Overoptimism and the Performance of Entrepreneurial Firms

Posted: 9 Nov 2009

See all articles by Robert A. Lowe

Robert A. Lowe

Wellspring Worldwide

Arvids A. Ziedonis

KU Leuven - Faculty of Economics and Business; Department of Management, Strategy, and Innovation

Multiple version iconThere are 2 versions of this paper

Date Written: 2006

Abstract

This study starts from the premise thatoveroptimism influences entrepreneurs' decisions to start and sustain newventures. The role of cognitive bias on entrepreneurial venture performances isstudied, using data regarding 734 inventions from the University of Californiagathered between 1981 and 1999, and licensed exclusively to a firm. The analysis considers three aspects of performance: (1) the likelihood ofachieving commercial sales; (2) the likelihood of terminating a developmenteffort; and (3) university licensing revenues from a developed invention. Theresults suggest that, in general, entrepreneurs commercializing universitytechnology do not seem overoptimistic in their decision to start a firm. Also,licenses to start-ups bring licensing revenues at least as high as revenues forlicenses to established firms. The findings also suggest that economic returns associated with thetechnologies in the sample are obtained after the start-up is acquired by anestablished firm. This, in turn, suggests that start-ups could be viewed astransitional organizational forms in the market for technologycommercialization. The evidence also suggests that the active pursuit oflicensing to university start-ups is valuable. (CBS)

Keywords: Cognitive bias, Licensing revenues, Licensing strategies, Commercialization, Rates of return, Academic research, University spinouts, Colleges & universities, Optimism, Technology transfer, Cognitive models, Startups

Suggested Citation

Lowe, Robert A. and Ziedonis, Arvids Alexander, Overoptimism and the Performance of Entrepreneurial Firms (2006). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1502064

Robert A. Lowe

Wellspring Worldwide ( email )

350 N LaSalle Drive
Suite 1200
Chicago, IL 60654
United States

Arvids Alexander Ziedonis

KU Leuven - Faculty of Economics and Business; Department of Management, Strategy, and Innovation ( email )

Warmoesberg 26
Brussels, 1000
Belgium

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