The Formation of Firms and the Prior Experience of New Entrepreneurship

23 Pages Posted: 16 Nov 2006 Last revised: 22 May 2009

See all articles by Arie Melnik

Arie Melnik

University of Haifa - Department of Economics

Enrico Colombatto

affiliation not provided to SSRN

Date Written: November 1, 2006

Abstract

We use a simple model to analyze the founding stage of new firms. Our goal is to characterize the directional causality between the expected rewards from entrepreneurship and the length of prior labor market experience that entrepreneurs possess. We test predictions about the timing of the formation of new firms on a sample of Italian entrepreneurs who founded new firms in the period 1992-2004. We obtain three main results. First, the timing of the foundation of new firms is determined primarily by the expectation of higher income and not so much by the perception of risk. Second, earlier experience of entrepreneurs in full time employment has a positive impact on the size of newly founded firms. Third, when we separate founders who work alone from founders who work with family partners, we find that the latter establish and control larger firms.

Suggested Citation

Melnik, Arie L. and Colombatto, Enrico, The Formation of Firms and the Prior Experience of New Entrepreneurship (November 1, 2006). Available at SSRN: https://ssrn.com/abstract=945322 or http://dx.doi.org/10.2139/ssrn.945322

Arie L. Melnik

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel

Enrico Colombatto (Contact Author)

affiliation not provided to SSRN

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