When Do Employees Leave Their Job for Entrepreneurship?*

Abstract

Existing firms are argued to be an important source of new entrepreneurs. Yet, relatively little is known about the characteristics of firms that breed new entrepreneurs. We use a large linked employee-employer dataset to trace and characterize the types of firms which generate new entrepreneurs in Finland. We find that such transitions are rare and that smaller firms spawn new entrepreneurs more frequently than larger firms. We also find that firms' R&D intensity and, to a lesser extent, their productivity are negatively related to the probability that employees transit into entrepreneurship. These results are robust to controlling for a number of employee and employer attributes. Copyright � The editors of the "Scandinavian Journal of Economics" 2008 .

Is success hereditary? Evidence on the performance of spawned ventures

“…Irrespective of the employer's size, the employee's opportunity costs for starting a new venture are also low if the performance of the employer is weak. Most empirical studies confirm that employees who work at an unsuccessful firm turn to entrepreneurship because the rents from remaining employed are small (Gompers et al 2005;Hyytinen and Maliranta 2008). Eriksson and Kuhn (2006) characterize ventures emerging from unsuccessful firms to be ''pushed'' as they are a reaction to unfavorable conditions at the spawning firms.…”

“…Up until now, however, the empirical findings vary across different industry sectors and countries. Whereas some studies observe a negative relationship between firm size and spawning rate (Hyytinen and Maliranta 2008, for Finland's manufacturing and service industries; Elfenbein et al 2010, for spawned ventures in the United States that are founded by entrepreneurs with a science or engineering degree), Gompers et al (2005) report a positive relationship for venture capital backed spawned ventures in the United States. Ambiguous findings also exist for the implications of performance on the rate at which new ventures are spawned.…”

“…Two recurring characteristics within most studies are firm size and firm performance (Gompers et al 2005;Hyytinen and Maliranta 2008;Elfenbein et al 2010). Up until now, however, the empirical findings vary across different industry sectors and countries.…”

“…Although entrepreneurial spawning appears to be a rather common and acknowledged phenomenon (Gompers et al 2005;Klepper and Sleeper 2005;Garvin 1983;Cooper 1985), only a few studies analyze the characteristics of firms that spawn entrepreneurial ventures (Gompers et al 2005;Hyytinen and Maliranta 2008;Elfenbein et al 2010). Rather prominent themes within these studies deal with the impact of firm size and performance on the rate at which new ventures are spawned (Gompers et al 2005;Hyytinen and Maliranta 2008;Franco and Filson 2006;Elfenbein et al 2010).…”

“…The more realistic view on entrepreneurship, however, is that entrepreneurs display significant employment histories (Cooper 1985;Chandler 1996). In fact, several academic studies argue that many entrepreneurs make use of business ideas encountered through previous employment (Klepper 2001;Agarwal et al 2004;Klepper and Sleeper 2005;Cassiman and Ueda 2006;Hyytinen and Maliranta 2008).…”