Does Prestige Matter More than Profits for Entrepreneurs?

56 Pages Posted: 16 Dec 2005

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Date Written: December 2005

Abstract

We study whether the individual decision to become an entrepreneur, entrepreneurial profits and investment are affected by the decisions of other individuals belonging to the same social group. To overcome identification problems, we include local labor market fixed effects, social group fixed effects, and extensive controls. Moreover, we instrument the level of entrepreneurial activity in the individual's social group. The results show that in social groups where entrepreneurship is more widespread individuals are more likely to become entrepreneurs and invest more in their own businesses, even though their entrepreneurial profits are lower. This suggests that social norms create non-pecuniary benefits from entrepreneurial activity thus playing an important role in the decision to become an entrepreneur. We also evaluate alternative explanations, such as entry costs, knowledge spillovers, competition and informal credit markets. However, they do not find support in the data.

Keywords: Entrepreneurial choice, peer effects, social norms, agglomeration economies

JEL Classification: M13, J24, Z13, R12

Suggested Citation

Giannetti, Mariassunta and Simonov, Andrei, Does Prestige Matter More than Profits for Entrepreneurs? (December 2005). ECGI - Finance Working Paper No. 112/2005. Available at SSRN: https://ssrn.com/abstract=870566 or http://dx.doi.org/10.2139/ssrn.870566

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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