The Entrepreneur's Mode of Entry: Business Takeover or New Venture Start
34 Pages Posted: 31 Oct 2006
Date Written: October 2006
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: Suggested Citation