Does a Career in Entrepreneurship Affect Executive Compensation? Evidence from Denmark

Abstract

Prior research has documented different aspects of the relationship between managers’ past careers and their subsequent executive pay. The literature revolves around the distinction between general and specific experience and their impact on CEO compensation. By contrast, this paper focuses on whether and how a history of entrepreneurial experience influences executive pay. By means of highly detailed register data from Denmark, this paper compares the pay of managers with and without entrepreneurial experience. Simple descriptive statistics indicate that former entrepreneurs tend to have a higher compensation despite sorting into smaller and younger firms. In more sophisticated analyses accounting for individual- and firm-level heterogeneity, I find that this premium holds even after alleviating concerns from unobserved traits. Yet, the presence of a premium for managers with an entrepreneurial career is sensitive to several contingencies, such as the level of success, the time since the last entrepreneurial venture, and the degree of industry relatedness. Theoretical interpretations and potential implications are discussed.