Environmental Uncertainty, Entrepreneurial Governance, and Entrepreneurial Outcome

Abstract

Uncertainty is a central construct in the entrepreneurship literature. However, the relationship between environmental uncertainty and entrepreneurial outcome is still underexplored. As the real world becomes increasingly discordant, understanding how environmental uncertainty affects entrepreneurial outcome and how startups can mitigate uncertainty has attracted much attention from both entrepreneurship scholars and entrepreneurs. Aiming to fill this gap, this paper studies two research questions: (1) how different kinds of environmental uncertainty affect entrepreneurial outcomes differently? (2) how entrepreneurial governance helps startups mitigate or embrace environmental uncertainty? Integrating theories from management and economics literature, I propose that macroeconomic uncertainty and economic policy uncertainty negatively affect entrepreneurial outcome, while political uncertainty positively affects entrepreneurial outcome. Informal institutions such as clan culture can mitigate the negative effects of economic policy uncertainty and amplify the positive effects of political uncertainty. Moreover, firms with fewer shareholders, with institutional shareholders, or without majority-hold shareholders will also be less negatively affected by economic policy uncertainty. Utilizing a novel dataset of over 9 million Chinese firms registered during 2005–2014 and over 246,000 normative documents published by Chinese provincial governments from 2005 to 2018, I found support for my propositions.