Institutional Change, Founding Team Homogeneity, and Gender Disparity in Entrepreneurship

Abstract

Prior research on gender inequality in organizations has mainly studied the role of established organizations in generating different career outcomes for men and women. Recent studies, however, have examined gender inequality in the context of new ventures by looking at antecedents of female entrepreneurship and determinants of gender differences in new venture success. Yet entrepreneurship is rarely a solo endeavor, and with whom female entrepreneurs found new ventures can be critical to their success. Thus, this paper presents the composition of founding teams as a source of gender disparity. I examine how a market-oriented institutional change that lowers entry barriers to entrepreneurship unintentionally increases team-level homogeneity and contributes to gender disparity in founding team quality. As a quasi-experiment, I utilize a deregulation on the minimum required founding team size in the Korean legal industry. I argue that demographic homogeneity in founding teams increases after the deregulation because of the sequence of homophily in co-founder recruitment – entrepreneurs’ preference to first recruit more similar others and then reach out to less similar others. I further suggest that, due to the strong field-level correlation between gender and human capital attributes in the legal profession, founding team quality is particularly undermined for female founders, partly explaining why gender inequality persists despite the recent influx of women into the profession. To support these claims, I analyze 586 law firms founded by 2,572 lawyers in Korea between 2005 and 2014.