Country-level determinants and consequences of overconfidence in the ambitious entrepreneurship segment

Abstract

Countries vary widely and systematically in the extent to which the ambitions of their entrepreneurs differ from their realisations. We label this discrepancy entrepreneurial overconfidence (EOC). Although a certain level of EOC may be beneficial for an economy, we provide empirical support for the argument that if entrepreneurial ambitions substantially and systematically exceed realisations, this may be at the cost of economic and societal prosperity. Therefore, we need to know more about country levels of EOC and their determinants, particularly with respect to the growth-oriented segment of entrepreneurship. Combining data on entrepreneurial ambitions from Global Entrepreneurship Monitor and data on realisations from Eurostat, we construct a measure of EOC at the country level and correlate its variation across 23 European Union (EU) countries over the period 2004–2015 with a set of economic and cultural factors. Among other findings, our results show that ambitions exceed realisations in almost all countries, but that this discrepancy is significantly greater for new member countries entering the EU since 2004. Policy implications of our results are discussed, particularly for promoting ambitious entrepreneurship in countries at the intermediate development stage.