Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?

dc.contributor.authorCarvalho, António
dc.contributor.authorSardo, Filipe
dc.contributor.authorSerrasqueiro, Zélia
dc.contributor.authorPacheco, Luís Miguel
dc.date.accessioned2024-01-10T11:25:25Z
dc.date.available2024-01-10T11:25:25Z
dc.date.issued2024-01-10
dc.description.abstractPurpose The behavioural theory adds a new paradigm of analysis with the assumptions of the decision maker’s cognitive biases and their repercussions on financing decisions. The aim of the study is to analyse the repercussions of these biases on the adjustment speed of firm’s capital structure toward the optimal level. Design/methodology/approach Based on a partial adjustment model, the study uses the Dynamic Panel Fractional estimator to analyse panel data from 4,990 Portuguese entrepreneurial firms. Findings The results show that the cognitive overconfidence bias impacts the entrepreneurial firm’s capital structure. In fact, the firms run by overconfident managers adjust more slowly than their counterparts. Furthermore, the findings suggest that entrepreneurial firms make relatively fast adjustments toward the optimal debt level and follow a hierarchical financing order in the funding process. Practical implications The results of this paper are not only interesting to the academia, but also contain practical implications for corporate, institutional and business policy and governance. First, the paper introduces a new measure of cognitive bias in optimistic managers, which is useful for current and future academic research. Also, in practical terms, the findings of the paper reveal that when a company is contemplating hiring a manager, it should consider whether they need an optimistic or non-optimistic manager based on the company's present life cycle or situation. Originality/value The current analysis extends the existing literature. The study suggests that financial classical and behavioural paradigms should not be separated, which can provide evidence to help narrow the gap between these two major perspectives.
dc.identifier.citationCarvalho, A., Pacheco, L. M., Sardo, F., & Serrasqueiro, Z. (2024). Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms? Journal of Small Business and Enterprise Development, (Published online: 10 january 2024), 1-22. https://doi.org/10.1108/JSBED-07-2023-0319. Repositório Institucional UPT. https://hdl.handle.net/11328/5336
dc.identifier.doihttps://doi.org/10.1108/JSBED-07-2023-0319
dc.identifier.issn1462-6004
dc.identifier.urihttps://hdl.handle.net/11328/5336
dc.language.isoeng
dc.publisherEmerald
dc.relation.hasversionhttps://www.emerald.com/insight/content/doi/10.1108/JSBED-07-2023-0319/full/html
dc.rightsrestricted access
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/
dc.subjectCognitive biases
dc.subjectSpeed of adjustment
dc.subjectOverconfidence manager
dc.subjectSMEs
dc.subjectEntrepreneurial firms
dc.subject.fosCiências Sociais - Economia e Gestão
dc.titleDoes managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?
dc.typejournal article
dspace.entity.typePublication
oaire.citation.endPage22
oaire.citation.issuePublished online: 10 january 2024
oaire.citation.startPage1
oaire.citation.titleJournal of Small Business and Enterprise Development
person.familyNamePacheco
person.givenNameLuís Miguel
person.identifier.ciencia-idBF16-0EF2-107B
person.identifier.orcid0000-0002-9066-6441
person.identifier.ridE-5193-2010
person.identifier.scopus-author-id55945343700
project.funder.identifierThis paper is financed by National Funds of the FCT – Portuguese Foundation for Science and Technology within the projects CEFAGE-UBI UIDB/04007/2020, NECE UIDB/04630/2020 and REMIT UIDB/05105/2020
relation.isAuthorOfPublicationa25aba90-4787-45a8-b908-646f24b32dfc
relation.isAuthorOfPublication.latestForDiscoverya25aba90-4787-45a8-b908-646f24b32dfc

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