Does Self-Efficacy Affect Entrepreneurial Investment?

Abstract

We empirically examine the effect of self-efficacy on entrepreneurial investment choices. We identify various attributes of entrepreneurial investment and argue that higher self-efficacy is associated with more aggressive entrepreneurial investment decisions. We show that self-efficacy increases the likelihood of being a nascent entrepreneur and creating an operating business. Self-efficacy also increases the proportion of personal wealth invested in the venture and the amount of hours per week the entrepreneur devotes to the venture. These results are significant even when controlling for other known characteristics associated with entrepreneurial investment. Copyright © 2009 Strategic Management Society. DOES SELF-EFFICACY AFFECT ENTREPRENEURIAL INVESTMENT?Gavin Cassar* The Wharton School University of Pennsylvania Henry FriedmanThe Wharton School University of Pennsylvania April 2009ABSTRACT: We empirically examine the effect of self-efficacy on entrepreneurial investment choices. We identify various attributes of entrepreneurial investment, and argue that higher selfefficacy is associated with more aggressive entrepreneurial investment decisions. We show that self-efficacy increases the likelihood of both being a nascent entrepreneur and creating an operating business. Self-efficacy also increases the proportion of personal wealth invested in the venture and the amount of hours per week the entrepreneur devotes to the venture. These results are significant even when controlling for other known characteristics associated with entrepreneurial investment. In contrast, we find no relationship between self-efficacy, or even risk preferences, and investment risk.

Understanding the Dynamics of Nascent Entrepreneurship-Prestart-Up Experience, Intentions, and Entrepreneurial Success

“…Creating an operational venture therefore requires substantial confidence in one's abilities to face the challenges ahead and to persist when facing obstacles (Markman and Baron 2003). Consistent with this view, entrepreneurial commitment and ability expectations have been found to be predictive of progress in establishing an operational venture (Carsrud and Brännback 2011;Cassar and Friedman 2009;Krueger and Carsrud 1993;Townsend, Busenitz, and Arthurs 2010). Moreover, the literature documents that the possession of experience before start-up is related to a number of organizing activities and reaching of distinct milestones, including engaging in business planning (Dencker, Gruber, and Shah 2009), acquiring financing (Parker and van Praag 2006), hiring and HRM strategies (Hayton 2003), and patenting and technology development (Redding 1996).…”

“…Creating an operational venture requires substantial confidence into one's abilities to face the challenges ahead and to persist when facing obstacles (Markman and Baron 2003). Consistent with this view, entrepreneurial ability expectation has been found to be predictive of progress in establishing an operational venture (Cassar and Friedman 2009;Townsend, Busenitz, and Arthurs 2010). Aspiring entrepreneurs need sufficiently high levels of confidence in their own abilities to start the venture and engage in subsequent activities to successfully bring the venture to life (Busenitz and Barney 1997).…”

Entrepreneurship in digital platforms: A network‐centric view

“…Considerable academic interest has focused on the entrepreneurial process—specifically the discovery and exploitation of entrepreneurial opportunities, the role of key individuals involved in driving the entrepreneurial process, and ultimately, the success of new ventures (Gartner, ; Low & MacMillan, ; Shane & Venkataraman, ). Studies have focused on the role of the behavioral and cognitive characteristics of the founders and/or founding teams in identifying entrepreneurial opportunities and creating new ventures (for instance, Baron, ; Brinckmann & Hoegl, ; Cassar & Friedman, ; Dyer, Gregersen, & Christensen, ; Markman, Balkin, & Baron, ; R. Mitchell et al, ; Sleptsov & Anand, 2008). Other studies have gone further to understand how founder attributes ultimately lead to the success or failure of their key ventures.…”

The Relationship between Entrepreneurial Self-Efficacy and Firm Performance: A Meta-Analysis of Main and Moderator Effects

“…Bandura (1977bBandura ( , 1997 argued that self-efficacy should focus on two dimensions to achieve a high predictive power. One dimension is a specific context, referring to beliefs about one's confidence in accomplishing one specific task successfully (Cassar and Friedman 2009), and the other is an activity domain, defined as an individual's confidence in abilities that apply to several related tasks within a domain (Cassar and Friedman 2009). Following Bandura's recommendation, entrepreneurship researchers proposed the construct of entrepreneurial self-efficacy (ESE), defined as an individual's belief in his or her ability to achieve various entrepreneurial tasks (e.g., Chen, Greene, and Crick 1998;De Noble, Jung, and Ehrlich 1999).…”