Applying prospect theory to predict new venture creation

Although prior research on new venture creation has identified several antecedents that differentiate entrepreneurs from non-entrepreneurs, scholars still have an incomplete understanding of the factors and decision processes that lead an individual to become an entrepreneur. By applying prospect theory, we introduce the reference point as an important antecedent of new venture creation. Testing our research model and hypotheses with entrepreneurs and employees, results show that entrepreneurs set more aspiring reference points and therefore find themselves more often in a perceived loss situation. Results are also robust when testing for entrepreneurial intention of business graduate students. According to prospect theory, the perceived loss triggers more risk-seeking behavior. Summing up, the reference point has a positive effect on new venture creation and differentiates entrepreneurs from nonentrepreneurs. We discuss theoretical and managerial implications of the findings and develop avenues for future research.

Which Combinations Of New Venture Firms Resources Payoff? A Configurational Perspective

Baldauf, Artur; Schweiger, Simone A.; Wuethrich, Adrian

Overcoming Liability of Newness through Socialization : How Legitimation Strategies of a New Venture evolve

Liability of newness, the tendency of new ventures to die early after market entry, results from lacking legitimacy in their new cultural context and according failure to acquire resources. Based on a longitudinal case study on repeated resource acquisition attempts of a new venture, we found that overcoming liability of newness depended on the socialization of the new venture to the normative environment on which it depended on for resources. Over time and across repeated resource acquisition attempts, socialization - the process of learning the use of legitimate symbols and their culturally contingent meanings - enabled the new venture to become the skillful cultural operator on which legitimation and resource acquisition was contingent. From our data, 'Accumulating a repertoire of legitimate symbols' and 'Assimilating the evaluations of resource-holders' emerged as the two primary mechanisms for new venture socialization. The study's contributions to related literature and its broader theoretical implications are discussed

Human Capital and New Venture Performance: The Moderating Role of Social Relations

With whom should entrepreneurs create their firms in order to enhance nascent venture performance? Conventional wisdom suggests that the stronger human capital and social relations in nascent venture teams are, the better the nascent venture’s performance. We draw from social embeddedness literature, however, and argue that the positive effect of team members’ human capital on three different dimensions of nascent venture performance is weaker when team members exhibit strong social relations. Our analysis of 488 nascent venture teams in the PSED II dataset confirms our predictions, showing that nascent ventures of teams with strong human capital but weaker social relations exhibit the best performance. The study thus offers valuable contributions particularly to literature on entrepreneurial teams the determinants of new venture performance.

Family Portfolio Entrepreneurship

This paper seeks to extend our understanding of the growing field of Portfolio Entrepreneurship, the simultaneous ownership and engagement in several business activities (Westhead & Wright 1998; Carter & Ram 2003). Portfolio entrepreneurship has been identified as an important factor in both new venture creation and the economic landscape in general (Rosa & Scott 1996; 1999). We follow Carter and Ram's (2003) call to explore portfolio entrepreneurship within the family context. Specifically we address the why (cause) and how (process) of family portfolio entrepreneurship through comparative qualitative cases.

Measuring the Social Identity of Entrepreneurs: Scale Development and International Validation

Recent research indicates that social identity theory offers an important lens to improve our understanding of founders as enterprising individuals, the venture creation process, and its outcomes. Yet, further advances are hindered by the lack of a valid scale that could be used to measure founders' social identities - a problem that is particularly severe because social identity is a multidimensional construct that needs to be assessed properly so that organizational phenomena can be understood. Drawing on social identity theory and the systematic classification of founders' social identities (Darwinians, Communitarians, Missionaries) provided in Fauchart and Gruber (2011), this study develops and empirically validates a 12-item scale that allows scholars to capture the multidimensional nature of social identities of entrepreneurs. Our validation tests are unusually comprehensive and solid, as we not only validate the developed scale in the Alpine region (where it was originally conceived), but also in 12 additional countries and the Anglo-American region. Scholars can use the scale to identify founders' social identities and to relate these identities to micro-level processes and outcomes in new firm creation. Scholars may also link founders' social identities to other levels of analysis such as industries (e.g., industry evolution) or whole economies (e.g., economic growth).

The Family’s Financial Support as a “Poisoned Gift”: A Family Embeddedness Perspective on Entrepreneurial Intentions

We argue that greater availability of financial support by the family for creating a new venture entails stronger financial and non-financial obligations. Cognizant of these obligations, potential founders anticipate negative performance implications for the planned firm and threats to the family system in the case of their non-fulfillment. We thus postulate that the formation of actual entrepreneurial intentions is less likely the greater the available financial support. We confirm this by studying a sample of 23,304 respondents from 19 countries and find the negative relationship to be dependent on family cohesion and on individual entrepreneurial self-efficacy.

Measuring the Social Identity of Entrepreneurs: Scale Development and International Validation

Social identity theory offers an important lens to improve understanding of founders as enterprising individuals, the venture creation process, and its outcomes. Yet, further advances are hindered by the lack of valid scales to measure founders’ social identities. Drawing on social identity theory and a systematic classification of founders’ social identities (Darwinians, Communitarians, and Missionaries), we develop and test a corresponding 15-item scale in the Alpine region and validate it in 13 additional countries and regions. The scale allows identifying founders’ social identities and relating them to processes and outcomes in entrepreneurship. The scale is available online in 15 languages.

Family’s Financial Support as Poisoned Gift: A Family Embeddedness View on Entrepreneurial Intentions

How is expected financial support by the family related to individuals' entrepreneurial intentions? By drawing on family embeddedness literature we take a novel perspective and argue that the stronger the financial support that individuals will receive from their family to start a new venture is, the lower is the likelihood that they actually form entrepreneurial intentions. We confirm this prediction on a sample of 23,866 individuals from 19 countries and find in addition that the negative relationship between the expected financial support by the family and entrepreneurial intentions is contingent on the level of family cohesion and individuals' entrepreneurial self-efficacy. These results add valuable knowledge to the entrepreneurship and family embeddedness literature.