Impact of Behavioral Biases on Firm Performance: Mediating Role of Entrepreneurial Innovations

Abstract

Behavioral finance provides a better understanding and elaborates how attitude and cognitive errors affect investors as well as entrepreneurs or other decision makers. The primary objective of this study is to find those behavioral biases which impact the firm’s performance and managerial, financial decision-making process through the mediating role of entrepreneurial innovations. This study predominantly focused on four biases that entrepreneurs apparently exhibit in their decisions. The survey questionnaire technique was used to collect data for research and analysis; data were collected from 109 respondents which include entrepreneurs and managers from non-financial firms of Pakistan. SEM-AMOS 21 was used to analyze the structural model. The finding shows that innovative organizations often predict the low tendency of overconfidence and usually are risk-averse in their financial decision. But the current study shows that innovative organizations can enhance the profitable performance of the firm with behavioural biases.

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