Involuntary Turnover as a Precursor to Employee Entrepreneurship: Vengeance of the Demi-Gods?

Abstract

Strategy scholars are developing theory on employee entrepreneurship and mobility by identifying the conditions under which valuable human capital might defect to entrepreneurship. It is posited that such employee entrepreneurship can result in the emergence of a strong and competitive rival firm that may undermine a focal firm’s competitive advantage. This is because the transfer of such valuable, top-performing human assets increases the likelihood of duplication or replication of a firm’s strategic resource position. However, these current lines of inquiry make an underlying assumption that employee entrepreneurship is driven by voluntary turnover, as evidenced by the emphasis on the importance of both monetary and non-monetary, complimentary compensation strategies that may help tether valuable human capital to a focal firm. As a result, the role of involuntary turnover as a pre-cursor to employee entrepreneurship is yet to be investigated – perhaps because involuntary turnover is typically associated with poor employee performance. Anecdotal evidence nevertheless, indicate that this may not always be the case (e.g. layoffs, CEO ousting). In this paper, we investigate the role of involuntary turnover on entry into entrepreneurship, taking into account relative employee performance within job titles, occupation, industries and regions. We find that compared with voluntary turnover, involuntary turnover increases the likelihood of employee entry into entrepreneurship, and argue that this is due to the untethering effect the violation of an employee’s psychological contract with a former employer brings. We also find that the nature of involuntary turnover matters. Involuntary turnover types with higher shock values (e.g. terminations) are more likely to lead to employee entrepreneurship compared with involuntary turnover with lower shock values (e.g. layoffs).