Inside or Outside: The Social Mechanisms of Entrepreneurship Choices. Evidence from the Mutual Fund Industry.

Abstract

Actors often leave in pursuit of new ventures, even though entrepreneurial opportunities may exist inside the firm. While a bulk of work has focused on understanding the determinants of entrepreneurial transition (e.g., Aldrich and Ruef, 2006; Dobrev and Barnett, 2005; Robinson and Sexton, 1994; Sørensen, 2007a; 2007b), whether nascent entrepreneurs leave to form new ventures or stay put inside the organization remains less clear. Addressing this research lacuna, I examine the conflicting choices faced by nascent entrepreneurs and their consequences for established organizations. Drawing on the rich sociological tradition of embedding an individual’s decision making in the social context (e.g., Granovetter, 1985), I uncover the social determinants of entrepreneurial choices and their consequences for existing organizations. In the first two studies, I offer a socio-structural perspective on the choices pursued by nascent entrepreneurs: I develop a theoretical framework that relates these choices to an actor’s formative experiences (first study), and his or her position in the informal network (second study). Findings show that nascent entrepreneurs transition to external more than to internal ventures when, early in the career they gain exposure to risk and/or are socialized with coworkers who founded external ventures. The imprinting effect is partially mitigated by adaptive learning: negative feedback that individuals receive when performing their actions decreases the influence of imprinting on entrepreneurship choices. Moreover, I find that nascent entrepreneurs are more likely to found external(internal) ventures if their school network members created external (internal) ventures in the past. The effect of school networks is amplified with geographic proximity and gender homophily. Finally, I find that established organizations adapt to entrepreneurship choices: organizations provide greater compensation and discretion to employees at higher risk of entrepreneurial departures. Organizational adaptation to the threat of entrepreneurial departures decreases with organizational performance and scope. Together, my dissertation has important theoretical implications: it enhances the understanding of an individual’s role in redrawing organizational boundaries. I test my hypotheses using longitudinal data on the development of new funds in the mutual fund industry between 1979 and 2006.