Far from the Tree? Do Private Entrepreneurs Agglomerate Around Public Sector Incumbents During Economic Transition?
Organization Science, 28(1):113-132 (2017)
21 Pages Posted: 23 Jan 2017 Last revised: 12 Mar 2017
Date Written: March 10, 2017
While it is well-known that state enterprises in transition economies were displaced by private enterprises at a macro-level, little is known about whether private entrepreneurs emerged in a way that helped preserve or shift pre-existing agglomerations of industrial activity at a micro-geographic level. To address this question, we integrate competing perspectives on the role of large, bureaucratic incumbents in spawning entrepreneurs. We conceptualize a tradeoff between two countervailing effects of large incumbents on potential entrepreneurs: bureaucratic socialization and exposure to capabilities. This yields novel predictions about how different kinds of startups agglomerate around different kinds of incumbents. We test these predictions using fine-grained geographic data on founding rates by private entrepreneurs in China’s bicycle manufacturing industry. Consistent with our theorized tradeoff, we find evidence of a non-monotonic effect of incumbent size on local founding rates by private entrepreneurs. Additional moderating effects are consistent with boundary conditions on the hypothesized mechanisms. Our results provide the first empirical investigation of the extent to which entrepreneurial activity agglomerated around public sector incumbents during economic transition. We discuss how these insights add to the understanding of economic transition as well as how the context of economic transition adds to the understanding of entrepreneurial spawning.
Keywords: entrepreneurship; spawning; agglomeration; regulatory environment; economic transition
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