The Entrepreneur's Mode of Entry: Business Takeover or New Venture Start

34 Pages Posted: 31 Oct 2006

See all articles by Simon C. Parker

Simon C. Parker

University of Western Ontario; Durham University - Department of Economics and Finance; IZA Institute of Labor Economics

Mirjam van Praag

University of Amsterdam - Department of Economics; Copenhagen Business School; Tinbergen Institute; IZA Institute of Labor Economics

Date Written: October 2006

Abstract

We analyse the decision to become an entrepreneur by either taking over an established business or starting a new venture from scratch. A model is developed which predicts how several individual- and firm-specific characteristics influence entrepreneurs' entry mode. The new venture creation mode is associated with higher levels of schooling and wealth, whereas managerial experience, new venture start-up capital requirements and risk promote the takeover mode. Entrepreneurs whose parents run a family firm are predicted to invest the least in schooling, since schooling reduces search costs and these individuals have the lowest probability of needing to search for a business opportunity outside their family. A sample of data on entrepreneurs from the Netherlands provides broad support for the theory; implications for policy-makers concerned about the survival of family firms lacking within-family successors are discussed.

Keywords: entrepreneurship, business entry, venture start-up, business takeover, human capital

JEL Classification: J24, L26, M13

Suggested Citation

Parker, Simon C. and van Praag, Mirjam, The Entrepreneur's Mode of Entry: Business Takeover or New Venture Start (October 2006). IZA Discussion Paper No. 2382. Available at SSRN: https://ssrn.com/abstract=941122

Simon C. Parker

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Durham University - Department of Economics and Finance ( email )

23/26 Old Elvet
Durham DH1 3HY
United Kingdom
+44 191 3747271 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Mirjam Van Praag (Contact Author)

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4096 (Phone)
+31 20 525 4182 (Fax)

Copenhagen Business School ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Tinbergen Institute

Gustav Mahlerlaan
Amsterdam
Netherlands

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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