Overconfidence and Herding Bias on Investment Decisions the Role of Risk Perception as a Mediator

Abstract

Aims: The investment decision is essential in Small and Medium Enterprises (SMEs). The behavioral financial theory explains that behavioral biases and risk perceptions of SME owners will influence investment decisions. This study highlights the relationship between overconfidence and herding bias toward investment decisions mediated by Risk Perception. Study Design: The research population is SME owners in Banyumas Regency. The sample used was 118 SME owners. The data was collected using a questionnaire distributed to SME owners. Methodology:  This study uses the PLS-SEM analysis tool. The method used to gather the data was purposeful sampling. Test the validity and reliability using the outer model. Hypothesis testing uses the inner model. Results: The study proves that partial overconfidence and herding bias positively affect risk perception. Overconfidence, herding bias, and Risk Perception positively affect investment decisions. The research results have not been able to prove that there is a mediating effect of risk perception on the relationship between overconfidence and herding bias on investment decisions. This research has theoretical and practical implications. Theoretical implications, especially for developing financial behavioral theory in investment decisions. For practical implications for stakeholders in SME development, it is necessary to pay attention to the behavioral biases in SME owners.