Examining start-up Intention of Indians through cognitive approach: a study using GEM data

Many entrepreneurship researchers have established that entrepreneurship contributes to the economic growth and development (Ács, Szerb, & Autio, 2011, Arenius & Minniti, 2005; Bosma, 2013; Frederick & Monsen, 2011, Lerner, 2010a, 2010b; Wennekers, Van Wennekers, Thurik, & Reynolds, 2005; Wennekers & Thurik, 1999). Governments all over the world are looking at entrepreneurship as a way to increasing the wealth and well being (Langowitz & Minniti, 2007). Scholars have expressed confidence that it also enhances employment creation, productivity, growth, and innovation (Van Praag & Versloot, 2007).

If entrepreneurship contributes to the growth and development, it is particularly important that we should understand what factors foster or discourage individuals from creating new businesses. Without understanding these factors, policies cannot be formulated and implemented effectively. Nowadays, cognitive approach has gained much attention in the attempt to explain entrepreneurship (Baron, 2004; Ahmad, Xavier and Bakar, 2014) at the individual level (Liñán & Chen, 2009) and at the aggregate level (Linan, Santos and Fernández, 2011).

Entrepreneurs are influenced by the external environment through their motivations and perceptions, generating attitudes and intentions, which, in turn, determine behavior. A better understanding of thecontribution of perception to individuals new venture creation decision making will allow a design of more satisfactory programs aimed at increasing venture creation propensity among individuals (Langowitz & Minniti, 2007).

Until now, a significant number of studies have been conducted, to measure the influence of some cognitive perceptions on the propensity of individuals to create a new venture, under the entrepreneurship literature, but the findings are inconsistent (Kim, 2008). Small size of convenient sample made up of university and school students is much prevailing in the existing literature (Lortie & Castogiovanni, 2015). The GEM data has the advantage to overcome the above mentioned limitation. Most of the researches using GEM data have been conducted at global level and the results found were significant. Linan et al. (2011) have urged researchers to confirm these results at national level. In general, very few entrepreneurship studies have covered the developing countries in their analysis. This study uses a novel perspective of cognitive model to analyze the factors affecting the formation of intention to start a new business using 2012 GEM APS data of India. To our knowledge, this would be the first study to use this data to explain the start up propensity of Indians. We expect that this would be a great contribution. This studyis relevant as it enhances our understanding about entrepreneurial process in this developing country.

In this paper, we use individual level Adult Population Survey (APS) data collected in 2012 for the Global Entrepreneurship Monitor (GEM) Project. The data consists of a stratified representative sample of at least 2000 individuals per country in 69 economies. Our dependent variables, consider whether individuals are involved in starting a new business and the reasons why they chose to do so. Our independent variables include ‘demographic characteristics’ and perceptual variables. Using logistic regression models, we test for the relative importance of these variables on Indians’ decision to start new businesses. Although studies focused on Indians’ entrepreneurial behavior already exist, because of the size and scope of our sample, our work adds new breadth to the important research question - why individuals choose to start new businesses. More importantly, most existing studies use data on established businesses. As a result, they are affected by survival bias. Our data, instead, are remarkably well suited for the study of entrepreneurial propensity since they are collected at the time the respondent is in the process of starting a business. They are, therefore, free from both survival and hindsight biases.

As we mentioned in the introductory section, statistical analysis is carried out using Global Entrepreneurship Monitor data (GEM). The main focus of thisstudy is to examine the cognitive aspects of Indian entrepreneurs. The Global Entrepreneurship Monitor is the world’s foremost study of entrepreneurship.The questionnaire used by GEM, in data collection, includes some items which also measure the entrepreneurial cognition that may allow the analysis of the entrepreneurial intention of the respondents. Hence, the data collected by GEM have the advantage to overcome from some of the limitations of previous works.

As GEM questionnaire does not include all the items germane to entrepreneurial intention and perceptions, therefore, it is not possible to examine all the perceptual variables tested by previous studies. Nevertheless, We can examine some of them. The 2012 Adult Population Survey (APS) Data was downloaded from the GEM webpage (http://​gemconsortium.​org/​data/​sets). This data set includes a total of 198,391 observations for all the countries. The data were extracted by filtering and a sample of 2700 adults (18–64 years) was found. Data collection procedure of GEM has been discussed by Reynolds et al. (2005). Moreover, the survey provides data on 343 variables, we selected those variables which are coherent to the objectives of this study.

Descriptive statistics shows that 51.67 and 48.33 of the respondents were male and female respectively, with a number representative of different age groups. Table 1 shows only 14% individuals have intention to start their own business, 24% saw good opportunities in the area where they live, 28% feel that fear of failure would be a brake if they start a business, and 40% individuals perceive that they have the knowledge and skills required to start a new business.

Table 2 shows the correlation among the variables analyzed. It could be viewed that, the correlation among the variables are not so high, indicating multicollinearity is not a problem. Four of the eight variables have significant correlation with the intention to start a new business. Table shows that age, household income, educational level and fear of failure are not significantly correlated with the propensity to create new ventures. Male respondents are shown to be more likely to start their own business than female respondents (r = −.155). In addition, respondents who are working full time are less likely to start their own businesses (r = −.117). As expected, opportunity perception (r = .164) and self-efficacy or confidence in one’s skills (r = .187) are positively related to intention to start new businesses. Table 3 shows summary of missing cases. Some 9.5% of the total cases analysed are missing.

Table 4 showed that Omnibus test is significant, denoting acceptance of hypothesis that β coefficient are different from non-zero. This test gives an overall indication that the model is performing well.

Table 5 depicts the results of logistic regression for the complete sample of dependent and independent variables.Among the demographic factors, age shows a positive, but insignificant influence onstart up propensity. This suggests that intention to create firm is not associated with age, which is not consistent with the results of other studies examining this relationship (Fernandez et al. 2009; Linan et al. 2011; Ramos-Rodríguez et al. 2012; Tsai, Chang, & Peng, 2016). The regression coefficient of gender shows a negative sign (−0.549), indicating the probability to start up is greater for men. This result is in congruence with the findings of the previous studies (Arenius & Minniti, 2005; Linan et al. 2011; Noguera et al. 2013; Tsai et al. 2016).

All categories of work status exceptretired, show a significant relation with start-up intention. Homemaker and student have a negative impact on entrepreneurial intention. The odds ratio for both the categories indicate homemaker and student are half as likely to be entrepreneur as those working full time. Entrepreneurial intention of part time working people is two times more than those working full time. The odds ratio (2.6) for not working individuals, indicates that not working individuals 2.6 times more likely to start their own business than those who are working full time.

In the current model, educational level does not show a clear statistically significant relationship with entrepreneurial intention. All categories give a non significant value when compared with the reference category (none or no education). This finding indicates that education does not affect the decision to start new business.

In the theory section, three hypotheses have been formulated germane to the impact of perceptual factors on the entrepreneurial intention of the adult population of India. Hypotheses 1 and 3 proposed that perception of entrepreneurial opportunity and self-efficacy have a positive influence on the intention to start a new business respectively. In contrast, hypothesis 2 considers that perception of risk or fear of failure has a negative effect on start-up propensity of Indians.

Since the results have been obtained in the expected direction; therefore, all the hypotheses are accepted. The odds ratio for opportunity perception is 2.001. This suggests that those who perceive entrepreneurial opportunities are two times more likely to become entrepreneur those who don’t perceive opportunities. This finding corroborates with the similar studies examining this relation for different settings using specific country data (Ahmad et al., 2014; Noguera et al. 2013; Tsai et al. 2016) and aggregate data of various countries (Arenius, and Minniti 2005; Fernandaz et al., 2009; Langowitz and Minnit 2007; Linan et al. 2011; Ramos-Rodriguez, 2012). However, fear of failure has a negative influence on intention to start a business. The odds ratio for this variable indicates that individuals who perceive risk are less likely to start their own business. This result coincides with the results of earlier research (Arenius and Minniti, 2005; Fernandaz et al., 2009; Noguera 2013; Ramoz-Rodriguez, 2012). The third perceptual variable confidence in one’s skill and ability to create new venture has a positive and significant influence on entrepreneurial intention. The odds ratio for this variable indicates that people who are confident in their skills and ability, their propensity to become an entrepreneur is 2.123 times higher than the rest of the population. This result is consistent with the findings of previous studies (e.g. Arenius and Minniti 2005; Langowitz and Minniti 2007; Noguera 2013; Tsai et al. 2016).

Entrepreneurship research is young, emerging (Ramos-Rodriguez et al., 2012), and a promising field for researchers (Shane & Venkataraman, 2000). This is particularly true in developing countries like India, in which very few studies have been undertaken to understand what the venture creation phenomenon is?

Entrepreneurial intention has been considered as the best predictor of entrepreneurial activity (Krueger et al. 2000). This study is a preliminary step in understanding factors that affect entrepreneurial intention and consequently entrepreneurship. To our knowledge, no previous study has examined the relationship between various factors and entreprenruial propensity in Indian context using GEM data.

We have analyzed the influence of different cognitive perceptions and demographic factors on theintention to start a new business. For this purpose, we used Adult Population Survey, 2012 of India, which comprises a large sample of 2700 interviews. Logistic regression was used for the statistical analysis. This technique is appropriate for analyzing the effect of certain independent variables on the dichotomous dependent variable.

The analysis of demographic factors suggests that females, homemaker, and students are less likely to become entrepreneurs while part-time and not-working individuals are two times more likely to start their own businesses than those who are working full time. Besides the demographic factors, all the perceptual factors have a significant influence on entrepreneurial intention. The findings suggest that individuals who see good opportunities, do not feel fear of failure, they perceive that they have knowledge and skills and therefore, are likely to become entrepreneurs.