New dimensions on the economics of the entrepreneurial process

This thesis examines the transition of employees into entrepreneurship, with particular emphasis on the role of workplace characteristics in influencing this movement. The first main chapter examines whether the determinants of becoming an intrapreneur differ from those that support transitions into independent entrepreneurship. The results show that intrapreneurs resemble employees rather than entrepreneurs, contrary to what the entrepreneurship theory would suggest. Yet it shows that those intrapreneurs that expect to acquire an ownership stake in the business, unlike the rest of intrapreneurs, possess traditional entrepreneurial traits. Chapter 3 investigates how workers’ degree of specialisation determines their decision to found a firm. It shows that entrepreneurs emerging from small firms, i.e. generalists, transfer knowledge from more diverse aspects of the business and create firms more related to the main activity of their last employer. Workers in large firms, however, benefit from higher returns to human capital that increase their opportunity costs to switch to entrepreneurship. Since becoming an entrepreneur would make part of their specialised skills unutilised, the minimum quality of the idea at which they would be willing to leave will be higher and, therefore, entrepreneurs emerging from large firms will be of highest quality. Chapter 4 analyses whether the reason to terminate an employment contract is associated with the fact that the majority of entrepreneurs appear to set up their business after having worked for a small firm. Moreover, it studies how this pattern varies as the labour market conditions worsen. The effect of layoffs turns out to be a key driver in the entry to entrepreneurship and it is found to exert a greater effect the smaller the firm workers are dismissed from. This has been reflected in an overall larger flow of employees from small firms moving into entrepreneurship over the recession.

Moving on from nascent entrepreneurship:measuring cross-national differences in the transition to new business ownership

Nascent entrepreneurship and new business ownership are subsequent stages in the entrepreneurial process. We illustrate how information from the largest internationally harmonized database on entrepreneurship, the Global Entrepreneurship Monitor project, can be used to approximate the entrepreneurial process. We make a methodological contribution by computing the ratio of new business ownership to nascent entrepreneurship in a way that reflects the transition from nascent to new business ownership and provides cross-nationally comparable information on the efficiency of the entrepreneurial process for 48 countries. We report evidence for the validity of the transition ratio by benchmarking it against transition rates obtained from longitudinal studies and by correlating it with commonly used entrepreneurship indicators and macro-level economic indices. The transition ratio enables future cross-national research on the entrepreneurial process by providing a reliable and valid indicator for one key transition in this process. © 2012 Springer Science+Business Media New York.

Dynamics of effectuation and causation in technology-based new ventures (INTERACTIVE PAPER)

The creation of new ventures is a process characterized by the need to decide and take action in the face of uncertainty, and this is particularly so in the case of technology-based ventures. Effectuation theory (Sarasvathy, 2001) has advanced two possible approaches for making decisions while facing uncertainty in the entrepreneurial process. Causation logic is based on prediction and aims at lowering uncertainty, whereas effectuation logic is based on non-predictive action and aims at working with uncertainty. This study aims to generate more fine-grained insight in the dynamics of effectuation and causation over time. We address the following questions: (1) What patterns can be found in effectual and causal behaviour of technology-based new ventures over time? And (2) How may patterns in the dynamics of effectuation and causation be explained?

An examination of the determinants of entrepreneurship at the regional level:the case of East Midlands region

Despite the importance of new firms to the economy, determinants of start-ups have mainly been examined at a country level and discussion of regional entrepreneurial activity has received less attention. Since there are significant variations in entrepreneurship rates across and within countries, such an investigation at a regional level would help in gaining an in depth understanding of the impact of the individual level resource endowments and neighbourhood characteristics on an individual’s decision to engage in entrepreneurial activity. The main aim of the thesis is to explore various theories of entrepreneurship and develop integrated frameworks for examining the determinants of entrepreneurial activity at a neighbourhood level in the East Midlands region in England. The specific objectives of the thesis are to examine how the individual level resources and the neighbourhood characteristics: (i) combine to influence an individual to engage in the different stages of the entrepreneurial process, (ii) influence natives and migrants to engage in start up activity and (iii) influence women and men to become self-employed and ambitious entrepreneurs. In terms of the methodology, the empirical analysis is based on two databases combined: 2006 to 2009 GEM East Midlands region and the English Index of Multiple Deprivation dataset. Based on the critical review of the literature on entrepreneurship the thesis develop theoretical frameworks which led to formulate hypotheses related to the differentiated impact of both individual and neighbourhood level factors on the propensity of an individual to be involved in entrepreneurial activity. The findings indicate that the determinants of entrepreneurial activity vary with human, financial and the local environment factors affecting the entrepreneurial process. Finally, the thesis calls for caution when developing and applying generic and specific policy measures aimed at promoting entry into entrepreneurship.

Understanding motivations for entrepreneurship

The main aims of the study were to explore the different factors motivating entrepreneurs to start a business; explore whether motivations for entrepreneurship change and the impact of the recession; identify any correlates of motivations for entrepreneurship; and to examine the consequences of the different motivations for the entrepreneurial process and performance. The study is based on a re-survey of 1,000 entrepreneurs first identified in GEM and supplemented by in-depth interviews carried out with 40 entrepreneurs.

Resource endowment and opportunity cost effects along the stages of entrepreneurship

In this paper, the start-up process is split conceptually into four stages: considering entrepreneurship, intending to start a new business in the next 3 years, nascent entrepreneurship and owning-managing a newly established business. We investigate the determinants of all of these jointly, using a multinomial logit model; it allows for the effects of resources and capabilities to vary across these stages. We employ the Global Entrepreneurship Monitor database for the years 2006–2009, containing 8269 usable observations from respondents drawn from the Lower Layer Super Output Areas in the East Midlands (UK) so that individual observations are linked to space. Our results show that the role of education, experience, and availability of ‘entrepreneurial capital’ in the local neighbourhood varies along the different stages of the entrepreneurial process. In the early stages, the negative (opportunity cost) effect of resources endowment dominates, yet it tends to reverse in the advanced stages, where the positive effect of resources becomes stronger.

The opportunity recognition process:the mechanisms by which entrepreneurial opportunities are recognised and the role played by social networks in this process

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Entrepreneurial intention and entrepreneurial behaviour:a social psychological perspective

Increasing the supply of entrepreneurs reduces unemployment and accelerates economic growth (Acs, 2006; Audretsch, 2007; Santarelli et el. 2009; Campbell, 1996; Carree & Thurik, 1996). The supply of entrepreneurs depends on the entrepreneurial intention and activity of the people (Kruger & Brazeal, 1994). Existing behavioural theories explain that entrepreneurial activity is an attitude driven process which is mediated by intention and regulated by behavioural control. These theories are: Theory of Planned Behaviour (Ajzen, 1991; 2002, 2012); Entrepreneurial Event Model (Shapiro & Shokol, 1982), and Social Cognitive Theory (Bandura, 1977; 1986; 2012). Meta-analysis of existing behavioural theories in different fields found that the theories are more effective to analyse behavioural intention and habitual behaviour, but less effective to analyse long-term and risky behaviour (McEachan et al., 2011). The objective of this dissertation is to improve entrepreneurship behaviour theory to advance our understanding of the determinants of the entrepreneurial intention and activity. To achieve this objective we asked three compelling questions in our research. These are: Firstly, why do differences exist in entrepreneurship among age groups. Secondly, how can we improve the theory to analyse entrepreneurial intention and behaviour? And, thirdly, is there any relationship between counterfactual or regretful thinking and entrepreneurial intention? We address these three questions in Chapters 2, 3 and 4 of the dissertation. Earlier studies have identified that there is an inverse U shaped relationship between age and entrepreneurship (Parker, 2004; Hart et al., 2004). In our study, we explain the reasons for this inverse U shape (Chapter 2). To analyse the reasons we use Cognitive Life Cycle theory and Disuse theory. We assume that the stage in the life cycle of an individual moderates the influence of opportunity identification and skill to start a business. In our study, we analyse the moderation effect in early stage entrepreneurship and in serial entrepreneurship. In Chapter 3, the limitations of existing psychological theories are discussed, and a competency value theory of entrepreneurship (CVTE) is proposed to overcome the limitations and extend existing theories. We use a ‘weighted competency’ variable instead of a ‘perceived behavioural control’ variable for the theory of planned behaviour (TPB) and self-efficacy variable for social cognitive theory. Weighted competency is the perceived competency ranking assigned by an individual for his total competencies to be an entrepreneur. The proposed theory was tested in a pilot survey in the UK and in a national adult population survey in a South Asian Country. The results show a significant relationship between competencies and entrepreneurial intention, and weighted competencies and entrepreneurial behaviour as per CVTE. To improve the theory further, in Chapter 4, we test the relationship between counterfactual thinking and entrepreneurial intention. Studies in cognitive psychology identify that ‘upward counterfactual thinking’ influences intention and behaviour (Epstude & Rose, 2008; Smallman & Roese, 2009). Upward counterfactual thinking is regretful thinking for missed opportunities of a problem. This study addresses the question of how an individual’s regretful thinking affects his or her future entrepreneurial career intention. To do so, we conducted a study among students in a business school in the UK, and we found that counterfactual thinking modifies the influence of attitude and opportunity identification in entrepreneurial career intention.

Does start-up financing influence start-up speed? Evidence from the panel study of entrepreneurial dynamics

Why are some entrepreneurs able to start a new firm more quickly than others in the venture creation process? Drawing on pecking order and agency theory, this study investigates how start-up capital structure influences the time to either new firm founding or quitting the start-up process. The temporal aspect of the start-up process is one that is often discussed, but rarely studied. Therefore, we utilize competing risk and Cox regression event history analysis on a nationally representative sample of US entrepreneurs to investigate how start-up capital structure impacts the time in gestation to particular kinds of start-up outcomes. Our findings suggest that external equity has an appreciable impact on new firm emergence over time, and that the percentage of ownership held by the founders attenuates the benefits of external equity.