DP4979 | The Quality of Entrepreneurs

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Publication Date

23/03/2005

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Abstract

What determines the quality of entrepreneurs? To address this question, the paper proposes a simple model of the interaction between individual workers? decision to become entrepreneurs and established firms? effort to keep their best workers and ideas. The main prediction from the model is that larger firms produce entrepreneurs of higher quality than smaller firms. I also find that, making firm size endogenous, stronger property rights protection makes the optimal firm size larger. Using novel and unique Norwegian data, I obtain results that are consistent with previous employer size exerting a noticeable influence on entrepreneurial performance. For example, increasing previous employer size from the 25 percent quartile to the 75 percent quartile increases yearly operating returns on assets by 6 percentage points.