Academic journal article New England Journal of Entrepreneurship

The Differing Impact of Household Income on Firm Emergence by Heterogeneous Start-Up Configuration

Academic journal article New England Journal of Entrepreneurship

The Differing Impact of Household Income on Firm Emergence by Heterogeneous Start-Up Configuration

Article excerpt

(ProQuest: ... denotes formulae omitted.)

During the start-up period, individual and household financial resources can be a key factor in a new entrepreneurial venture's resource base and is commonly a source of start-up capital (e.g., Evans & Jovanovic, 1989; Kim, Aldrich, & Keister, 2004). Beyond the immediate family, research suggests that one of the most meaningful sources of start-up capital for launching the venture are funds borrowed from family and friends (Van Osnabrugge & Robinson, 2000). Still, the impact of financial resources in general and household income in particular, on firm emergence remains unclear. Entrepreneurs employ a variety of techniques to minimize capital requirements in launching a firm (e.g., Winborg, 2009), the use of which may help to explain why most start-ups are founded with small amounts of capital (Bhide, 2000). Other studies have demonstrated that financial resources may be substituted to some extent with education in launching a firm (Demiralp & Francis, 2013). Consequently, situational factors impact the degree to which personal financial resources aid prospective entrepreneurs in the earliest stages of firm development.

In this article, we build on the existing research by investigating whether household income benefits the completion of start-up activities differently for heterogeneous start-up configurations. In particular, we ask the following question: Does household income impact firm emergence, and if so, is emergence impacted differently based on start-up configuration? To answer this question, we develop a series of hypotheses and construct a multi-level longitudinal model to describe the impact of household income on firm emergence over time. The answer to our research question is of principal interest to practitioners, policy makers, and researchers alike. For nascent entrepreneurs, our study offers insight into the types of start-up configurations that are most abetted by personal resources as they travel on their entrepreneurial journeys. From a policy perspective, an improved understanding of the impact of household income on the process through which firms emerge would help policy makers to better develop constructive regulatory approaches toward entrepreneurship, which has long been acknowledged as a significant contributor to innovation, job creation, and economic growth. For entrepreneurship researchers, our study helps to contribute to an increasing scholarly interest in research that lies at the juncture of literature that explores antecedents to firm emergence and that which examines the influence of heterogeneous start-up configurations.

We begin by developing a theoretical framework for our propositions and establishing a foundation for the importance of access to financial resources to launching a firm. As we proceed, we present literature that reaffirms the necessity of resources, but argues that financial requirements can be abridged. We end this presentation by offering theoretical support for our central proposition; that is, household income will have a varying impact on firm emergence, based on start-up configuration, and pose four hypotheses. The section entitled Methodology begins with an explanation of the sampling procedure utilized in this study, and moves onto a discussion of the case selection process. We then review the means by which we manipulated the Panel Study of Entrepreneurial Dynamics II (PSED II) subsample to accommodate our examination of the impact of household income on firm emergence. We utilize the Katz and Gartner (1988) model as the theoretical framework for classifying the start-up activities nascent entrepreneurs initiated and completed. As we are interested in the speed with which heterogeneous firms can complete a variety of start-up activities, our approach stresses the accomplishment of an array of start-up activities, and may better indicate the robustness of a new firm than any one measure (Carter, Gartner, & Reynolds, 2004). …

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