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Financing and advising with (over)confident entrepreneurs: an experimental investigation

Author

Listed:
  • Laurent Vilanova

    (COACTIS - COnception de l'ACTIon en Situation - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne)

  • Nadège Marchand

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Walid Hichri

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We test in the laboratory how entrepreneurs' skill perceptions influence the design of financing and advising contracts. Our theoretical framework proposes that selfconfident entrepreneurs prefer issuing debt whereas low self-confident ones prefer equity which induces strong investor assistance. The prevalence of overconfidence makes investors more reluctant to accept debt offers and constrains self-confident entrepreneurs to finance through mixed securities. Experimental results show that self-confident entrepreneurs issue more debt-like securities and receive less assistance. We also show that entrepreneurs learn not to offer pure debt and that initial ignorance of their own skills reinforces entrepreneurs' ability to learn through risky choices.

Suggested Citation

  • Laurent Vilanova & Nadège Marchand & Walid Hichri, 2015. "Financing and advising with (over)confident entrepreneurs: an experimental investigation," Working Papers halshs-01154514, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01154514
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01154514
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    Cited by:

    1. Hédia Fourati & Rihab Ben Attitalah, 2018. "Entrepreneurial Optimism, The Nature Of Entrepreneurial Experience And Debt Decision For Business Start-Up," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 22(03), pages 1-26, April.

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    More about this item

    Keywords

    Entrepreneurs; investment decision; learning; overconfidence; venture capital;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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