Publication Type

Conference Paper

Publication Date

9-2010

Abstract

This study develops and tests the hubris theory of entrepreneurship as a means to explain the variation in failure rates amongst de novo ventures, complementing escalation and other behavioral explanations. It uses rapid increases in production capacity as a proxy for overconfidence, and firm failure to demonstrate hubris. In contrast to previous studies, we reason that overconfidence is more likely in situations where there is no dominant arch competitor for the focal de novo venture (i.e., low arch incumbency). Using data from the European passenger airline industry, we find empirical support that that overconfidence provides an adequate explanation for rapid increases in production capacity in de novo ventures, which in turn, provides a mediating (suppressing) pathway linking arch incumbency to firm failure.

Keywords

Overconfidence, hubris, capacity expansion, de novo ventures

Discipline

Corporate Finance | Portfolio and Security Analysis

Research Areas

Strategy and Organisation

Publication

Strategic Management Society 30th International Conference

First Page

39

City or Country

Rome, Italy

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