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Small Business Economics

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01-01-2015

Running in the family: parental role models in entrepreneurship

Authors: Anders Hoffmann, Martin Junge, Nikolaj Malchow-Møller

Published in: Small Business Economics | Issue 1/2015

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Abstract

It is well established that children of self-employed parents are more likely to become self-employed themselves, but the reasons are still hotly debated. Using Danish register data, we investigate the importance and workings of parental role models for the probability of becoming self-employed. We find that the effect of a self-employed father (mother) is much higher for males (females). These results are statistically and economically very significant, and they survive when we control for parental wealth and work experience from the parents’ firms and when we exclude cases where the offspring takes over the family business. This points to a strong role for parental role models in explaining why self-employment runs in the family.

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As will be discussed later, the dividing line between the human-capital channel and the preference channel may be somewhat blurred. In this paper, we follow what seems to be the practice in the existing literature and define the human-capital channel as the specific skills that are acquired by working in the parents’ firms, while the transfer of human-capital and/or preferences through social interaction is assigned to the preference channel and considered as a role-model effect.

Whether preferences for entrepreneurship or entrepreneurial human capital are transmitted from parents to children via observing and interacting with the parents can be difficult to discern. However, in the current literature, the human-capital channel refers to the specific skills that are acquired by working/participating in the activities of the parents’ firm, whereas the values, ideas, tricks, etc., communicated through daily interaction belong to the preference channel and is interpreted as a role-model effect. If we instead choose to define human capital more broadly as all accumulated experience since birth, the human-capital channel should also include social-learning effects. Under this interpretation of the human-capital channel, the hypotheses above cannot discriminate between the human-capital and the preference channel, but the hypotheses then point to a neglected aspect of the standard human-capital model, namely gender-specific effects in the intergenerational transfer of human capital. Furthermore, if children work for their parents without being formally employed by these, we will not be able to distinguish the effects of this from the effects working through the preference channel.

Lindquist et al. (2013) try to test for the importance of parental same-sex investments by including the number of sisters (brothers) interacted with the self-employment status of the mother (father). Their idea is that if the same-sex correlations were driven by parental same-sex investments, then a larger number of sisters should have a negative effect, as the investment has to be divided between all sisters. However, a negative effect would also be consistent with social-learning theory, as we would then expect less interaction between the mother and the child and therefore a smaller role-model effect. Hence, controlling for the number of years that the offspring has worked with each parent seems a more direct way to control for parental same-sex investments.

In the estimations below, we rely on a more flexible specification of schooling, using both Years of schooling and dummies for nine different categories of education programmes based on length and type.

We have also tried to estimate the model in column 3 without the intensity variables. In this case, the coefficients of Mother self-employed while child living at home and Father self-employed while child living at home both become positive (and significant).

Furthermore, we have also tried to run the regressions in Table 6 without those observations where the individual has worked for his/her parents. The results (not reported) are very similar.

Leaving out the observations where the individuals take over the firm of the father or the mother also has only a small negative effect on the odds ratios from Table 2. The odds ratios for males decrease from 1.92 and 1.57 to 1.82 and 1.56, respectively, while the odds ratios for females decrease from 1.57 and 2.04 to 1.54 and 1.99, respectively.

Furthermore, if we estimate the model with just Years of Schooling as a control for education instead of Years of Schooling and nine dummies for different types of education programmes, four of these five interaction terms become significant at the 5 % level.

We are indebted to one of the referees for suggesting this potential mechanism.

Teachers are identified from occupational codes in the data. From 1992–1999, we can rely on ISCO (International Standard Classification of Occupations) codes, and for the period 1980–1992, we have occupational codes based on the individuals’ main source of income.

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Title: Running in the family: parental role models in entrepreneurship
Authors: Anders Hoffmann
Martin Junge
Nikolaj Malchow-Møller
Publication date: 01-01-2015
Publisher: Springer US
Published in: Small Business Economics / Issue 1/2015
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-014-9586-0

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