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Managerial Overconfidence of Entrepreneurs: Contextual Explanations and the Aid of Technological Developments

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Abstract

This chapter uses budget forecasting to highlight (i) if entrepreneurs make on average inaccurate predictions, (ii) the possible drivers of inaccuracy, (iii) the managerial implication of this biased attitude. The study empirically analyzes a sample (N = 151) of a peculiar context: small and medium non-financial Italian firms. We argue that what drives inaccuracy is an overconfidence attitude. Several independent variables are collected to capture and explain the potential underlying mechanisms: individual characteristics , such as entrepreneur’s gender, age, and educational level and contextual characteristics , such as the firm’s organizational structure and the processes of administration and control. The variation between budget and final balance sheet of EBITDA, equity, and borrowing costs are used as dependent variables. We find that when entrepreneurs decide without a joint committee, biases are more pronounced. Interestingly, we show how the proper implementation of an integrated software system increases substantially forecasting accuracy. Focusing on a peculiar geographical area affected by the recent crisis, this chapter elicits for the first time overconfidence in SMEs through forecast predictions in the annual budget.

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  1. University of Eastern Piedmont Amedeo Avogadro, Novara, Italy

    Anna Chiara Invernizzi

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Invernizzi, A.C. (2018). Managerial Overconfidence of Entrepreneurs: Contextual Explanations and the Aid of Technological Developments. In: Overconfidence in SMEs. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-66920-5_2

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