and exit
2.1
Past experiences in the labor market and BOs’dy-
namics
The decision of entering entrepreneurship has been analyzed during the last decades by an extensive literature under the framework of occupational choice models (see Parker, 2009a). More recent studies have been emphasizing the im- portance of several variables that may a¤ect the decision of running a business instead of receiving a more stable wage in paid employment, including numer- ous individual-level speci…cities as gender, age, education (e.g., Livanos, 2009; Berglann et al., 2011) or ability (e.g., Joona and Wadensjö, 2013; Poschke, 2013), unemployment episodes (e.g., von Grei¤, 2009), prior employer’s char- acteristics (e.g., Hyytinen and Maliranta, 2008; Parker, 2009b) and macroeco- nomic conditions (e.g., Koellinger and Thurik, 2012).
Entrepreneurial exit, in turn, was a topic systematically disregarded in many studies for long time, not only due to data limitations, but also because a great part of entrepreneurship literature suggested that the entrepreneurial process is complete as soon as the new venture is created and ready to operate in the market (DeTienne, 2010). However, the entrepreneurial process is more than just the creation (or acquisition) of a business and does not end with entrepreneur’s entry, but rather with entrepreneur’s exit.
Over the last years, a number of studies have been trying to …ll this gap by searching for potential explanations on why some entrepreneurs survive longer
in the business than others, using the individual as the unit of analysis. En- trepreneurs’age, gender and education (e.g., Block and Sandner, 2009), their past experiences in unemployment (e.g., Carrasco, 1999; Taylor, 1999; Ander- sson and Wadensjö, 2007), some characteristics of their businesses (Parker and Belghitar, 2006; Stam et al., 2010) and the overall economic environment (e.g., Haapanen and Tervo, 2009; Millán et al., 2012) are some of the determinants that have been found to a¤ect the length of time an individual persists as an entrepreneur.
Even so, we still lack substantial knowledge on other types of determi- nants, as those related with individuals’past experiences in the labor market. Individuals’ career history, by allowing the absorption of speci…c knowledge, the accumulation of contacts and networks, and by potentially a¤ecting both future labor market prospects and the identi…cation of business opportunities, may also shape entrepreneurial entry and exit.
So far, the literature has paid particular attention to unemployment experi- ences, arguing that entrepreneurship is frequently regarded as an alternative to uncertain future career prospects or even to escape from unemployment (Evans and Leighton, 1990; Storey, 1991; von Grei¤, 2009; Millán et al., 2014b). How- ever, while there is widespread evidence that unemployment episodes push individuals towards entrepreneurship, many studies have also reported that entrepreneurs with past unemployment periods are more likely to fail (e.g., Carrasco, 1999; Taylor, 1999; Andersson and Wadensjö, 2007; Millán et al., 2012). Thus, in this study, we analyze how a recent job loss (caused by pre- vious employer’s closure or signi…cant downsizing) a¤ects nascent BOs’entry and exit decisions.
Additionally, we pay particular attention to the role of job shifts in the past and employment experiences in large-sized or foreign-owned …rms. There is already evidence that the ‡ow of people between organizations and di¤er- ent contexts works as an important mechanism for knowledge transfers and skill development (e.g., Song et al., 2003; Frederiksen and Wennber, 2011). In view of that, job shifting may endow individuals with a more diversi…ed
set of skills, information and social capital, which not only may make them more likely to become entrepreneurs (Lazear, 2004), but also more able to survive longer in the business. Conversely, a larger number of di¤erent em- ployers in the past may, instead, signal an unstable or unsuccessful path in paid employment, possibly associated to low human capital or ability, which may also motivate entrepreneurial entry, but possibly harm post-entry persistence
if entrepreneurship is viewed as a last resort solution (Millán et al., 2014b).1
Accordingly, we test whether and how the number of di¤erent jobs/employers in the past in‡uences the individuals’probability of entering into and exiting from entrepreneurship.
Finally, we also explore the role of previous jobs in large-sized or foreign- owned companies. Though the literature has been suggesting that previous employer’s size matter, with smaller …rms being understood as places of entre- preneurial learning (e.g., Hyytinen and Maliranta, 2008; Parker, 2009b), other studies also argue that entrepreneurial opportunities and resources accrue to incipient entrepreneurs as a function of the structural position and visibility of their prior employers (e.g., Burton et al., 2002).
Accordingly, on the one hand, we could expect that an employment experi- ence in a large or foreign …rm, by possibly providing the new entrepreneur more knowledge, reputation and legitimacy, supports entrepreneurial entry and im- proves post-entry persistence. On the other hand, such type of experiences in the labor market, by frequently being appreciated by subsequent employers (Sørensen, 2007; Sørensen and Phillips, 2011; Balsvik, 2011), may increase the opportunity cost of leaving paid employment, thus reducing the propensity of entering entrepreneurship and/or accelerating nascent BOs’exit. The lack of empirical evidence on these relationships does not allow the formulation of precise expectations on the e¤ect of these variables.
1In this regard, there is increasing evidence that both high-ability and low-ability agents
2.2
The heterogeneous nature of nascent BOs: entry
routes and exit modes
The literature has been largely de…ning entrepreneurship as self-employment or new venture creation. However, starting a new …rm from scratch is not the only way individuals can get into entrepreneurship. Budding entrepreneurs can also take over an existing …rm, though very few studies have been concerned with this issue.
Nonetheless, there are good reasons to believe that entrepreneurs enter- ing via start-up di¤er from those entering by acquiring an existing business. Acquisition can be viewed as an easy mode of penetrating a new market, be- sides allowing the potential entrant to take advantage of existing facilities, customer base and networks. In contrast, those who decide to install a new venture are faced with time-consuming and risk-taking activities, like building plants, learning the market or training employees (Tarola et al., 2011; Tarola, 2013), besides being more exposed to the liability of newness and smallness (Brüderl and Schüssler, 1990). Also, problems of asymmetric information are more acute in new venture start-ups compared with established …rms, which can be acquired by an outside investor or even by one of the …rm’s employees (Parker and van Praag, 2012). Furthermore, we may also expect that di¤er- ent learning opportunities (Jovanovic, 1982) about the whole entrepreneurial process are associated to each of those entry alternatives.
Accordingly, entrepreneurial entry should not be understood as a homo- geneous phenomenon, as di¤erent entry routes may signal di¤erent pro…les of BOs, driven by di¤erent motivations and having distinct post-entry behaviors. A few recent studies actually show that the mode of entry into entrepreneurship is in‡uenced by individual characteristics, as human, social or …nancial capital (see Parker and van Praag, 2012; Bastié et al., 2013; Block et al., 2013). Thus, in this paper, we distinguish between new entrepreneurs entering via start-up or acquisition, also paying attention to intrapreneurs, a particular group of BOs more frequently neglected by the literature on entrepreneurial entry (see
Parker, 2011; Martiarena, 2011).
Similarly, regarding BOs’ exit, most of the existing studies on entrepre- neurial survival have been conceptualizing exit as a utility-maximizing choice and, consequently, have associated exit with the failure of …rms or individual entrepreneurs (DeTienne and Cardon, 2012). Nonetheless, in‡uential models on entrepreneurship and business transfers have early recognized that many individuals may successfully develop a business and leave it to another BO later on for other reasons than failure (Holmes and Schmitz, 1990, 1995).
Those theories suggest that the decision behind small business dissolution or sale may be, in part, a problem of match between each …rm and each BO. While good matches make BOs to persist longer in their businesses, bad matches typically make individuals to leave their …rms earlier, either by clos- ing them or by selling them to others. In this regard, the models developed by Holmes and Schmitz (1990, 1995) and, more recently, by Plehn-Dujowich (2010) propose that high-quality businesses owned by low-quality BOs tend to be sold, while low-quality businesses owned by low-skill BOs tend to be shut down. However, the lack of empirical evidence on these relationships does not allow, so far, the con…rmation of these results.
In summary, though there is an increasing recognition that exit is not always a negative outcome (see also Wennberg et al., 2010; Yusuf, 2012), only a few studies have allowed entrepreneurs’exit to assume other modes than …rm closure (see, for instance, Taylor, 1999; Stam et al., 2010). Therefore, we pay attention to the way nascent BOs leave their businesses and to which factors may contribute to explain their exit mode. We distinguish exits by dissolution from exits by ownership transfer (OT), and evaluate how past experiences in the labor market and entry choices impact on BOs’exit decision. Furthermore, we take into account BOs’unobserved heterogeneity, which, according to the aforementioned theories, may also in‡uence the way individuals leave their …rms.