Financing and advising with (over)confident entrepreneurs: an experimental investigation

Laurent Vilanova (1) , Nadège Marchand (2) , Walid Hichri (2)

1 COACTIS - COnception de l'ACTIon en Situation
2 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne

We test in the laboratory how entrepreneurs' skill perceptions influence the design of financing and advising contracts. Our theoretical framework proposes that selfconfident entrepreneurs prefer issuing debt whereas low self-confident ones prefer equity which induces strong investor assistance. The prevalence of overconfidence makes investors more reluctant to accept debt offers and constrains self-confident entrepreneurs to finance through mixed securities. Experimental results show that self-confident entrepreneurs issue more debt-like securities and receive less assistance. We also show that entrepreneurs learn not to offer pure debt and that initial ignorance of their own skills reinforces entrepreneurs' ability to learn through risky choices.

Mots clés: Entrepreneurs; investment decision; learning; overconfidence; venture capital

Domaines: Economies et finances

Laurent Vilanova, Nadège Marchand, Walid Hichri. Financing and advising with (over)confident entrepreneurs: an experimental investigation. 5th Annual Lithuanian Conference on Economic Research, Jun 2016, Vilnius, Lithuania. ⟨halshs-01418222⟩