Growth and growth intentions - a meta-analysis of existing evidence - Jonathan Levie and Erkko Autio

WP1 White Paper: Growth and growth intentions - a meta-analysis of existing evidence

Jonathan Levie and Erkko Autio

Entrepreneurial Ambition and Growth

• Initial research in this theme includes – first 12 months:

• 1.1: Growth and growth intentions – A systematic review of existing evidence on the causes and growth consequences of the growth intentions of business owners

• 1.2: Entrepreneurial Ambition, Resources and SME Growth Recent evidence suggests that high-aspiration early-stage entrepreneurship is associated with subsequent macro-economic growth. This project will examine the effect of regional, local, peer-group, firm-level, and individual-level factors that influence both the propensity to engage in ambitious entrepreneurship and to achieve rapid growth

WP I Content

• Entrepreneurial firm growth – a meta-analysis

• Entrepreneurial ambition, resources, and SME growth

• Entrepreneurial ambition and growth – an international comparison

• Bottlenecks in UK Systems of Entrepreneurship

• Developing policy insights – policy portfolio analysis

Content and Data

Literature UK GEM Data Global GEM Data

Business Structure

Database GEDI Data Other

Entrepreneurial firm growth – a meta-

analysisA novel meta-analysis

technique

Entrepreneurial ambition, resources,

and SME growth

Multi-level analysis of

local, peer group, firm

and individual-level

effects

Multi-level analysis of

local, regional and firm-

level effects

Entrepreneurial ambition and growth –

an international comparison

Multi-level analysis

with focus on

institutional and

framework conditions

(e.g., IP protection;

culture; social reference

groups; other)

Bottlenecks in UK Systems of

Entrepreneurship

Multi-level analysis of

the effect of

bottlenecks on growth

and growth ambition

Multi-level analysis of

the effect of

bottlenecks on growth

and growth ambition

Identification of

bottlenecks at regional

(data permitting) and

home country levels

Developing policy insights – policy

portfolio analysisPolicy portfolio

optimisation analysis

Country Systems of Entrepreneurship

(example Scotland vs ’Innovation Driven’ countries)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Opportunity Perception(Attitudes)

Startup Skills (Attitudes)

NonFear of Failure (Attitudes)

Networking (Attitudes)

Cultural Support (Attitudes)

Opportunity Startup (Activity)

Tech Sector (Activity)

Quality of Human Resources(Activity)

Competition (Activity)

Product Innovation(Aspirations)

Process Innovation(Aspirations)

High Growth (Aspirations)

Internationalisation(Aspirations)

Risk Capital (Aspirations)

Lower Quartile

Median

Upper Quartile

zUKID_Scotland

Growth and Growth Intentions – a meta-analysis of existing evidence

• How strong is the association between entrepreneurial growth intentions and subsequent performance?

• What affects entrepreneurial growth intentions at the individual level and national level, and how big are these effects?

• What can be done to raise entrepreneurial growth intentions in the UK?

• What further research needs to be done in this area?

Why growth intentions matter

• Growing firms associated with job creation, economic growth

• The UK appears to suffer from a growth intention gap in relation to the United States

• The prevalence of growth-oriented entrepreneurs has declined since 1999 in the UK but not in the US

• Case-based comparisons of UK and US firms suggest “high growth is much more linked to motivations and the managerial capacity of firms than the immediate environment” (Treasury/BERR report, 2008)

Meta-analysis

• Disciplined search, statistical comparison of findings and summarizing of “effects” by size, direction and robustness

• Effect of growth intention on realised growth

– Only quantitative empirical studies that measured growth intention and size at time t0 and then measured realised growth at a later time t1 were included

– 13 studies

• Effect of other factors on growth intention

– individual, firm and country level factors

– 39 studies

Effect of growth intentions on realised growth

• For young owners, the average effect size was positive but not robust.

For established business owners and sales growth, the average effect size was small to medium (0.22), positive and robust.

For established business owners and employment growth, the average effect size was medium (0.33), positive and robust.

• Tests suggested that growth intentions had a direct effect on subsequent realised growth; i.e. that the effect did not operate solely through other variables.

• But some studies have found evidence of indirect effects as well.

Factors associated with growth intention

• Three types of characteristics

– individual characteristics, business characteristics and contextual characteristics

• Three phases in business evolution

– nascent (active, but pre-start), new and established for at least three years

• Two levels of analysis

– individual level and country level

Individual characteristics/ Individual level • Age

– No clear result for nascent entrepreneurs Small negative effect for younger owners of new businesses – No clear result for established owners

• Gender – Male early-stage entrepreneurs are more likely to have growth

intentions than female early-stage entrepreneurs Small positive effect for male nascent entrepreneurs Small positive effect for male new business owners

– Results for established business owners are mixed

• Education

Generally positive, but not in all contexts

– Effect size for nascent entrepreneurs is very small

Individual characteristics/ Individual level

• Entrepreneurial experience

Small negative effect for nascent entrepreneurs

Small positive effect for established business owners

• Management experience

– Mixed results – signalling that other factors must moderate this relationship

• Industry experience

– Mixed results – other factors must moderate this

relationship

Individual characteristics/ Individual level • Risk-taking

– Small to medium positive effect for nascent entrepreneurs from one sample, two studies

Small to medium positive effect for established business owners

– Direction of causality?

• Achievement motivation

Small positive effect for established business owners

• Innovation/innovativeness

Small positive effect for nascent, new and established business owners

Individual characteristics/ Individual level

• Motivation for starting the business

– at the nascent business stage:

• Possible positive effect of wealth-seeking, at least in the US

• No effect of independence seeking

• Self-efficacy (task self-confidence)

– Insufficient evidence

Business characteristics/ Individual level

• High technology – No evidence that this affects growth intention

• Exporting – One study each on nascent, new and established

business owners, all positive

• Age of business – No clear result; other factors appear to influence this

relationship

• Size of business – No clear result; other factors appear to influence this

relationship

Country characteristics/ Country level • Note: all studies based on GEM surveys, employed

partially overlapping data

Regulatory burden in a country had a small to medium negative effect on the prevalence rate of growth-oriented early-stage entrepreneurs

Regulatory burden in a country had a medium to strong negative effect on the relative prevalence rate of growth-oriented early-stage entrepreneurs

Regulatory protection/rule of law had a medium positive effect on relative prevalence of growth-oriented early-stage entrepreneurs

Country characteristics/ Country level

Significant large positive effect of prevalence of wealth motives for starting a business on relative prevalence of growth-oriented early-stage entrepreneurs

Significant medium to large negative effect of prevalence of independence motives for starting a business on relative prevalence of growth-oriented early-stage entrepreneurs

Raising Entrepreneurial Growth Intentions: Implications for Policy

• Business growth’s golden combination: growth intention, innovation and exporting – What if UK entrepreneurs saw the EU as their

home market?

• Raising or enabling aspirations? – If UK entrepreneurs were motivated by the pursuit

of wealth, they would have clear incentives to grow in the current regulatory climate

– But they do not appear to be as motivated by wealth as US entrepreneurs

Raising Entrepreneurial Growth Intentions: Implications for Policy

• Entrepreneurship or intrapreneurship?

– Potential innovative, growth-oriented entrepreneurs may have choices about the context in which they could act as entrepreneurs

– The UK provides a relatively good environment for “intrapreneurship”

– Widen the debate from ‘understanding why aren’t there more growth-oriented business owners in the UK’ to ‘understanding occupational choice of growth-oriented entrepreneurs and intrapreneurs in the UK’

Themes for further research

• Longitudinal study tracking UK nascent entrepreneurs over time (new database needed)

• Multi-level studies: individual, peer, business and country characteristics/ Individual level of analysis (existing databases)

• Moderation studies: How the effect of one factor on growth intention is influenced by another factor

• Costs and benefits of entrepreneurship over intrapreneurship for projects with growth potential

Contact us:

The authors: [email protected] / [email protected]

If you would like any more information about the ERC and any of its activities please contact the Director, Stephen Roper at [email protected] or

the Deputy Director, Mark Hart at [email protected].

More details about the activities of the ERC and our latest events can be found at:

www.enterpriseresearch.ac.uk