decision biases; Cognitive biases; Entrepreneurial finance; Informal finance; Fundraising; Social ties; Venture performance; L26; D81 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s11187-016-9739-4

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