Behavioural biases among SME owners

Abstract

People are not fully rational and their decisions suffer from errors and biases. Because behavioural finance research focuses on investor irrationality, additional attention should examine managerial decision-making. This study helps to fill this gap by addressing three objectives: (a) to identify whether owners of small and medium-sized enterprises (SMEs) in India are prone toward behavioural bias; (b) to assess the impact of these biases on their decision-making; and (c) to determine whether age, experience, education, and gender affect their propensity to exhibit behavioural biases. Using responses from 154 Indian SME owners, the study uses logistic regression to assess how demographic variables affect behavioural biases. The evidence shows that SME owners are prone to self-attribution, overconfidence, and loss aversion, but not anchoring. Differences exist in the working capital management decisions of owners prone to behavioural biases. Gender, age, and experience significantly affect the propensity to exhibit behavioural biases.