Optimism and Overconfidence as Predictors of Ethnic Entrepreneurship Investment Success: The Mediating Role of Financial Literacy

This study investigates the roles of optimism and overconfidence in shaping investment outcomes among ethnic entrepreneurs, with a particular focus on the mediating function of financial literacy. Drawing on behavioral entrepreneurship and financial capability literature, we examine how these cognitive traits influence entrepreneurial decision-making and performance in contexts characterized by limited access to formal financial resources and institutional support. Data were collected through a survey of 183 ethnic entrepreneurs in Quebec, and structural equation modeling (SEM) was employed to test both direct and indirect relationships among optimism, overconfidence, financial literacy, and investment outcomes. The findings reveal that excessive optimism negatively affects investment outcomes both directly and indirectly through financial literacy, while overconfidence operates primarily through a mediated pathway. Financial literacy emerges as a critical mechanism enabling entrepreneurs to translate psychological traits into effective financial decisions, mitigating the potential adverse effects of cognitive biases. These results underscore the importance of integrating behavioral and capability-based perspectives in ethnic entrepreneurship research and suggest that interventions aimed at enhancing financial literacy can foster more informed, resilient, and successful entrepreneurial outcomes.