Entrepreneurial Entry Research Articles

Having your cake and eating it too? A two-stage model of the impact of employment and parallel job search on hybrid nascent entrepreneurship

Hybrid entrepreneurship, simultaneous employment and entrepreneurship, is increasingly prevalent. We theorize entrepreneurial entry as one possible outcome of a two-stage new employment search process 1) decision to search for a job, attempt a start-up, or both and 2) outcome of start-up attempts. Stage 2 is critically different for hybrid (employed) nascent entrepreneurs who have greater access to resources and experience lower risk but also more salient alternative employment options. Using a novel longitudinal panel of new employment opportunity seekers, we find that employment status matters and that “parallel search” for a new job is detrimental to successful entrepreneurial entry.

Moderating Effects of Informal Institutions on Social Entrepreneurship Activity

Using the legitimacy lens from institutional theory and a multi-level analysis of 29,175 Global Entrepreneurship Monitor respondents from 16 countries, we examine how national culture and societal attitudes influence individual level decisions to allocate entrepreneurial talent into revenue generating and not-for-profit social enterprises. We find the stigma of business failure to be positively associated with the probability that individuals will invest their entrepreneurial talents into a social venture. We also find that in both performance-based cultures and socially supportive cultures, the positive effects of the stigma of business failure on social entrepreneurship entry are decreased. Our findings suggest that informal institutions significantly influence the revenue generating-strategy of social entrepreneurship. However, they have no significant correlation to the nonprofit-strategy of social entrepreneurship. These findings underscore the complexity of balancing the competing logics of profit maximisation with social value maximisation in the decision to organise start-ups as social enterprises.

The Evolution of CEO Compensation in Venture Capital Backed Startups

We document new facts on the evolution of founder-CEO compensation in venture capital-backed startups. Having a tangible product (product market fit) is a fundamental milestone in CEOs' compensation, marking the point where liquid cash compensation increases significantly -- well before an IPO or acquisition. Product market fit also coincides with key human capital in the startup becoming more replaceable. Although increases in cash compensation over the firm lifecycle improves the attractiveness of entrepreneurship relative to a contract with at pay, we find that low cash compensation in the early years can still deter entrepreneurial entry. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Start-ups launched by recent STEM university graduates: The impact of university education on entrepreneurial entry

University education is a crucial source of human capital and influences graduates’ choice of entrepreneurship as a career. Here, we discuss the contrasting effects on recent graduates’ entrepreneurial entry of the type and quality of the human capital developed through university education in STEM fields. We determine which effects prevail by examining the graduates who obtained a Master of Science degree in the period 2005–2009 from Politecnico di Milano. A university curriculum specialized into a limited number of scientific and technical fields, training in economics and management, and the scientific quality of the university in the research fields pertinent to the graduate's degree programme are positively associated with entrepreneurial entry immediately after graduation, while the graduation grade is not. The graduation grade and the scientific quality of the university positively moderate the impact of curriculum specialization. These effects weaken over time, but are still relevant five years after graduation.

Are changes of organizational form costly? Income shifting and business entry responses to taxes

Drawing on administrative panel data covering the full population of business owners in the UK, I study the effects of differential tax liabilities across organizational forms on business entry and on income shifting. I find that a 10% increase in savings from incorporation leads to a 1.7% increase in the number of new business owners. However, higher entrepreneurial entry is offset by income shifting – increasing the hazard rate of incorporation of the existing self-employed by up to 2.3% for a 10% increase in tax savings. I show that despite large tax savings from incorporation (exceeding 10 pp. in some years), a substantial proportion of business owners fail to incorporate, suggesting that income shifting through incorporation is not the primary avoidance channel for the self-employed.

When do return migrants become entrepreneurs? The role of global social networks and institutional distance

AbstractResearch SummaryDoes embeddedness in global social networks elevate or diminish individuals' propensity to found new ventures? I analyze entrepreneurial entry among a large, cross‐country sample of skilled return migrants, all of whom had worked abroad in the United States before returning to 98 different home countries. My findings reveal that maintaining stronger cross‐border social ties—that is, relationships to former colleagues abroad—leads returnees to be more likely to found new ventures in their homelands. However, the positive effects of cross‐border social ties diminish with greater institutional distance between the returnee's home country and the United States. The findings have implications for research at the intersection of social networks, international migration, and entrepreneurship. Managerial SummaryWhen it comes to founding a venture, social networks are often critical in helping prospective entrepreneurs identify new market opportunities and resources. Which types of networks are most beneficial in helping people become entrepreneurs, however, still remains a question. This paper asks whether having social connections to individuals across countries makes one more likely to become an entrepreneur, and if so why? Studying skilled return migrants, I find that returnees who maintain stronger social ties to those they met while working abroad are more likely to start companies, but only if there is sufficient similarity between the market environments of the returnee's home country and the country where the returnee worked abroad.

Launching with a Parachute: The Gig Economy and Entrepreneurial Entry

The introduction of the gig economy creates opportunities for would-be entrepreneurs to supplement their income in downside states of the world, and provides insurance in the form of an income fallback in the event of failure. We present a conceptual framework supporting the notion that the gig economy may serve as an income supplement and as insurance against entrepreneurial-related income volatility, and utilize the arrival of the on-demand, platform-enabled gig economy in the form of the staggered rollout of ridehailing in U.S. cities to examine the effect of the arrival of the gig economy on entrepreneurial entry. The introduction of gig opportunities is associated with an increase of ~5% in the number of new business registrations in the local area, and a correspondingly-sized increase in small business lending to newly registered businesses. Internet searches for entrepreneurship-related keywords increase ~7%, lending further credence to the predictions of our conceptual framework. Both the income supplement and insurance channels are empirically supported: the increase in entry is larger in regions with lower average income and higher credit constraints, as well as in locations with higher ex ante economic uncertainty regarding future wage levels and wage growth.

Perceptual versus institutional determinants of entrepreneurial entry

PurposeThis cross-national study of entrepreneurship seeks to investigate the perceptual and institutional determinants of entrepreneurial entry. To do so, the authors distinguish between social and commercial entrepreneurial activities, taking the position that the concept of entrepreneurship is not a monolithic one.Design/methodology/approachThe authors construct a large cross-national data set and employ hierarchical linear modeling (HLM) to run a multi-level analysis on individual-level data from Global Entrepreneurship Monitor (GEM) and country-level data from Polity IV and GLOBE, representing 47 countries.FindingsIndividuals' perceptual characteristics (i.e. perceived self-efficacy, opportunity perception, and fear of failure) and informal institutions in the form of supportive cultures impact social entrepreneurship more strongly than commercial entrepreneurship. On the other hand, the formal institution of the rule of law, specifically the protection of property rights, is more conducive to commercial entrepreneurship.Originality/valueThe results of this study contribute to theory by illuminating the complicated relationships between environmental conditions, individual-level psychological factors, and entrepreneurial decisions. Furthermore, the authors’ multi-level model contributes to a more detailed conceptualization of entrepreneurial entry by identifying institutional settings that facilitate commercial versus social entrepreneurship. The authors also clarify why commercial entrepreneurship and social entrepreneurship attract different types of individuals.

The effect of good governance on business creation: a multilevel approach

Different studies had point out the importance of public governance to promote entrepreneurship. We used multilevel modelling on a sample of 206 countries, for the period 2004-2014, to empirically test three hypotheses. Firstly, whether business creation is determine by the regions. Secondly, the immediate impact of governance on entrepreneurial entry rates and thirdly, delayed effect of governance was considered. Our results showed countries located in the same region are more homogeneous in terms of entrepreneurship. Also, a significant immediate effect of Rule of Law and Regulatory Quality and a delayed effect of several variables were detected.

The (Un) intended consequences of institutions lowering barriers to entrepreneurship: The impact on female workers

AbstractWe propose that institutions that reduce barriers to entrepreneurship lead to intended consequences, increasing entry rate among individuals facing obstacles to entrepreneurship, such as women. But these regulations also have unintended consequences, decreasing the value appropriated by women who stay in paid employment, as these women lose support of their departing peers. Using an exogenous reduction in entry barriers in Portugal between 2005 and 2009, we find that women launch new ventures at higher rates than men, when entry barriers fall, but the same changes lead to a relative decline in women's wages in paid employment. These effects are amplified for women in managerial positions, who benefit if they leave but lose if they stay. Our study contributes to a nuanced understanding of rent‐allocation in firms.Managerial SummaryWe study the unintended consequences of lowering barriers to entry—an important institutional change to foster entrepreneurship, especially among those facing strongest entry barriers. We examine the effects of such regulations on women departing to entrepreneurship and those staying in incumbent firms, using the registry data from Portugal. The results show that lowering entry barriers leads to higher rates of entrepreneurial entry among women, as intended. But we also find that this deregulation reform results in a wider gender pay gap among those who stay in incumbent firms. We attribute these increases to reductions in bargaining power and productivity, which result from the departure of socially‐proximate peers. Finally, these intended and unintended consequences are especially common among female managers—who are more likely to leave for entrepreneurship, on the one hand, but also more likely to witness greater pay gaps in wage work, on the other hand.

The survival of business takeovers and new venture start-ups

AbstractBusiness takeovers and new venture start-ups are two important and distinct entry modes of entrepreneurship. They differ from resource-based and organizational ecology perspectives. We compare firm survival patterns and determinants associated with the two entry modes. From two large French datasets, we find that business takeovers have a higher survival rate than new venture start-ups. However, these differences in survival probability reduce over the entrepreneurship life cycle and when controlling for different entrepreneur and firm characteristics. Moreover, we identify differences in determinants of survival for the two groups, highlighting a distinction between the two entrepreneurship entry modes. This work contributes to the literature on the relationship between entrepreneurship entry and firm survival, thereby contributing to both entrepreneurship and firm survival research.

Diversity, institutions and entrepreneurship

Recent trends in globalisation have shown significant human migration. Subsequently, diversity in society changes local demographics. Although much research has discussed the effect of diversity on various domestic affairs, little is known about the real impact on business activities, particularly how institutional factors might affect the interaction. This study examines the impact of ethnic, religious, and linguistic diversity on the rate of entrepreneurial entry by considering the institutional context, both formal and informal, as the boundary conditions. Analysing multisource data from 88 countries aggregated between 2010 and 2014, we found that ethnic and linguistic diversity impedes business formation, in contrast to religious diversity which spurs entrepreneurial entry. In addition, institutional variables of control of corruption, trust, and entrepreneurial culture are positively related to entrepreneurship. Lastly, the effects of diversity on entrepreneurship are moderated by some but not all institutions. This study provides important insights for all stakeholders to address contemporary issues such as labour mobility and migration.

Diversity, institutions and entrepreneurship

Recent trends in globalisation have shown significant human migration. Subsequently, diversity in society changes local demographics. Although much research has discussed the effect of diversity on various domestic affairs, little is known about the real impact on business activities, particularly how institutional factors might affect the interaction. This study examines the impact of ethnic, religious, and linguistic diversity on the rate of entrepreneurial entry by considering the institutional context, both formal and informal, as the boundary conditions. Analysing multisource data from 88 countries aggregated between 2010 and 2014, we found that ethnic and linguistic diversity impedes business formation, in contrast to religious diversity which spurs entrepreneurial entry. In addition, institutional variables of control of corruption, trust, and entrepreneurial culture are positively related to entrepreneurship. Lastly, the effects of diversity on entrepreneurship are moderated by some but not all institutions. This study provides important insights for all stakeholders to address contemporary issues such as labour mobility and migration.

Institutional Governance Matters in the context of Social Capital and International Entrepreneurial Entry: A Multi-level Perspective

Institutional Governance Matters in the context of Social Capital and International Entrepreneurial Entry: A Multi-level Perspective

Do contextual factors matter for new start-ups Institutional theory and entrepreneurial intention: a proposed model

The institutional environment is very important for entrepreneurship, as it exerts a powerful influence not only on entrepreneurial entry rates but also on the ensuing trajectories of entrepreneurial initiatives. This paper endeavours to advance the institutional theory by proposing a conceptual model that encompasses institutional factors that have received minimal attention from researchers. The proposed model is developed based on the Global Competitiveness Report (GCR) 2015, published by the World Economic Forum (WEF), and includes seven factors, namely: economical dimension, legal dimension, ethical dimension, technological dimension, educational dimension, infrastructure development, and financial market development. The study suggests seven propositions linking the institutional factors with entrepreneurship intention. This is an exploratory investigation and no quantitative analysis has been conducted. Future research could adopt or adapt the current study's conceptual framework and empirically test it. Furthermore, empirical studies could be applied in different contexts and accommodate different institutional conditions.

The Evolution of CEO Compensation in Venture Capital Backed Startups

We document new facts on the evolution of founder-CEO compensation in venture capital-backed startups. Having a tangible product ("product market fit") is a fundamental milestone in CEOs' compensation, marking the point where liquid cash compensation increases significantly – well before an IPO or acquisition. "Product market fit" also coincides with key human capital in the startup becoming more re- placeable. Although increases in cash compensation over the firm lifecycle improves the attractiveness of entrepreneurship relative to a contract with flat pay, we find that low cash compensation in the early years can still deter entrepreneurial entry.

Crowd-Based Rankings and Frictions in New Venture Finance

Computing innovations and regulatory changes led to increasing entrepreneurial entry and financing since 2013, particularly in the digital sector. Product Hunt, a crowd-based online platform, emerged to serve an information provision role, generating signals of potential product demand for new ventures by aggregating user upvotes into daily frontpage rankings. Using unexpected variation in the quantity and quality of postings shortly after the focal product is launched, I show that placing one rank higher on the frontpage improves a startup’s fundraising probability by 3.4% within a year. Frontpage rankings affect venture funding outcomes despite being highly noisy signals, highlighting the extent of information frictions between early-stage entrepreneurial firms and venture capital investors.

The Effect of Entrepreneurial Self-efficacy and Entrepreneurial Competence on The Entrepreneurial Entry Decision and The Success of Start-up MSMEs in Medan City

One important element in the ASEAN Economic Community (AEC) 2025 blueprint is the strengthening of Small, Medium Enterprises (SMEs). The third largest city in Indonesia, Medan City, has a start-up Micro, Small, and Medium Enterprises (MSMEs) which ranks third in Sumatra itself. The problem is that not all MSMEs in Indonesia can survive or experience growth. So this study aims to determine the effect of entrepreneurial self-efficacy and entrepreneurial competence on entrepreneurial entry decisions and the success of start-up MSMEs in Medan City. The method of determining is the sample using a purposive sampling method, from 100 MSMEs owners. The findings of this study are that entrepreneurial self-efficacy (ESE) has a significant effect on entrepreneurial entry decisions, while entrepreneurial competence is not significant. However, the success of MSME start-ups in Medan is significantly influenced by entrepreneurial competence while ESE is not. The implication of this study is that strong confidence is needed when starting a business, and requires competence to gain business success.

Who Becomes a Business Owner in High-inequality Regimes? The Conditioning Effect of Economic Inequality on the Impact of Individual Educational and Financial Endowment on Entrepreneurship

Research has shown that individual educational and financial endowments are key indicators of their potential for entrepreneurial entry and success. At the same time, scholars have shown that economic inequality undermines educational development while increasing financial precarity. Yet, we know little about the extent to which economic inequality may condition how education and income affect an individual’s entrepreneurial experience. In this article, we present a mixed-effect analysis using data from 50 countries that shows that economic inequality diminishes the importance of an individual’s education and income on entrepreneurial entry. This effect is larger for higher education and income individuals than those in the bottom of the educational and income strata. In addition, inequality increases the likelihood that an individual would undertake entrepreneurial activities as a last resort, particularly individuals in low-education strata. These results suggest that under high-inequality regimes, entrepreneurship may be a sign of economic insecurity and inefficiency, and highlight the need for scholars to pay greater attention to understanding the structural forces that facilitate entrepreneurship development.

The unshackled entrepreneur: Occupational determinants of entrepreneurial effort

Entrepreneurial effort triggers action towards business creation and constitutes the ultimate link between intention and action. Although occupations play a significant role in entrepreneurial entry, extant research has not thoroughly investigated primary occupational characteristics as specific antecedents of entrepreneurial effort. We contribute to this line of research by proposing and testing a model in which three occupational characteristics at the occupational level (managerial knowledge, self-accomplishment, and arduousness) are correlated with two cognitive factors at the individual level (effort-performance and instrumentality beliefs) that in turn affect behavior (entrepreneurial effort). We draw upon expectancy theory to motivate our model and combine data from the PSED and O*NET to test our hypotheses. We find compelling evidence that individuals facing arduous working conditions and lacking personal accomplishment in their salaried jobs will be more committed to their new business. In addition, we find that entrepreneurs coming from occupations involving high levels of managerial knowledge tend to put more effort into the new venture.