Working Papers

Co-Worker Experience and New Venture Performance

Bram Timmermans

Previous research has proposed a range of factors that can assist in overcoming the challenges that explain the mortality rate of new ventures. The underlying premise of this liability of newness argument is that the lack of social interaction and social structures result in higher risk of failure but that this risk decreases as the organization ages. However, these previous studies mainly list non-social factors, e.g., firm environment, firm strategy, and individual characteristics. The purpose of this article is to address this phenomenon by focusing on prior co-worker experience. I propose that this pre-founding experience can overcome: (i) the lack of an organizational culture, (ii) the lack of internal social capital, and (iii) the lack of routines in coordinating co-workers’ activities. By using the Danish employer- employee register I am able to investigate the effect of prior co-worker experience in more detail. Based on a large and generalizable sample of 4,219 new ventures I find that priorco-worker experience has a positive effect on survival and growth.

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Two's Company: Human Capital Composition and Performance of Entrepreneurial Pairs

Alex Coad and Bram Timmermans

We study the effects of diverse team composition on the survival and growth of new ventures using the Danish Linked Employer-Employee database. To get cleaner measures of diverse team composition, we focus on entrepreneurial dyads, and also investigate the asymmetric effects of team composition by distinguishing between the 'primary' and the 'secondary' founder. We complement existing work by showing that heterogeneity in team composition is affected by the asymmetric hierarchical structure within the team, and that a unidimensional diversity indicator (which is usually applied) fails to capture a number of performance effects of heterogeneous team composition. Ventures with a STEM-educated primary founder and a Business-educated secondary founder have high employment growth, while the opposite combination (Business first, STEM second) has low employment growth. Pairs of younger individuals have lower survival chances but higher employment growth. Family firms have lower employment growth, especially when formed with your mother.

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The Who, Why and How of Spinoffs

Michael S. Dahl and Olav Sorenson

Studies have consistently found that entrepreneurs who enter industries in which they have prior experience as employees perform better than others. We nevertheless know relatively little about what accounts for these differences. The presumed explanation has generally been that these entrepreneurs benefit from the knowledge that they gained in their former jobs. But they might also differ from other entrepreneurs on a variety of other dimensions: Preferential access to resources or differing motivations, for example, may account for their decisions to enter known industries instead of new ones. Combining novel data from a representative survey of entrepreneurs in Denmark with a matched employer- employee database of all residents in Denmark, we examined how entrepreneurs with prior industry experience differed from those without and the extent to which these differences could account for the performance premium associated with prior industry experience. We found that those with industry experience came from younger, smaller and more profitable firms, and that they recruited more experienced employees, worked harder and placed less value on having flexible hours. The recruitment of more experienced employees and the greater effort exerted appeared to account for at least some of the performance advantage associated with prior industry experience.

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Geography, Joint Choices and the Reproduction of Gender Inequality

Olav Sorenson and Michael S. Dahl

We examine the extent to which the gender wage gap may depend on the fact that dual-earner couples must jointly choose a place to live and work. If couples systematically locate in places better suited for the advancement of the husband’s career than to the wife’s, those choices would then tend to depress the wages of married women relative to married men. Examining data from Denmark, our results suggest (i) that Danish couples weight men’s potential wage gains much more heavily than women’s in their decisions of whether to and where to move, (ii) that these intra-couple preferences may account for as much as 36% of the gender wage gap in Denmark, and (iii) that, ultimately, these differential weightings appear to reflect gender roles, to a large extent inherited from the wife’ parents. We therefore demonstrate that systematic gender inequality can emerge from unexpected places and processes.

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The Effect of Executive Migration and Employee Spin-Offs on Incumbent Firms

Pernille Gjerløv-Juel and Michael S. Dahl

If spin-offs are founded on the intellectual capital accumulated at their parent firms, they may be potentially harmful to those firms. However, similar effects on the performance of parent firms might be expected for executive migration to rivals. Using the comprehensive Danish linked employer-employee database, we investigated how spinoff and executive migration to rivals affect parent firms’ hazard of exit, sales growth and employment growth. We found negative performance effects from executive migration independent of where employees migrate. Although departures of top employees to spin-offs were found to have negative effects on parent-firm performance, the effect is not significantly different from that of top employees who move to competing incumbent firms. All of the effects decrease over time, but parent firms recover faster from spin-off migration. We studied this phenomenon using different methods, including matched models adjusting for parent-firm heterogeneity.

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Passive and Active Learning from Enterpreneurship: An Empirical Study of Re-Entry and Survival

Kristian Nielsen and Saras D. Sarasvathy

The purpose of this study is to contribute to the movement in entrepreneurship research from explanations of performance based exclusively on traits or luck to those based on skills and learning. Both conventional wisdom and extant research in this regard argue for the importance of persistence after failure and learning from failure. Our study of 1,789 entrepreneurs who re-entered entrepreneurship after a failed venture supports both persistence and learning, but with a twist. Persistence paid off for entrepreneurs who already had certain kinds of human and social capital, even when controlling for unemployment record and opportunity costs. Yet the individuals with those human capital and social capital characteristics were not as likely to become re-starters. A Type I error, therefore, appears to hinder the development of habitual entrepreneurship.

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Entrepreneurship within Urban and Rural Areas: Individual Creativity and Social Network

Kristian Nielsen and Lucio Carlos Freire-Gibb

The entrepreneurial dynamics within urban and rural areas are often assumed to be very different. This study explores the importance of individual creativity and the social network in both places regarding the probability of becoming an entrepreneur and of surviving the crucial three years after start-up. The results are based on longitudinal register data combined with a questionnaire survey from 2008, utilizing responses from 1,108 first-time entrepreneurs (out of which 670 survived) and 420 non-entrepreneurs (without previous entrepreneurial experience). Creativity is only found to lead to start-up in urban areas but it does not influence the chances of survival in any of the two areas. On the contrary, the social network matters particular in rural areas. By combining the person and the environment in the research design, common entrepreneurship beliefs are questioned which opens up for region specific policy initiatives.

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