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All is not lost that is delayed: overconfidence and investment outcomes

Author

Listed:
  • André Betzer

    (Bergische Universität Wuppertal – Schumpeter School of Business and Economics)

  • Inga Bongard

    (University of Mannheim)

  • Felix Schweder

    (Bergische Universität Wuppertal – Schumpeter School of Business and Economics)

  • Erik Theissen

    (University of Mannheim
    University of Mannheim)

  • Christine Volkmann

    (Bergische Universität Wuppertal – Schumpeter School of Business and Economics)

Abstract

We use a unique panel data set of private German firms to analyze the relation between managerial overconfidence and investment policy in small and medium-sized firms. We find that overconfident managers invest more, and that this relation is driven by expansion investments. When considering the outcome of investment projects, we find that projects initiated by overconfident managers are less likely to be completed as planned. When we differentiate between three types of non-completion (downsizing, delaying, and abandoning), we find that overconfident managers are more likely to delay, rather than to abandon or downsize a project.

Suggested Citation

  • André Betzer & Inga Bongard & Felix Schweder & Erik Theissen & Christine Volkmann, 2023. "All is not lost that is delayed: overconfidence and investment outcomes," Review of Managerial Science, Springer, vol. 17(7), pages 2297-2324, October.
    • Handle: RePEc:spr:rvmgts:v:17:y:2023:i:7:d:10.1007_s11846-022-00578-w
    DOI: 10.1007/s11846-022-00578-w
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    More about this item

    Keywords

    Overconfidence; Small and medium-sized enterprises; Corporate investment; Private companies;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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