Overoptimism and the Performance of Entrepreneurial Firms

Management Science, Vol. 52, No. 2, pp. 173-186, February 2006

Posted: 13 Dec 2006

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

Abstract

Recent theoretical and empirical research on cognitive bias in decision making suggests that overoptimism critically influences decisions of entrepreneurs to establish and sustain new ventures. We investigate whether such cognitive bias influences entrepreneurial venture performance using data on commercialization efforts for university inventions. In contrast to prior studies, our results suggest that entrepreneurial overoptimism does not appear to be the determining factor in the decision to found a firm. We do find that entrepreneurs continue unsuccessful development efforts for longer periods of time than do established firms, which is consistent with entrepreneurial overoptimism in the development of technologies with uncertain market prospects. This latter finding is also consistent with rationality based models of decision making behavior, however. We find that the economic returns associated with many of the technologies in our sample are realized after the start-up has been acquired by an established firm, suggesting that start-ups may serve as a transitional organizational form in the market for technology commercialization.

Keywords: Entrepreneurship, University Technology Transfer, Cognitive Bias

JEL Classification: L2, O31

Suggested Citation

Lowe, Robert A. and Ziedonis, Arvids Alexander, Overoptimism and the Performance of Entrepreneurial Firms. Management Science, Vol. 52, No. 2, pp. 173-186, February 2006, Available at SSRN: https://ssrn.com/abstract=950467

Robert A. Lowe

Wellspring Worldwide ( email )

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

Arvids Alexander Ziedonis (Contact Author)

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

Warmoesberg 26
Brussels, 1000
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
891
PlumX Metrics