The Effect of Employer Prominence on Employee Entrepreneurship

Abstract

We study the effect of employer prominence on entrepreneurial transition of employees. We highlight two mechanisms that lead to high rate of departure from prominent firms to entrepreneurship: sorting and influence. Sorting refers to the systematic selection of high ability employees to prominent firms whereas influence refers to the added value of being employed in the prominent firm in terms of learning. Our empirical results using an employer-employee matched dataset from Sweden confirm our hypothesis. Employees are more likely to leave prominent firms to entrepreneurship. Learning knowledge and skills seems to be more important for transition to entrepreneurship than sorting.