Hubristic founders and entrepreneurial exit: a proposed framework

Abstract

As occurs in new venture creation, founders’ biases may also play a role in the context of entrepreneurial exit. This conceptual paper presents a framework about how founders’ hubris affects exit strategies. Our framework points out three key aspects. First, hubris bias influences entrepreneurs’ intentions, and the performance threshold is linked to business exit. Second, when the firm shows performance below the expected threshold, hubristic founders are prone to escalate firm investments and insist on pursuing choices that have beforehand resulted in inadequate performance. Such hubristic behavior will likely lead to an entrepreneurial exit, resulting in bankruptcy. However, we also recognize the less probable occurrence of a bright side of hubris, linked to its support to long-term effort perseverance and interest consistency. Third, when a firm performs above the expected threshold, hubristic founders prefer to walk out of their business through a financial harvesting strategy, thereby excluding stewardship behavior option under such conditions. To detect the practical implications of our framework, we provide a series of illustrative quotes, anecdotes, and cases. Implications for the entrepreneurial exit literature and the hubris theory of entrepreneurship are discussed.