INEIS Seminar by Diego Zunino

Badge of Honor or Scarlet Letter? Unpacking Investors’ Judgment of Entrepreneurs’ Past Failure

2017.11.07 | Merete Elmann

Date Mon 04 Dec
Time 10:30 12:00
Location Room 2628-M303, Department of Management, Aarhus BSS, Aarhus University


Monday 4 December 2017 at 10:30 in room 2826-M303, PhD Student Diego Zunino from CBS will give a seminar entitled

Badge of Honor or Scarlet Letter? Unpacking Investors’ Judgment of Entrepreneurs’ Past Failure

 

Everyone is welcome!

 

Abstract
Research shows that most ventures fail, yet it has devoted limited attention to the consequences of entrepreneurs’ past failure for investors’ decisions. Our motivating insight is that failure can be due to bad luck, lack of skill or both. Therefore, failure conveys ambiguous information about skill. We predict that investors will discount entrepreneurs that experienced past failure. However, in the presence of a signal of skill, the magnitude of the failure discount is reduced. We test our predictions using an online experiment where respondents are potential investors in seed stage ventures via equity crowdfunding. Respondents evaluate a realistic investment opportunity in a between-subjects design, where we decompose the effect of failure into luck and skill. Our results indicate that investors discount entrepreneurs who have experienced failure. Past failure in the presence of a signal of skill, however, is not discounted. The findings indicate no discount of failure based on the “failed” label only. Overall, our analysis sheds light on the rationality of investors. In a world where entrepreneurial failure is prevalent, we find that investors are sensitive to its core drivers: luck and skill.

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