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

Betzer, André ; Bongard, Inga van den ; Theissen, Erik ; Volkmann, Christine

Document Type: Working paper
Year of publication: 2017
The title of a journal, publication series: SSRN Working Paper Series
Place of publication: Rochester, NY
Publication language: English
Institution: Business School > ABWL u. Finanzierung (Theissen)
Subject: 330 Economics
Keywords (English): overconfidence , small and medium-sized enterprises , corporate investment , private companies
Abstract: Using a unique panel data set of private German firms over the period 2002 to 2013 we analyze the relation between managerial overconfidence and investment policy in small and medium-sized firms. We construct direct estimates of managerial overconfidence that are based on sales forecasts. We find that overconfident managers are more likely to invest, and that this relation is driven by expansion investments (as opposed to replacement investments). Most importantly, we provide empirical evidence on the determinants of failed (downsized, delayed or abandoned) corporate investment projects. Controlling for socio-demographic variables and firm characteristics, we find that investment projects planned by overconfident managers are more likely to fail. When we differentiate between the three categories of failure (abandoning, delaying, and downsizing) we find that overconfident managers are more likely to delay, rather than to abandon or downsize, an investment project. We offer an explanation that is based on the theory of cognitive dissonance.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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