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 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.

Keywords: entrepreneur, investment, risk preferences, self-efficacy, venturing

JEL Classification: D81, J20, J23, J24, M13, L20