Entrepreneurial overconfidence and firm survival: an analysis using the Kauffman firm survey

Abstract

We used the Kauffman Firm Survey of ventures founded in the year 2004 to identify overconfident (OC) entrepreneurs and found, contrary to the existing literature, that the hazard ratio for these entrepreneurs was lower than the corresponding value for their non-OC peers. We categorized an entrepreneur as OC if he or she believed that his or her firm enjoys a competitive advantage over its industry peers, while simultaneously underperforming relative to the industry in terms of average initial ROA. Specifically, we looked at the average ROA during the years 2004–2007 and compared it to the industry median. In addition to our hazard findings, we discovered that these OC entrepreneurs, while starting with lower initial ROA levels relative to their industry peers, may have enjoyed slightly better movement in ROA over the intervening years. Our results are explained in the context of the psychological literature on optimism.

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