A THEORETICAL CONTRIBUTION OF SME MANAGER’S OVERCONFIDENCE BIAS IN WORKING CAPITAL MANAGEMENT AND PERFORMANCE

Jeff, Lamptey and Asri, Bin Marsidi and Lonas, Ladime (2021) A THEORETICAL CONTRIBUTION OF SME MANAGER’S OVERCONFIDENCE BIAS IN WORKING CAPITAL MANAGEMENT AND PERFORMANCE. Academy of Entrepreneurship Journal, 27 (5). pp. 1-15. ISSN 1087-9595

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Abstract

We argue that managerial overconfidence bias affects working capital management. Overconfident SME managers overestimate their sales growth and underestimate the volatility of cash flow of their firms and thus overinvest in inventory for higher returns if they have enough personal capital or cheaper sources of external capital. An overconfident SME manager will overinvest because of the transactional motive, market signaling effect and market leadership motive. We describe SME managers as overconfident if the person claims to have superior financial ability, perfect industry knowledge and is optimistic in business and thus systematically fail to reduce their personal exposures (maximization wealth) to their firms’ specific risks. Thus, overconfidence can serve as useful framework for most SME managers who make working capital decisions, particularly inventory based on their personal characteristics.

Item Type: Article
Uncontrolled Keywords: SME, Overconfidence, Working Capital Management, Inventory Management, Theoretical Contribution
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Divisions: Academic Faculties, Institutes and Centres > Faculty of Economics and Business
Depositing User: Sanawi
Date Deposited: 05 Jan 2022 00:59
Last Modified: 05 Jan 2022 00:59
URI: http://ir.unimas.my/id/eprint/37641

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