The Drivers of Entrepreneurial Intention: The Role of Social Capital and Overconfidence

Abstract

INTRODUCTIONBased on the drastic changes in the labour market, government and policy-makers worldwide are looking for ways to drive innovation and create jobs (Van Praag and Versloot, 2007). Today's unprecedented entrepreneurial boom is creating career opportunities for young people. A rising number of creative young people is eager to learn entrepreneurship (York and Venkataraman, 2010).Due to the call for more entrepreneurship and more entrepreneurial activities (York and Venkataraman, 2010), knowing the intention and willingness of people in the labour market is important. It would help us to investigate the way in which entrepreneurial ventures are created. Drawing from trait approach, early studies tried to explore how many psychological traits differentiate entrepreneurs from non-entrepreneurs (Das and Teng, 1997; Hatten and Coulter, 1997; Shaver and Scott, 1991). Afterwards, researchers began to investigate how entrepreneurs think (Wadeson, 2008). Using cognitive approaches allow us to distinguish the beliefs, values, cognitive styles and mental processes of entrepreneurs from those of non-entrepreneurs (Sa'nchez, Carballo, and Gutierrez, 2011).In a rapidly changing environment, high uncertainty makes decision-making process more complex. It is difficult to act as a rational decision maker. Kannadhasan and Nandagopal (2010) suggest that cognitive biases play an important role in decision making. This study has extended a cognitive theory in the context of new venture formation by capturing the entrepreneurs' perceptions of their overconfidence and decision to start a new venture (Keh, Foo, and Lim, 2002; Zacharakis and Shepherd, 2001).Borrowing from the theory of cognitive bias, this study observed how cognitive biases affect the decision to create a new venture (Laibson and Zeckhauser, 1998). Among many kinds of cognitive biases, this study considered overconfidence - 'a failure to recognize the limits of our knowledge' (Baron and Markman, 1999) - that has been studied widely and that is relevant to entrepreneurship (Krueger, 2005). The purpose of this study was to examine how overconfidence as a cognitive bias affects entrepreneurs' decision making.The literature on entrepreneurship has examined the relationships between biases and a range of constructs including the decision to start a venture (Franke, Von Hippel, and Schreier, 2006; Keh et al., 2002; Simon, Houghton and Aquino, 2000). Another purpose of this study was to study what factors affect overconfidence biases.Drawing upon the theory of social capital, the researchers propose that social environment interacting with individuals and organizations, drives the opportunity for discovery, evaluation, and exploitation (Corbett, 2007; De Carolis and Saparito, 2006). Social capital refers to the value embedded in the social relationships of individuals or collectives (Adler and Kwon, 2002; Payne, Moore, Griffis, and Autry, 2011). Social capital was a foundational theoretical perspective (Murphy, 2011) that has the potential to recognize entrepreneurship (Baron and Tang, 2009; Liao and Welsch, 2005; Ireland, Hitt, and Sirmon, 2003). De Carolis and Saparito (2006) proposed that entrepreneurs' rich social capital could deepen their cognitive biases (representativeness bias). De Carolis, Yang, Deeds, and Nelling (2009) empirically confirmed the fact that an entrepreneur's social capital would enhance shared attitudes and mental models through social ties, which in turn would increase cognitive bias (illusion of control). These two papers ignore the overconfidence bias and the mediating role of social capital on entrepreneurial intention. This study aimed to fill the gap.In terms of the operationalization of social capital, this study argues that entrepreneurship related to social capital, rather than general social capital is more powerful in explaining entrepreneurial intention. Following Seibert, Kraimer, and Liden (2001), social capital includes accessibility of information or resources and career sponsorship. …