The Salience of Entrepreneurship: Evidence from Online Business

54 Pages Posted: 11 May 2021 Last revised: 8 Jun 2021

See all articles by Yi Huang

Yi Huang

Graduate Institute of International and CEPR

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Sibo Liu

Hong Kong Baptist University

Gustavo Manso

University of California, Berkeley - Haas School of Business

Date Written: May 8, 2021

Abstract

We study the psychological bias underlying the decision to become an entrepreneur in the online business context. Using entrepreneurs affiliated with Taobao Marketplace, the world’s largest online shopping platform, as our sample, we find that people who observe the emergence of successful stores in their neighborhood are more likely to become online entrepreneurs. Relying on the Taobao store rating system and detailed geographical information for identification, we find that in rural areas of China, an increase in the online rating (upgrade event) of a store leads to a significant increase in the number of new stores within a 0.5-km radius. This effect increases with the magnitude of the upgrade event, decreases with physical distance from the focal store and is robust to a wide range of rigorous model specifications. However, such decisions to enter the market may be suboptimal, as entrants whose entrepreneurs are motivated by these upgrade events underperform relative to their peers in terms of sales and have a higher probability of market exit. Overall, our results are most consistent with salience theories of choice and cannot be explained by regional development or rational learning.

Keywords: entrepreneurship, peer effect, salience theory, availability heuristic

JEL Classification: G02, D22, D8

Suggested Citation

Huang, Yi and Lin, Chen and Liu, Sibo and Manso, Gustavo, The Salience of Entrepreneurship: Evidence from Online Business (May 8, 2021). Available at SSRN: https://ssrn.com/abstract=3843524 or http://dx.doi.org/10.2139/ssrn.3843524

Yi Huang

Graduate Institute of International and CEPR ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Sibo Liu

Hong Kong Baptist University ( email )

Renfrew Road 34
Kowloon Tong
Hong Kong

Gustavo Manso (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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