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Small Business Economics

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01.06.2015

Entrepreneurship and the intergenerational transmission of values

verfasst von: Michael Wyrwich

Erschienen in: Small Business Economics | Ausgabe 1/2015

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Abstract

There is mounting empirical evidence that there is intergenerational transmission of parental preferences for entrepreneurship. However, much of the work on this topic is not explicit about the role of values in this transmission process. Furthermore, nearly all studies neglect potential heterogeneity of values among entrepreneurial parents. This paper contributes to the literature by making use of a natural experiment that allows (1) identifying a group of entrepreneurial parents who have a distinct priority of challenging existing conditions (“mastery”) and (2) detecting whether this value orientation is transmitted. Comparing German entrepreneurs two decades after Reunification reveals that the children of self-employed parents who encountered a great deal of resistance in the socialist German Democratic Republic due to their self-employment are much more likely to give mastery as the reason for running their own venture compared to entrepreneurs whose parents did not have to overcome this sort of challenge.

Vorheriger Artikel Subsidized start-ups out of unemployment: a comparison to regular business start-ups

Nächster Artikel Corporate governance, credit ratings and the capital structure of Greek SME and large listed firms

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For a recent theoretical account of the role of parenting in the formation of preferences, see Doepke and Zilibotti (2012). The role of values that underlie the parental decision to influence their children’s preferences, however, is not explicitly assessed in these authors’ approach.

In psychological theory on value priorities, autonomy is defined as an “emphasis on promoting and protecting the independent ideas and rights of the individual to pursue his or her own intellectual directions and the individual’s independent pursuit of affectively positive experience” (Schwartz and Bardi 1997, 396).

There is some work suggesting value transmission. Dohmen et al. (2012) and Zumbühl et al. (2013), for example, provide evidence of the intergenerational correlation of risk and trust preferences. Value transmission might play an important role in the similarity of these specific preferences. Halaby (2003) finds that parental self-employment positively influences children to choose jobs with “entrepreneurial properties.”

Schumpeter, for example, mentions the social disapproval a peasant would encounter in his community when changing his subsistence strategy.

For an exegesis of the original paragraphs, see Westlund and Bolton (2003).

Necessity start-ups, i.e., those started due to unemployment, can be regarded as an extension of the income decision problem where an individual evaluates the payoff of remaining unemployed against the increased effort needed to enhance the probability of finding waged work.

For a more formal representation, see an earlier working paper version of this paper (Wyrwich 2013a).

Entrepreneurial ability might be a function of approval if the institutional context affects the number of opportunities for acquiring such ability and the incentive to invest in entrepreneurial abilities.

Informal institutions, also, might have an effect on pecuniary income. For example, Westlund and Bolton (2003) develop a theoretical model showing that informal social approval of entrepreneurship can directly feed back into willingness to finance entrepreneurial projects and raises liquidity constraints.

Moreover, approval of entrepreneurship may have a direct effect on the adoption of individual values, as indicated by evidence on the long-run effect of informal institutions on preferences (e.g., Alesina and Fuchs-Schuendeln 2007), which may, in turn, be reinforced by parental socialization. Thus, disapproval of entrepreneurship on the societal level might crowd out entrepreneurial values on the individual level.

The terms entrepreneurship facilitating/inhibiting were coined by Westlund and Bolton (2003).

Remaining self-employed under socialism requires mastery as well (e.g., organizing resources in the face of material shortages). Enactive mastery experience, in turn, may feed back into self-efficacy, which, in turn, is crucial for entrepreneurial activity since being confident in one’s own capabilities is a prerequisite for various entrepreneurial tasks in risky and uncertain situations (e.g., Rauch and Frese 2007). Thus, mastery experience might work as self-affirmation of the value of mastery. It might also reinforce the emphasis one puts on mastery.

Recall the example from Baumol (1990) of ancient Rome, where, he says, entrepreneurship was rewarding in terms of returns but accompanied by low social prestige.

Keep in mind that in the GDR, only people in professions and industries where self-employment was tolerated, like the manufacturing trades, had the opportunity to gain procedural utility from being a business owner and acting on their priority for mastery. Consequently, respondents in the control group NL in Table 5 might also have parents with such a value orientation, but who worked in fields where self-employment was not a legal option. This might reduce the effect associated with group PL.

The actual start-up could have been before 2003 if the founder started his or her venture earlier but hired employees for the first time in 2003 or later. It was asked in the survey the founding year, defined as year of first sales, as well and did not consider firms when the founder indicated that he or she started the venture prior to 1990. The results of the empirical analysis are very similar when restricting the analysis to ventures where first sales and first hires took place between 2003 and 2008.

The level of self-employment has been approximately the same in both parts of the country since the mid-2000s (Fritsch et al. 2014). Therefore, it is unlikely that transition-specific catching-up processes in East Germany played an influential role in selection into entrepreneurship.

The only exception is the urban sample region Oberes Elbtal, where establishments with their first hire in 2002 were included instead of merging adjacent planning regions because the resulting size of the region would have been much larger than for the other urban areas.

Including this proxy in the models in order to control for different coverage of firms across industries and regions in the regression models does not change the main results. Moreover, the “true” coverage ratio might be even higher given that not every firm recorded as a start-up in the BHP would have been eligible for the analysis because the founders did not establish an entirely new firm (e.g., inherited businesses, owner change, spin-offs, and branch offices).

The former socialist nomenclatura, for instance, was quite active with regard to entrepreneurship during the course of transition (e.g., Ronas-Tas 1994).

After dropping cases with missing values, 974 observations remained in the final sample. Summary statistics and a correlation matrix on the employed variables can be obtained upon request. Based on advice from one of the reviewers, these items are not included in the paper because means, SDs, and correlations are of limited informative value for qualitative variables.

The astonishingly high share of respondents with self-employed parents among the youngest group suggests that there is an interaction between age and parental self-employment when it comes to the effect on entrepreneurial choice (for a related discussion, see Aldrich and Kim 2007). Investigation of this pattern is beyond the scope of this paper.

Moreover, kernel density estimations and tests for skewness and kurtosis suggest that the mastery and, especially, the autonomy variables are not normally distributed.

As stated earlier, the year of first appearance in the Social Insurance Statistics does not necessarily coincide with the year of first sales. Similar results are obtained when restricting the sample to observations where both dates occurred in or later than the year 2003.

In quantitative terms, the marginal effect of having had self-employed parents in a low-approval environment (PL) on the probability of rating mastery as high as possible compared to PH, for example, is about 9.1 %.

Similar results are obtained when employing a dummy variable that takes on the value of 1 if the respondent had self-employed parents and interacting parental self-employment with the East German origin dummy. The coefficient of the interaction variable is highly significant, whereas for the constitutive term (indicating now the influence of parental self-employment on mastery among West Germans) remains insignificant. The results of this approach reveal that, in general, East Germans value mastery less than do West Germans. This is presumably due to their socialist legacy, which would be line with the abundant evidence on long-term East–West differences in mentality (e.g., Alesina and Fuchs-Schuendeln 2007; Brosig-Koch et al. 2011).

With respect to autonomy, for example, respondents could indicate whether they are self-employed in order “to be independent” (1: “not important” to 7: “very important”; in German: “Ich bin selbständig, weil ich unabhängig sein will”). The mean values for autonomy are much higher than for mastery. Furthermore, additional ordinary t tests reveal that there are indeed no group differences. Thus, autonomy seems to be an overarching motive for running a business that does not depend on parental self-employment and institutional approval. The necessity/unemployment motive is not assessed here because very few people indicated having been unemployed before the start-up. Accordingly, only a few people were asked whether their actual unemployment was a main motivation for starting their venture.

For evidence on the effect of parental self-employment on entrepreneurial choice in East Germany, see Fritsch and Rusakova (2012) and Wyrwich (2013b).

These people nonetheless might value mastery, but just did not start a firm.

One measure could be reducing the administrative burden of entrepreneurs, thus giving them more time to raise and socialize their children.

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Titel: Entrepreneurship and the intergenerational transmission of values
verfasst von: Michael Wyrwich
Publikationsdatum: 01.06.2015
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 1/2015
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-015-9649-x

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