ENTREPRENEURSHIP AND ITS ECONOMIC SIGNIFICANCE, BEHAVIOR AND EFFECTS No part of this digital document may be reproduced, stored in a retrieval system or transmitted in any form or by any means. The publisher has taken reasonable care in the preparation of this digital document, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained herein. This digital document is sold with the clear understanding that the publisher is not engaged in rendering legal, medical or any other professional services.
ENTREPRENEURSHIP AND ITS ECONOMIC SIGNIFICANCE, BEHAVIOR AND EFFECTS
MARIA V. BRADSHAW AND
PATRICIA T. CARRINGTON EDITORS
Nova Science Publishers, Inc. New York
Copyright © 2009 by Nova Science Publishers, Inc. All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanical photocopying, recording or otherwise without the written permission of the Publisher. For permission to use material from this book please contact us: Telephone 631-231-7269; Fax 631-231-8175 Web Site: http://www.novapublishers.com NOTICE TO THE READER The Publisher has taken reasonable care in the preparation of this book, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained in this book. The Publisher shall not be liable for any special, consequential, or exemplary damages resulting, in whole or in part, from the readers’ use of, or reliance upon, this material. Independent verification should be sought for any data, advice or recommendations contained in this book. In addition, no responsibility is assumed by the publisher for any injury and/or damage to persons or property arising from any methods, products, instructions, ideas or otherwise contained in this publication. This publication is designed to provide accurate and authoritative information with regard to the subject matter covered herein. It is sold with the clear understanding that the Publisher is not engaged in rendering legal or any other professional services. If legal or any other expert assistance is required, the services of a competent person should be sought. FROM A DECLARATION OF PARTICIPANTS JOINTLY ADOPTED BY A COMMITTEE OF THE AMERICAN BAR ASSOCIATION AND A COMMITTEE OF PUBLISHERS. LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Bradshaw, Maria V. Entrepreneurship and its economic significance, behavior and effects / Maria V. Bradshaw and Patricia T. Carrington. p. cm. Includes index. ISBN 978-1-60876-567-6 (E-Book) 1. Entrepreneurship. 2. Economic development. I. Carrington, Patricia T. II. Title. HB615.E6267 2009 338'.04--dc22 2008052099
Published by Nova Science Publishers, Inc. New York
CONTENTS Preface Chapter 1
Chapter 2
Chapter 3
vii Family Matters: Differences in Having Self-Employed Parents between Black and White Entrepreneurs Robert P. Singh,, Micah E. S. Crump and Xingxing Zu
1
A Comparative Study of Entrepreneurial Attitudes and Attributes of Turkish and Kyrgyz Entrepreneurs Mehmet Turan, Seil Nazhimudinova and Ali Kara
21
Entrepreneurship Policies: A Multiple Case Study in a Highly Entrepreneurial Spanish Region Nuria Toledano, David Urbano, and Alex Rialp
41
Chapter 4
Strategic Entrepreneurship: Integration Support Journals Teresa García-Merino and Valle Santos-Álvarez
Chapter 5
Nascence to Newness: The Influence of Internal and External Factors on the Likelihood of First Sale Linda F. Edelman, Tatiana S. Manolova and Candida G. Brush
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Time and Risk Entrepreneurial Characteristics of Growth: The Case of Persistent Light Industrial Prototypes P. E. Petrakis
95
Chapter 6
Chapter 7
Business Incubators and the Emergence of the Entrepreneurial University: Lessons learned from Portugal João Paulo Coelho Marques
Chapter 8
Sources of Information in International Entrepreneurship Process Valle Santos Álvarez and Teresa García Merino
Chapter 9
Entrepreneurial Innovation, Economic Growth and the Stigma of Failure Patricia Crifo and Hind Sami
55
113 133
147
vi Chapter 10
Chapter 11
Maria V. Bradshaw and Patricia T. Carrington Is Entrepreneurship the Salvation for Enhanced Economic Growth? A Review of the Empirical Evidence of the Effect of Entrepreneurship on Employment, Productivity and Economic Growth Kristina Nyström Internationalization as an Act of Entrepreneurship: Economic Effects and Examples Arild Aspelund and Mathieu Cabrol
Chapter 12
Entrepreneurship and Economic Policy Objectives Miguel-Ángel Galindo Martin and María Teresa Mendez Picazo
Chapter 13
Innovation Policies and VC Management to Support Entrepreneurial Financing Jarunee Wonglimpiyarat
163
179 193
205
Short Communication From Entrepreneur to Manager: A Brief Consideration of Economic Transition Scott A. Beaulier,, Joshua C. Hall, and William S. Mounts Index
223 233
PREFACE Entrepreneurship is the practice of starting new organizations or revitalizing mature organizations, particularly new businesses generally in response to identified opportunities. Entrepreneurship is often a difficult undertaking, as a vast majority of new businesses fail. Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high-profile" entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Angel investors generally seek returns of 20-30% and more extensive involvement in the business. Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs.This new book presents the latest thinking in this vibrant and essential area. Chapter 1 - The rate of black entrepreneurship has lagged the national average for decades. Rather than look at financial factors, as most of the literature that has explored the disparity has done, we examine the importance of having self-employed parents and differences in the family structures of black and white Americans. We conducted chi-square tests and logistic regression analyses on General Social Survey data collected from 1972-2004, and found significant differences between black and white entrepreneurs. This paper discusses the implications of our results, offers new insights into the lagging rate of black entrepreneurship, and discusses future directions for research. Chapter 2 - There is little knowledge available about entrepreneurship in transition economies of Central Asia in comparison to the advanced economies where significantly more research information is available about entrepreneurs and entrepreneurial process. Despite the lack of information about entrepreneurs and entrepreneurship process in transition economies, especially about former Soviet Republic countries, it is recognized that the effective practice of entrepreneurship is highly correlated with a successful transition from a planned economy to a market based economy. On the other hand, although there might be cultural similarities between Turkish and Kyrgyz entrepreneurs due to historic Turkic ties between the two countries, significant differences exists between the two countries in terms of economic approach and policies adopted. Turkey has adopted market based economic policies right after WWII and has experienced much longer period of rapid economic growth compare to Kyrgyzstan. As a result, Turkey offers a more positive and mature environment for new enterprise development.
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Accordingly, a comparative study of the entrepreneurial attitudes and attributes in these two countries that have historically common roots and tradition but have followed totally different economic paths should prove to provide valuable insights to the researchers and policy makers alike. Through an empirical study of Turkish and Kyrgyz entrepreneurs in different sectors, this study explores the characteristics and attributes of Turkish and Kyrgyz entrepreneurs and their attitudes towards entrepreneurship and the entrepreneurial process. We also explore the motives, challenges encountered, and demographic attributes of Turkish and Kyrgyz entrepreneurs. Data for the study is collected in both countries using a developed questionnaire translated in both languages. A total of 203 usable questionnaires are collected from Turkish entrepreneurs and a total of 100 questionnaires are collected from Kyrgyz entrepreneurs. Our findings indicate significant differences between Turkish and Kyrgyz entrepreneurs in terms of their profiles, attitudes, motivations, and environmental conditions of entrepreneurship. Chapter 3 - It is generally accepted the importance of entrepreneurship and SMEs to the contribution of economic growth and social development. Consequently, over the last decade, entrepreneurship has been a subject of growing interest by governments of all political ideologies, who have implemented different programmes to promote the creation of new firms. Similarly, academics have increasingly focused on these topics, analyzing the entrepreneurship policies in different contexts. In this research, the role of entrepreneurship policies and support programmes in the promotion of local development through new firm creation is analyzed. The study is developed in Catalonia, one of the most entrepreneurial regions of Spain, through a multiple case study methodology under the light of Institutional Economics as a theoretical framework. The main findings of the research show that despite the relevance of programmes and policies concerning new firm formation, one of the most important factors for business creation as well as for local development are the socio-cultural ones. Chapter 4 - Strategic management and entrepreneurship are two research fields in which significant progress has been made. The field of strategic management has already reached a level of maturity whilst the field of entrepreneurship continues to develop. Both have thus generated a vast amount of literature, with some papers being published in a group of influential journals. Authors such as Boyd et al. (2005) for strategic management and Fried (2003) or Linton (2006) for entrepreneurship have attempted to highlight the most widely recognized journals. Over the last decade some authors (Evans and Wurster, 1999; McGrath and MacMillan, 2000; Hitt et al., 2001, 2002; Ireland et al., 2001, 2003) have proposed merging the theory and research of both disciplines, leading to the emergence of the strategic entrepreneurship (SE) construct. Despite certain initial disagreements (Shane and Venkataraman, 2000), complementarities between the two fields seem to strongly support the idea of integration. Further, the publication of the Strategic Entrepreneurship Journal (an official journal of the Strategic Management Society) in 2007 heralded a significant milestone. However, the question arises as to which journals have thus far contributed to sustaining this integration, what support each has provided in the merging process, which can be considered a reference for current and future research in strategic entrepreneurship, and finally what level of recognition cited journals have reached in recent years. Using the Scopus database (from Elsevier) and the Web of Science and Journal Citation Reports in ISI Web of
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Knowledge databases (from Thomson) as sources of information and analysing the period between 2000 and 2008, we have attempted to answer these questions. Our analysis reveals that over the last decade SE literature has evidenced a clear growth. A wide range of differing journals have contributed to this, although a prominent role has been played by those more closely linked to the field of entrepreneurship. Based on the recognition achieved by certain journals, a group of publications is proposed as a reference framework for SE researchers. Chapter 5 - Each year between four and six percent of the working population in the United States take action to start a new venture, however, only about half of all potential business founders succeed in creating a new enterprise. Evolutionary theory attributes this high failure rate to the liability of newness in which young organizations do not have the internal and external resources needed to compete in their respective markets. Alternatively, the entrepreneurship literature suggests that it is individual perceptions and actions that determine early venture success. In both cases, a critical juncture for nascent entrepreneurs – those individuals who are engaged in the processes of starting a new venture – is the transition from nascence to newness, which culminates in the firm’s first sale. This paper explores the effects of internal organizational conditions as well as perceived external environmental circumstances on the likelihood of the fledgling firm making its first sale. To do this we used a random sample of 473 nascent entrepreneurs located in the United States. Findings indicate that social capital and the commitment of the entrepreneur to the new venture significantly influence successful transition from nascence to newness. In addition, the perceived strength of competition and the level of product/service development are also significant predictors of the likelihood of first sale. Implications are discussed. Chapter 6 - This article is about the role of entrepreneurial perception of time and risk vis à vis structural change and growth. Entrepreneurship is a basic constituent element of social capital which in turn is a productive lubricant of the growth process. Different structural entrepreneurial prototypes with respect to time and risk have different structural change effects. Those structural changes (and any structural changes) are not neutral as far as the implications of growth rate changes are concerned. Therefore the time and risk characteristics of active entrepreneurship are reflected in the growth process either in the form of structural change and/or in the form of growth rate change. Chapter 7 - This Chapter concerns University-Industry (U-I) interaction via business incubators, highlighting the part played by the University in implementing, sponsoring and promoting these infrastructures. The empirical study was based on exploratory work that involved 11 business incubators, 8 Portuguese universities sponsoring and/or associated with these incubators, and a sample of 79 firms under incubation. The results confirmed the existence of factors that determine U-I links, and identified others not yet studied, such as the “statutory situation of the incubator” and the “origin of the firms” based in it. It was also found that the "economic sector of activity" of the firm is associated with the "statutory situation” of the incubator. The entrepreneurial university model proposed is based on earlier results, bearing in mind the conception of incubator constructed on pre-existing theoretical knowledge relating to the role of the university in the technology transfer process, to the importance of certain characteristics of SMEs, and to the relevance of the nature of entity promoting the incubator. Finally, a series of policy implications for the universities, incubators and firms, are put forward, with the aim of bridging the gap between the parties.
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Chapter 8 - The globalisation of markets is increasingly forcing firms to internationalise. Managers’ decisions in firms’ internationalisation processes are complex because of the diversity of information stimuli that are involved. Thus the internationalisation process is conditioned by the strategic interest that international activity has for the firm, the accessibility of the foreign markets, the pressure of the competitive and institutional environment, and the firm’s ability to integrate into international competition. It is not, however, these objective factors that directly affect the decision, but rather the information stimuli that the manager receives about them. Consequently, information plays a critical role in the internationalisation decision. Managers acquire information in many different ways: through personal contacts, or social networks, from the media, or organisms linked to business activity, and so on. Thus the current chapter studies the information sources that company managers use in their firm’s internationalisation process. The literature has emphasised the importance of access to information and the manager’s active role in the search for information. Moreover, faced by different sources of information, managers, through a process of selective attention, attend some messages and ignore others. In other words, the managers classify some messages as signals and others as noise. In this line, the current research looks at which information sources managers take into account when they absorb the information stimuli about the factors involved in the firm’s internationalisation decision. The chapter studies the extent to which managers attend the opinions of other individuals with whom they maintain relationships, or messages from the media, or the information offered by different organisms. The following organisms are considered: (1) organisms dedicated to the phenomenon of business internationalisation (Spanish Institute of Foreign Trade – ICEX, regional export promotion body); (2) other public organisms, such as the chambers of commerce; and (3) the corresponding sectorial associations. This chapter also studies the extent to which the managers behave actively in their search for information or receive information without search effort. The empirical analysis involves firms in the Castile-Leon region of Spain from two sectors: information and communications technologies, and the natural stone industry. Chapter 9 - This contribution proposes a model of entrepreneurial activity highlighting a complex relationship between innovation and stigma of failure. Innovation decisions are examined in an endogenous growth model with horizontal differentiation in the spirit of Romer (1990). In our framework, entrepreneurs decide to invent a new good, given entrepreneurial talent and production costs, and face a risk of failure. If an entrepreneur fails in this innovation process, the firm remains on the market but bears a stigma of failure. We then analyze how the risk and the stigma of failure affects business dynamism and economic growth. We show that while a higher risk of failure is detrimental to innovation and growth, it positively affects the returns to entrepreneurial talent (or equivalently the comparative advantage of successful innovators). On the contrary, a higher stigma of failure inhibits entrepreneurial creation but might be beneficial for growth. These results are supported by recent empirical evidence in OECD countries. Chapter 10 - During the last decades, enhancing entrepreneurship has emerged as commonly used policy- measure in order to improve economic growth. However, is it true that entrepreneurship unambiguously can be claimed to improve economic growth? This paper intends to review the empirical evidence on the relationship between entrepreneurship on three measures of economic growth, employment, productivity and aggregate economic growth. The review shows that the studies that find no positive relationship between
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entrepreneurship and productivity growth have studied a relatively short period. Most studies that have studied a longer period (about ten years) provide rather clear evidence on the positive relationship between entrepreneurship and growth. Regarding the relationship between entrepreneurship and employment growth, the empirical evidence to some extent point in different directions. However, it must be concluded that in the long run there seems to be a positive relationship. A majority of the studies on the relationship between entrepreneurship and aggregate economic growth find a positive relationship. Studies that find a negative relationship usually employ non-harmonised self-employment rates as the measure of entrepreneurship. Chapter 11 - For centuries there has been an ongoing discussion in the economics literature on the nature and drivers of economic development. In most views, entrepreneurship in one shape or another has been seen as the main driver of economic change and development. The problem with this literature is that is has its origin in national economics and occurred in a domestic single market setting. Hence, the international effects of entrepreneurship have been largely ignored. This study aims to close some of this gap by reviewing three dominant schools of economy, namely Neo-Classical, Schumpeterian and Austrian economics, and their principal views of economic development. Further, we extend the argument of these theories of economic development into a cross-national setting and assess the theoretical effects of internationalization as a driver for economic development. Finally, we present and discuss some cases that illustrate the economic effects identified from the theoretical review through their international activities. The study has three major contributions. First, we extend the notion of economic development from the cradle of national economics into the international arena. Secondly, we bring forward practical examples of internationalizing companies and exemplify the entrepreneurial effects that these firms have caused in the path of their internationalization. Finally, we extend the theoretical perspectives of international entrepreneurship by introducing effects of internationalization on economic development, and hence, conceptualizing international new ventures as global change agents. Chapter 12 - The economic growth and the progress of the nations have been two economic policy targets that have interested to the economists during centuries. Different approaches have been developed to determine which variables promote economic progress and growth so the policy maker could use them to design the adequate economic policy to achieve these objectives. During the last decades, “entrepreneurship” factor has been considered as a relevant element in the economic policy area, because it has an important role in the employment creation and improvement social welfare processes, achieving in this sense some of the most relevant economic policy objectives. In this paper, we analyze the relationship between entrepreneurship initiative and several economic policy targets, namely, employment and economic growth and progress. Also, we will consider the role of monetary and fiscal policies to promote the entrepreneurial activity, developing an empirical study for developed and developing countries to estimate the relationship between both policies and entrepreneurship activity. Chapter 13 - With the exception of the United States, no other country in the world could manage to create successful high-tech venture capital (VC)-backed industries. The government of developed and developing countries have placed importance on the government financial policies to boost high-tech investment capacity. This chapter is
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concerned with the innovation policies to support the development of the VC industry. There are difficulties in terms of access to finance for start-up firms. The governments around the world have initiated the government investment programmes and laws to support early-stage investments in start-ups. This chapter explores the differences across countries in respect of tax measures to support the development of the VC industry and proposes the National System of Innovation-based model of VC financing. This chapter is organised as follows. Section 1 presents an introductory section. Section 2 reviews the literature on the national system of innovation, management of VC financing and the Triple Helix model for innovation development. Section 3 explores the innovation policies and tax measures to support the development of the VC industry. Section 4 discusses the initiatives and challenges to create effective VC financing system. Section 5 concludes this chapter by drawing useful implications for policy makers attempting to provide an environment conducive to high-tech industry. Short Communication - Both change and persistence matter in economics. Change ultimately leads to persistence. In economics, marginal analysis, disequilibrium, and market entry and exit highlight the importance of change. Persistence, on the other hand, can be seen in equilibrium—the assumption of zero (i.e., normal) profits is an example. Entrepreneurs are agents of change. Yet, on-going competitive firms must learn to survive in the long run setting of normal returns. If entrepreneurs bring both change and manage to persist, then there is no reason to read further. If they do not, then how does the transition from change to persistence occur? In this paper we discuss the importance of the transition from entrepreneurial information to managerial information. We argue that both entrepreneurs and managers have specialized sets of information and that firms require each type of information at different stages of their existence.
In: Entrepreneurship and its Economic Significance… ISBN 978-1-60692-669-7 Editors: M. V. Bradshaw and P. T. Carrington © 2009 Nova Science Publishers, Inc.
Chapter 1
FAMILY MATTERS: DIFFERENCES IN HAVING SELF-EMPLOYED PARENTS * BETWEEN BLACK AND WHITE ENTREPRENEURS Robert P. Singh1,†, Micah E. S. Crump2and Xingxing Zu1 1
Morgan State University Earl G. Graves School of Business, 1700 E. Cold Spring Lane, Baltimore, MD 21251 2 Howard University School of Business, 2600 6th Street N.W., Suite 551 Washington, DC 20059
ABSTRACT The rate of black entrepreneurship has lagged the national average for decades. Rather than look at financial factors, as most of the literature that has explored the disparity has done, we examine the importance of having self-employed parents and differences in the family structures of black and white Americans. We conducted chisquare tests and logistic regression analyses on General Social Survey data collected from 1972-2004, and found significant differences between black and white entrepreneurs. This paper discusses the implications of our results, offers new insights into the lagging rate of black entrepreneurship, and discusses future directions for research.
*
The term “black” represents the broader groups of blacks living in the U.S. These include African-Americans, as well as black people from African countries, the Caribbean, and other countries. An earlier version of this paper was presented at the 2007 Academy of Management Meeting
†
Phone: 443-885-3433; Fax: 410-885-8252; Email:
[email protected] 2
Robert P. Singh, Micah E. S. Crump and Xingxing Zu
INTRODUCTION According to the U.S. Bureau of Labor Statistics (BLS), the unemployment rate for blacks is 8%, while the unemployment rate for whites is 4.2% (U.S. Bureau of Labor Statistics, 2007). In fact, over the last 50 years, the unemployment rate of blacks has consistently remained about double that of white Americans (Badgett, 1994; Hoynes, 2000; Spriggs & Williams, 2000). Since most of the net new jobs in the U.S. economy are created by new ventures and small businesses (Birch, 1987; Scarborough & Zimmerer, 2005), a natural solution to improving the disproportionately high black unemployment rate is through increased black entrepreneurship. Research has found that black business owners are more likely to hire African-Americans and other minority job seekers, than are white business owners (Bates, 1994). Thus, entrepreneurship represents a viable alternative to unemployment and/or discrimination in the labor market and can provide a path out of poverty (e.g., Glazer & Moynihan, 1970; Light, 1979; Sowell, 1981; Moore 1983). There are many definitions of entrepreneurship and various sources provide different measures for the rate of entrepreneurship among blacks and whites (e.g., Fairlie & Meyer, 1996; 2000; Hipple, 2004). No matter what statistics are cited or what definition is used, the rate of black entrepreneurship lags both the national average and the entrepreneurship rate of whites in the United States. According to the U.S. Census Bureau, blacks make up 12.8% the U.S. population, but of the 23 million firms in the U.S., only 1.2 million (5.2%) are owned by blacks (U.S. Census Bureau, 2007). Just 4.4% of African-American men and 2.0% of African-American women work for themselves (Fairlie & Meyer, 1996). Federal government statistics on the self-employment rates of Americans show that compared to whites (8% selfemployed), blacks (4.1% self-employed) are half as likely to be self-employed (Hipple, 2004). Fairlie and Meyer (2000) reported that whites are three times more likely than blacks to own their own businesses. The significant difference in the percentage of white versus black self-employment rate has remained for nearly a century (Fairlie & Meyer, 1996; 2000). The reasons for the wide disparity are not well known. Most researchers have focused on personal financial assets (Evans & Leighton, 1987), and access to capital (Bates, 1995, Cavalluzzo & Cavalluzzo, 1998) as reasons for the lagging black entrepreneurship rate in the U.S. However, it would seem that if the problem was simply providing access to capital the issue of low black participation in entrepreneurship would have been solved, or at least improved, long ago through such institutions as community banks and local angel investors, or initiatives such as government revitalization efforts and affirmative action lending programs. Yet, there has been relatively little change in the rate of black entrepreneurship over the last 90 years (Bates, 1995; 1997; Fairlie & Meyer, 1996; 2000). Beyond financial/access to capital issues, there is little research that has examined the causes for the relatively low black entrepreneurship rate in the United States. Having a father who is/was an entrepreneur has consistently been found to be related to becoming an entrepreneur (Hisrich et al., 2005; Hundley, 2006). This is not surprising given that fathers serve as role models and pass on knowledge and experience to their children. However, with the depressed rate of black entrepreneurship there simply are not as many black entrepreneur fathers per capita as there are white entrepreneur fathers. This is supported by the findings of Hout and Rosen (2000), who combined General Social Survey (GSS) data
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collected from 1974 through 1996, and found that blacks are less likely to have fathers who are self employed (15.5%) than the general population (24.1%). However, Hout and Rosen (2000) also found that black males whose fathers were self-employed had lower rates of selfemployment than white males whose fathers were not self-employed. This suggests that not only is there a significant difference in the percentage of having a self-employed father between blacks and whites, but also that the parent-child impact of having a self-employed father is different between black and white males. According to Hout and Rosen (2000), the differing percentage of whites and blacks who had self-employed fathers could only explain 15% of the gap between white and black men who chose to be self-employed. We believe that further study of family structures may reveal more about the new venture formation gap between blacks and whites. In this paper, we examine the importance of having parents who are self-employed. We follow up on the work of Hout and Rosen (2000) by conducting additional analyses using updated GSS data since 1996. In addition, they only looked at males and the importance of self-employed fathers in their sample. There are also far more female entrepreneurs than ever before (Scarborough & Zimmerer, 2005), and for this reason we include females in our sample and study the importance of having a self-employed mother. We also consider several different questions. Hout and Rosen (2000) combined data over their 22-year period of analysis, but much has changed over that period and in the 10 years following their 1996 data cutoff period with respect to family structures. We hypothesize that, over time, there have been differential impacts on self-employed blacks and whites as a result of changing family structures. These changes have seen more American households becoming single-parent families. Further, a greater percentage of black households versus white households are now single-parent families that are being run by women. Given the reduction in males heading black households with children, the role of the mother as a facilitator of entrepreneurship is likely to have become far greater within the black community, when compared to white households. We examine the possibility that this family structure difference has an impact on black entrepreneurship. The broad purpose of this exploratory paper is to attempt to better understand the reasons for the gap in the levels of black and white entrepreneurship. However, a secondary goal is to examine the effects of changing family structures on new venture creation in general. Specifically, we study the effects of different parental entrepreneurial experiences and the impact of changing family structures on self-employed whites and blacks. We were interested in identifying changing trends over time. Following a brief literature review, we present five hypotheses. These are tested using GSS data collected between 1972 and 2004. After the empirical results are discussed, we offer practical and academic research implications, and discuss limitations along with future research directions.
LITERATURE REVIEW AND RESEARCH HYPOTHESES Benefits of Having Self-Employed Parents A significantly higher percentage of entrepreneurs have fathers who are/were selfemployed than non-entrepreneurs (Hisrich et al., 2005; Hundley, 2006). In fact, the offspring
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Robert P. Singh, Micah E. S. Crump and Xingxing Zu
of entrepreneurs have been found to be two to three times more likely than those who do not have entrepreneurial parents to become entrepreneurs themselves (Lentz & Laband, 1990; Fairlie, 1999; Dunn & Holtz-Eakin, 2000, Hout & Rosen, 2000). It is possible that there is an “entrepreneurial gene” that has yet to be identified, but this seems unlikely. Instead, researchers have focused on more tangible benefits of having entrepreneurial parents. Dunn and Holtz-Eakin (2000) argue that financial and human capital benefits are two possible explanations for why the offspring of the self-employed display a greater propensity to become entrepreneurs. The financial capital explanation refers to the fact that capital market constraints limit an entrepreneur’s ability to finance a start-up venture (e.g., banks will not extend loans to startup ventures which have no history of operations), which can be a significant obstacle to becoming an entrepreneur. To the extent that greater personal wealth relaxes capital market constraints and eases the transition to entrepreneurship, successful entrepreneurs are more able and willing to transfer financial wealth to their offspring, thereby overcoming capital market constraints. In short, the authors reason that family credit markets may substitute for formal access to funds. Dunn and Holtz-Eakin’s (2000) second explanation, human capital, is that parents transmit to their children valuable work experience, reputation, or other managerial human capital. Lentz and Laband (1990) explain that business owners obtain industry-specific, integrated managerial skills from two potential sources: market experience and pre-market experience. The researchers refer to market experience as “the school of hard knocks” (p. 565), and they refer to pre-market experience as the equivalent of an internship that takes place prior to starting their own firm, and under the auspices of their parents’ (or other family member’s) business. Lentz and Laband (1990) looked at respondents from the 1979 membership of the National Federation of Independent Businesses (NFIB) and found that half of all business owners had a parent who was also a self-employed business owner. The researchers found that business owners acquired their entrepreneurial skills informally through their experiences within family firms, than through formal education and training programs. Similar to Lentz and Laband (1990), Fairlie and Robb (2007) found that nearly half of all business owners had a self-employed family member prior to becoming a business owner, and that half of that group had actually worked in that family member’s business. The authors present two additional explanations for why the offspring of parents display a greater propensity toward entrepreneurship. First, family members tend to share preferences for entrepreneurial activities and entrepreneurial ability, such as preferences for autonomy, selfemployment, and attitudes toward risk. The second explanation is that the offspring may become partners with their parents or inheritors of their parents’ businesses. However, using data from the 1992 Characteristics of Business Owners (CBO) survey, Fairlie and Robb (2007) found inheriting a family’s business to account for only 1.6% of small businesses, although businesses that are inherited tend to be more successful and larger than those that are not inherited. Entrepreneurship is an unstructured activity that requires a wide variety of skills. Financial resources are just one element of successful entrepreneurship – passion and drive, knowledge of market needs, and multi-disciplinary skills (e.g., strategic, accounting, financial, legal, technical) are just some of the other important factors. The benefit of having entrepreneurial family members appears to go well beyond any financial benefits. Entrepreneurial family members can serve as informal sources of information that can be
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useful for helping to shed light on the challenges and difficulties faced by entrepreneurs. This benefit can give would-be entrepreneurs a more realistic understanding of how to become a successful entrepreneur. To this end, both Fairlie and Robb (2007), as well as Lentz and Laband (1990), emphasize that the transfer of physical capital is less important than the transfer of knowledge and experience in explaining why the offspring of business owners become business owners.
Hypotheses As discussed earlier, black males are far less likely to have self-employed fathers (Hout & Rosen, 2000). This has created a “chicken-and-egg” type problem when looking at black entrepreneurship. That is, a lower percentage of blacks have self-employed fathers to act as role models to help them better understand how to become successful entrepreneurs. Then, the lower firm founding rate for blacks keeps future generations of black children from benefiting from having an entrepreneurial father who can serve as a mentor and teach entrepreneurial skills, and the cycle repeats itself. Beyond the statistics which show that the wide gap in the self-employment rates of whites and blacks has remained in place for decades, there are also changes to the basic family structures of Americans that are likely to have some impact on the role and importance of fathers. Table 1 provides a summary of the changing nature of black and white families in the U.S. from 1970 to 2000. Table 1 shows that the structures of black and white families in the U.S. are strikingly different and have become even more different over time. In 1970, only 64.3% of black households with children under the age of 18 were 2-parent family units. This compared with 89.9% of similar white households. However, over a 30-year period, while both groups have seen their percentage of 2-parent family households drop, the changes have been much more dramatic in black households. By 2000, 61.4% of children in black households were living in single-parent family units and the overwhelming majority (90.1%) of these families was being led by mothers. Only 26.1% of children in white families were living in single-parent families. Table 1. Family Structures of Black and White Family Groups with Children Under 18 (U.S. Census Bureau, 2007)
Race Black Families 2-parent family unit single-parent family unit % of single-parent units maintained by mothers White Families 2-parent family unit single-parent family unit % of single-parent units maintained by mothers
1970
1980
1990
2000
64.3% 35.7% 92.6%
48.1% 51.9% 93.9%
39.4% 60.6% 92.8%
38.6% 61.4% 90.1%
89.9% 10.1% 88.3%
82.9% 17.1% 88.4%
77.4% 22.6% 83.1%
73.9% 26.1% 79.3%
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Robert P. Singh, Micah E. S. Crump and Xingxing Zu
One reason for the increasing number of single-parent black families is the declining percentage of blacks who choose to get married (Pinderhughes, 2002). However, even for those who get married, the divorce rate of blacks is twice that of whites (Tucker & MitchellKernan, 1995). The result has been that from 1990 to 2005 the percentage of blacks over the age of 18 who were married dropped from 46% to 41%. While for whites the number only dropped from 64% to 61% (U.S. Census Bureau, 2007). What all of this data suggests is that fathers have played a diminishing role within the household over time, particularly within the black community. We want to be clear that we are not making a moral judgment or assessment of how involved fathers may or may not be in the lives of their children. Obviously, a father who does not live in the household may still play an active part in a child’s upbringing. We are only looking at the objective statistics and trends that show that fathers are less likely to be living with their children. Based on government statistics, the number of non-farm proprietorships has nearly quadrupled from 5.8 million in 1970 to 19.7 million in 2003 (U.S. Census Bureau, 2007). Over that same time period the U.S. population has grown from 227 million to 291 million people (U.S. Census Bureau, 2007). Thus, the growth in proprietorships (340% growth) is rising at a much faster pace than the U.S. population (28% growth). With the rate of entrepreneurship on the rise and the societal trends toward fathers playing a diminished role in the lives of children, it is possible that for would-be entrepreneurs there is less importance being placed on having a self-employed father. In fact, over the last 35 years we believe that it is likely that fewer self-employed people have had self-employed fathers. Further, given the significant numbers of blacks who now grow up in single-parent, mother-led families, we believe this finding will be stronger for blacks. This leads to the following two hypotheses: Hypothesis 1a: For both self-employed blacks and self-employed whites, having a selfemployed father has become less likely over the last 35 years. Hypothesis 1b: Self-employed blacks have become even more unlikely than their white counterparts to have self-employed fathers over the last 35 years. Between 1975 and 1996, the labor force participation of women increased from 46% to 59% (Hayghe, 1997). Among women with children under 6 years of age the increase was even more dramatic – from 39% to 62% (Hayghe, 1997). Research has also shown a significant increase in the number of women entering and rising to senior management positions in organizations, and that many female senior executives have families (Catalyst, 2001), which is leading to an increase in the number of families with full-time househusbands (Morris, 2002). No doubt, a major reason for this increase is that women are graduating from educational institutions in increasing numbers (Marklein, 2003). In addition to greater participation in the labor force, more women than ever are founding new ventures. In fact, the rate of new venture creation by women is twice that of the U.S. national average (Scarborough & Zimmerer, 2005). For women of color, the rate is even higher – the founding rate has been found to be 6 times the national average (Center for Women’s Business Research, 2007). As fathers have become increasingly less likely to live with their children, mothers have taken on a more important role in society than in the past, especially within black families. As shown in Table 1, during the 1980s, the family structure of blacks had changed to where the majority of black households with children under the age of 18 were headed by single
Family Matters
7
mothers. This remains true today (55.3%). For whites the statistics are much different. In 1970, 8.9% of white families with children under the age of 18 were headed by mothers. By 2000 this number had grown to 20.7%. So, for both black and white families with children, mothers have taken on a much larger role as the head of household over the last 35 years. This has been especially true of black families. Based on these statistics, we propose the following: Hypothesis 2: Hypothesis 3: Hypothesis 4:
A growing percentage of self-employed blacks and self-employed whites have a self-employed mother. A greater percentage of self-employed blacks will have a self-employed mother than the percentage of self-employed whites. Having a self-employed mother is more likely for self-employed blacks than having a self-employed father.
We recognize that data are not theory (e.g., Sutton & Staw, 1995), and that there may be some questions about the theoretical basis for the hypotheses. However, we view this work as exploratory and important because it examines an issue that has remained largely unanswered by the literature – why there is a significant gap between the rates of black and white entrepreneurship. We take the view of Weick (1995) that data analysis is critical to theory development. In addition, as DiMaggio (1995) points out, theory construction is social construction that often takes place after the fact. For these reasons, we believe the proposed hypotheses, the empirical tests, and the discussion of results that follow are important because they can help shed further light on the subject of black entrepreneurship.
RESEARCH METHODS Data and Sample To test the hypotheses, we utilized General Social Survey (GSS) data. The GSS is a personal interview survey of a representative sample of thousands of U.S. households conducted by the National Opinion Research Center (NORC). A full description of the GSS project is available at the NORC website (see http://www.norc.org/projects/gensoc1.asp). There are a number of websites that allow public access to the GSS data. We downloaded the data from the University of California, Berkeley’s Survey Documentation and Analysis website (see http://sda.berkeley.edu/archive.htm). The GSS contains a standard core of demographic and attitudinal questions, plus topics of special interest. It has been administered annually from 1972 until 1994, when it became a biennial survey. Because of its usage of permanently worded questions, the survey allows researchers to examine the opinions and issues faced by the U.S. population over time. In total, more than 38,000 respondents have answered over 3,260 different questions since the survey’s inception (NORC, 2007a). The survey employs a national area probability sampling frame of noninstitutionalized (i.e., non-military or other government-affiliated adults). The sample size is about 1,500 for the first 19 surveys, and 3,000 since 1994. The survey is administered by in-person interviews
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Robert P. Singh, Micah E. S. Crump and Xingxing Zu
which last about 90 minutes each. Response rates fluctuate between 74% and 79% from 1975 to 1991; between 76% and 82% from 1993 to 1998; and remained at 70% for the years 2000, 2002, and 2004 (NORC, 2007b). While there was no 1992 GSS, there was a special survey in which respondents to the 1991 GSS were re-contacted by mail or telephone, with a response rate of 84%. For this study, we only used data and analyzed the results for the black and white respondents. Following Hout and Rosen (2000), we treat the self-employed as being entrepreneurs. We recognize and acknowledge that some may disagree with this, however, equating self-employed people with entrepreneurs is consistent with prior entrepreneurship studies (e.g. Bingham & Melkers, 1989; Butler & Herring, 1991; Hout & Rosen, 2000; Katz & Green, 2007), and allows us to utilize the GSS for this exploratory study. The statistical methods utilized in this study were chi-square tests and logistic regression analyses.
Measures The variables used in this study are defined as follows: Race – Categorical variable: 1=white, 2=black. Respondent Self-Employed – Categorical variable: 0=not applicable, 1=self-employed, 2=work for someone else. Father Self-Employed – Categorical variable: 0=not applicable, 1=self-employed, 2=worked for someone else. Mother Self-Employed – Categorical variable: 0=not applicable, 1=self-employed, 2=worked for someone else. Decade – Categorical variable that divided the GSS response data into 4 categories: 1=1970s, 2=1980s, 3=1990s, 4=2000s.
RESULTS Table 2 breaks down the respondents by decade, race, whether they are self-employed or not and whether their father was self-employed or not. Chi-square analyses of the data show that for whites, a greater percentage of those with self-employed fathers became selfemployed than those whose fathers worked for others. This difference is statistically significant and has remained over time (p