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Are individuals entering self‐employment overly optimistic? an empirical test of plans and projections on nascent entrepreneur expectations
Author(s) -
Cassar Gavin
Publication year - 2010
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.833
Subject(s) - rationality , ex ante , economics , test (biology) , new ventures , microeconomics , entrepreneurship , marketing , business , finance , macroeconomics , political science , paleontology , biology , law
This research examines the rationality of the expectations of nascent entrepreneurs. Consistent with conjectures regarding entry into self‐employment, I find substantial overoptimism in nascent entrepreneurs' expectations, in that they overestimate the probability that their nascent activity will result in an operating venture. Further, for those ventures that achieve operation, individuals overestimate the expected future sales and employment. To explain variations in overoptimism, I posit that those individuals who adopt an inside view to forecasting through the use of plans and financial projections, will exhibit greater ex ante bias in their expectations. Consistent with the inside view causing overoptimism in expectations, I find that the preparation of projected financial statements results in more overly optimistic venture sale forecasts. Copyright © 2010 John Wiley & Sons, Ltd.