What the study found
The study found a non-linear relationship between entrepreneurial overconfidence and small and medium-sized enterprise (SME) access to external finance. It reports that mildly overconfident entrepreneurs are less likely to be credit rationed than entrepreneurs who are unconfident or extremely overconfident.
Why the authors say this matters
The authors argue that, contrary to the usual view that overconfidence leads to poor financing decisions and higher financing costs, moderate overconfidence may encourage entrepreneurs to exert costly effort that financiers interpret as a favorable signal. The study suggests this trade-off helps explain differences in access to external finance.
What the researchers tested
The researchers examined the effect of entrepreneurial underconfidence and overconfidence on SMEs’ access to external finance. They tested their trade-off hypothesis using a large sample of UK SMEs and a novel measure of overconfidence.
What worked and what didn't
The study found significant non-linear relationships between overconfidence and alternative measures of access to finance. Mild overconfidence was associated with a lower likelihood of credit rationing, while both unconfidence and extreme overconfidence were associated with worse access on that measure.
What to keep in mind
The abstract does not describe detailed limitations, and the summary available here does not provide information about causal identification, the full set of alternative finance measures, or the exact construction of the overconfidence measure.
Key points
- The study examined how entrepreneurial underconfidence and overconfidence relate to SME access to external finance.
- It found a non-linear relationship rather than a simple one-directional pattern.
- Mildly overconfident entrepreneurs were less likely to be credit rationed than unconfident or extremely overconfident entrepreneurs.
- The authors suggest moderate overconfidence may signal costly effort to financiers.
- The analysis used a large sample of UK SMEs and a novel overconfidence measure.
Disclosure
- Research title:
- Moderate overconfidence is linked to better SME credit access
- Authors:
- Rebel A. Cole, Marc Cowling, Wexi Liu
- Institutions:
- Florida Atlantic University, Oxford Brookes University, University of Bath
- Publication date:
- 2026-01-28
- OpenAlex record:
- View
- Image credit:
- Photo by Tima Miroshnichenko on Pexels · Pexels License
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