Econometric Models of Duration Data in Entrepreneurship with an Application to Start-Ups’ Time-To-Funding by Venture Capitalists (VCs)
29 Pages Posted: 26 Oct 2020
Date Written: September 24, 2020
Because time is a key determinant of entrepreneurial decision making, time-to-event models are ubiquitous in entrepreneurship. Widespread econometric misconception, however, may cause complicated biases in existing studies. The reason is spurious duration dependency, a complicated form of endogeneity caused by unobserved heterogeneity. This article discusses the endogeneity problem and methods to debias time-to-event models in entrepreneurship. Simulations and empirical evidence indicate that only the frailty approach yields consistently unbiased parameter estimates. An application to start-up firms’ time-to-funding shows that other methods lead to dramatic biases. Therefore, this article advocates a paradigm shift in the modeling of time variables in entrepreneurship.
Keywords: Entrepreneurship, Time-to-Event Model, Survival Model, Frailty Model, Entrepreneurial Finance
JEL Classification: C41, M13, M16
Suggested Citation: Suggested Citation