Do the best entrepreneurs come from bigger companies?
Eric Barker stashed this in Fixitfixitfixit!
Came across this and thought people might be interested :)
"What determines the quality of entrepreneurs? The article proposes a model of the interaction between individual workers’ decision to become entrepreneurs and employers’ efforts 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. Using novel and unique Norwegian data, I find that previous employer size exerts a significant influence on entrepreneurial performance. For example, increasing previous employer size from the 25 percentile to the 75 percentile increases yearly profitability on assets by 6 percentage points."
"71% of entrepreneurs [doing] fast-growing companies replicated or modified an idea encountered through previous employment.."
"Small firms can implement a wage policy that is fine-tuned to workers' outside option and workers leave a small firm to become entrepreneurs only to the extent that their private benefits, such as more flexible work hours or a sense of freedom and pride, from doing so are sufficiently high. On the other hand, large firms have a more rigid wage policy and as a consequence lose the best workers and ideas. Entrepreneurs emerging from large firms will therefore have higher quality than entrepreneurs emerging from small firms."