The Influence of Cognitive Bias on Village-Owned Enterprises' (BUMDes) Financing Decisions in Central Java: The Mediating Role of Reward-Based Investment Balance

Abstract

Village-Owned Enterprises (BUMDes) are institutions established to stimulate rural economic development by optimizing local potential. In practice, BUMDes often face challenges, particularly in terms of capital access, which limits business growth and the achievement of collective goals. One strategy to address this issue is encouraging community-based investment. However, investment decisions made by individuals are frequently influenced by cognitive biases such as overconfidence and herd behavior, leading to irrational outcomes. This study aims to examine the influence of cognitive bias on investment decisions, with reward-based investment balance as a mediating variable. The research involved 109 BUMDes across six residencies in Central Java, selected through a combination of purposive and cluster sampling techniques, focusing on enterprises with regional representation and the presence of community or group investors. Data analysis employed simple and multiple linear regression as well as the Sobel test, accompanied by classical assumption testing and coefficient of determination analysis. The results reveal that cognitive bias has a significant direct effect on investment decisions (t = 4.198; sig = 0.000) and on reward-based investment balance (t = 6.310; sig = 0.000). Furthermore, reward-based investment balance significantly affects investment decisions (t = 4.533; sig = 0.000). The mediation test confirms that reward-based investment balance partially mediates the relationship between cognitive bias and investment decisions (Sobel t = 3.680; sig = 0.000), indicating the possible involvement of other mediating variables. These findings offer insights into behavioral investment dynamics in rural enterprises and provide policy implications for fostering more rational and sustainable community investment models in BUMDes.