{"title":"Does overconfidence affect venture capital firms’ investment?","authors":"Salma Ben Amor , Maher Kooli","doi":"10.1016/j.jbef.2023.100884","DOIUrl":null,"url":null,"abstract":"<div><p>We examine the effect of overconfidence bias on VC firms’ investment. Using a sample of U.S. venture capital exits by IPOs and M&As between 2000 and 2019, we construct an overconfidence index and find a strong positive relationship between the follow-on funds and the degree of overconfidence. We also find that the higher the VC’s overconfidence, the shorter the time to raise new capital. Further, we show that overconfident VCs are more likely to exit their investments via IPOs rather than M&As and that the degree of overconfidence negatively and significantly affects the time to exit.</p></div>","PeriodicalId":47026,"journal":{"name":"Journal of Behavioral and Experimental Finance","volume":"41 ","pages":"Article 100884"},"PeriodicalIF":4.3000,"publicationDate":"2023-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Behavioral and Experimental Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S2214635023000989","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We examine the effect of overconfidence bias on VC firms’ investment. Using a sample of U.S. venture capital exits by IPOs and M&As between 2000 and 2019, we construct an overconfidence index and find a strong positive relationship between the follow-on funds and the degree of overconfidence. We also find that the higher the VC’s overconfidence, the shorter the time to raise new capital. Further, we show that overconfident VCs are more likely to exit their investments via IPOs rather than M&As and that the degree of overconfidence negatively and significantly affects the time to exit.
期刊介绍：
Behavioral and Experimental Finance represent lenses and approaches through which we can view financial decision-making. The aim of the journal is to publish high quality research in all fields of finance, where such research is carried out with a behavioral perspective and / or is carried out via experimental methods. It is open to but not limited to papers which cover investigations of biases, the role of various neurological markers in financial decision making, national and organizational culture as it impacts financial decision making, sentiment and asset pricing, the design and implementation of experiments to investigate financial decision making and trading, methodological experiments, and natural experiments.
Journal of Behavioral and Experimental Finance welcomes full-length and short letter papers in the area of behavioral finance and experimental finance. The focus is on rapid dissemination of high-impact research in these areas.
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