Reconciling Theories on Why Employees of Small Firms Are More Likely to Become Entrepreneurs

40 Pages Posted: 3 Aug 2022 Last revised: 10 Feb 2023

See all articles by Benjamin C King

Benjamin C King

Tulane University

Martin Ganco

University of Wisconsin - Madison - Department of Management and Human Resources

Evan Starr

University of Maryland - Robert H. Smith School of Business

Date Written: February 9, 2023

Abstract

A common finding in the literature on heterogeneity in entrepreneurial entry is that workers of small firms relative to large firms are more likely to become entrepreneurs (i.e., the “small firm effect”). Researchers disagree, however, on how to interpret this relationship, and in which contexts. A traditional argument is that work experience in small firms facilitates the acquisition of knowledge relevant for entrepreneurship which, in turn, facilitates transitions into entrepreneurship. An alternative explanation argues that, at least in technical domains, the small firm effect derives from the potential for large firms to better integrate ideas internally (i.e., intrapreneurship). We inform this debate by leveraging a unique, nationally representative survey that provides rich details about the emergence of entrepreneurial ideas and their potential implementation inside vs. outside of firms. Consistent with the former explanation of the small firm effect, for the average worker we find strong evidence that small firms (relative to large firms) are better at providing an environment that facilitates transitions to entrepreneurship. However, we also find that technical workers are more likely to attempt to implement ideas in larger firms relative to non-tech workers. Our results thus imply that while the traditional mechanism drives the small firm effect for non-tech workers, both mechanisms contribute to the effect for the tech workers, thus helping to reconcile competing explanations in prior studies. In addition to unpacking the drivers of the small firm effect, our study has broader implications for the recent discussion on the drivers of entrepreneurial dynamism.

Keywords: Entrepreneurship, Small Firm Effect, Intrapreneurship

JEL Classification: L26

Suggested Citation

King, Benjamin and Ganco, Martin and Starr, Evan, Reconciling Theories on Why Employees of Small Firms Are More Likely to Become Entrepreneurs (February 9, 2023). Available at SSRN: https://ssrn.com/abstract=4174472 or http://dx.doi.org/10.2139/ssrn.4174472

Benjamin King

Tulane University ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

HOME PAGE: http://https://sites.google.com/view/benjaminking/home

Martin Ganco

University of Wisconsin - Madison - Department of Management and Human Resources ( email )

Madison, WI
United States

Evan Starr (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

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