What the study found
The study found a nonlinear relationship between entrepreneurial overconfidence and small and medium-sized enterprise (SME) financing outcomes. In the sample studied, mildly overconfident entrepreneurs were less likely to receive the loans they applied for than both unconfident and extremely overconfident entrepreneurs.
Why the authors say this matters
The authors say this matters because they argue that moderate overconfidence may lead entrepreneurs to make costly efforts that financiers view as a favorable signal. The study suggests this trade-off helps explain why overconfidence does not simply lead to worse financing outcomes in a straight line.
What the researchers tested
The researchers tested how entrepreneurial underconfidence and overconfidence were related to external financing decisions and outcomes for SMEs. They used a large sample of U.K. small and medium-sized enterprises and a novel measure of overconfidence.
What worked and what didn't
The study reports significant nonlinear relationships between overconfidence and measures of financial demand and supply. It also finds that mildly overconfident entrepreneurs were less likely to obtain the loans they applied for than both unconfident and extremely overconfident entrepreneurs.
What to keep in mind
The abstract does not describe detailed limitations, and the summary is limited to U.K. SMEs. The findings are reported for the measures and sample used in this study.
Key points
- The study examined how entrepreneurial underconfidence and overconfidence relate to SME external financing.
- A large sample of U.K. SMEs was used with a novel overconfidence measure.
- The relationship between overconfidence and financing outcomes was significant and nonlinear.
- Mildly overconfident entrepreneurs were less likely to receive the loans they applied for than unconfident and extremely overconfident entrepreneurs.
- The authors argue that moderate overconfidence may signal costly effort to financiers.
Disclosure
- Research title:
- Entrepreneurial overconfidence shapes SME loan outcomes
- Authors:
- Rebel A. Cole, Marc Cowling, Wexi Liu
- Institutions:
- Florida Atlantic University, Oxford Brookes University, University of Bath
- Publication date:
- 2026-01-28
- OpenAlex record:
- View
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