Hierarchies and Entrepreneurship

45 Pages Posted: 14 Feb 2013 Last revised: 3 May 2016

See all articles by Joacim Tåg

Joacim Tåg

Research Institute of Industrial Economics (IFN)

Thomas B. Astebro

HEC Paris - Economics and Decision Sciences

Peter Thompson

Georgia Institute of Technology - Scheller College of Business

Date Written: May 2016

Abstract

We establish a correlation between the hierarchical structure of a firm and the likelihood of business creation among its former employees, using a sample of 16 million observations of Swedish workers and a novel proxy for hierarchies based on occupation data. Conditional on firm size and many other variables, employees in firms with more layers are less likely to enter entrepreneurship, to become self-employed, and to switch to another employer. The effects of layers are much stronger for business creation than for job-switching and they are stronger for entrepreneurship than for self-employment. We discuss two potential explanations for the distinctive hierarchy effect we find. Part of the effect could be to be due to preference sorting by employees, and part due to employees in firms with fewer layers having a broader range of skills. One test showing that the probability of entrepreneurship increases with their prior rank in an organization is consistent with ability sorting and inconsistent with preference sorting.

Keywords: entrepreneurship, employee mobility, hierarchy, rank, small firm effect

JEL Classification: L26, D20, J20, M50

Suggested Citation

Tåg, Joacim and Astebro, Thomas B. and Thompson, Peter, Hierarchies and Entrepreneurship (May 2016). IFN Working Paper No. 954. Available at SSRN: https://ssrn.com/abstract=2216809

Joacim Tåg (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Thomas B. Astebro

HEC Paris - Economics and Decision Sciences ( email )

Jouy-en-Josas Cedex, 78351
France

HOME PAGE: http://www.hec.edu/Faculty-Research/Faculty-Directory/ASTEBRO-Thomas

Peter Thompson

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St., NW
Atlanta, GA 30308-1149
United States

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