Knowledge that Transforms

Research Summary Rural communities in developing countries often exhibit high poverty levels, lack of skilled labor, and limited infrastructure. Through an analysis of three social ventures serving rural low‐income markets in Latin America, we explore how social entrepreneurs create and grow their ventures. We advance a multilevel framework that incorporates three main levels within the creation and growth process of social ventures serving these markets. At the individual level, founders are continuously revising goals and acquiring new capabilities. At the community‐relations level, they engage in explicit efforts to ground business operations in the community. At the organizational level, they pursue innovative business models. These processes are dynamic and interdependent. This framework contributes to the research on social venture creation and growth in uncertain and resource‐constrained environments. Managerial Summary Philanthropy or base of the pyramid (BoP) initiatives by multinational corporations have sought to alleviate poverty in rural low‐income communities in developing countries. Social entrepreneurship constitutes an alternative mechanism to generate social impact by bringing products and services to this market segment in a financially sustainable way. However, the creation and growth of a social venture in this context pose multiple challenges given the socioeconomic conditions of its populations and the limited access to public infrastructure. Based on a comparative analysis of three Latin American enterprises, our research suggests the following takeaways for social entrepreneurs seeking to serve these communities: (a) be willing to change goals and acquire new capabilities (e.g., business training); (b) see the community not only as customers or beneficiaries but also as a source of useful resources to deploy in the venture's operation; and (c) innovate in business model components (e.g., distribution, marketing, human resource management) that, due to limiting conditions in these communities, require a different approach than in mainstream markets.

Research Summary Consistent with the theories of planned behavior and social contagion, this study is based on the notion that entrepreneurial intentions affect entrepreneurial behavior (“conversion channel”), which in turn affects others' intentions (“contagion channel”). GMM estimation results of a simultaneous equation model suggest that entrepreneurial intentions and new business ownership are reciprocally related. The conversion channel appears to be the stronger force in the relationship. Additional moderator analyses suggest that environmental munificence, as expressed by regulatory quality, advanced stage of the economy, and economic growth strengthen, whereas the GDP level weakens the relationship. Furthermore, entrepreneurial perceptions, exits, and knowing other entrepreneurs promote the conversion channel but mitigate the contagion channel. These findings yield implications relevant for research and policy makers. Managerial Summary A positive feedback loop in the economy is a situation where two events reinforce each other. In such situation, small and random changes in the economy, such as policy changes or economic shocks, are magnified. This study shows that there is a positive feedback loop in entrepreneurship between entrepreneurial intentions and behavior: individuals' entrepreneurial intention determines actual entrepreneurial behavior, which in turn encourages others to develop entrepreneurial intentions. The positive feedback loop is strengthened by environmental munificence, weakened by living standards, and ambiguously affected by entrepreneurial perceptions, experience, and networks. These findings deepen our understanding of how startup hotspots emerge, emphasize the importance of accounting for structural influences, and contribute to the discussion on cross‐country variation in entrepreneurial activity.

Research Summary Previous studies on initial public offerings (IPOs) in mature stock markets have documented that high‐reputation underwriters primarily work with high‐quality firms and vice versa—that is, they are paired through a quality‐matching mechanism . We propose that in a nascent stock market, a pricing mechanism may also play a role, through which pricing (the underwriting fee) sets the pairing. We examine these two mechanisms in the context of China's ChiNext stock exchange, which was launched in 2009 and experienced dramatic regulatory improvements in 2012–2013. With data on IPOs in 2009–2017, we find evidence to support the pricing mechanism's effect before the regulatory improvements and the quality‐matching mechanism's effect after the improvements. We contribute to the literature by developing an evolutionary view on the pairing mechanisms between important capital market participants. Managerial Summary In a mature stock market, underwriter reputation signals the underlying quality of initial public offering (IPO) firms to external investors because high‐reputation underwriters primarily work with high‐quality IPO firms and vice versa. We find that in a nascent stock market before the market experiences regulatory improvements, underwriters and IPO firms are paired through a pricing mechanism. That is, underwriters with higher reputation charge higher underwriting fees, and IPO firms with lower quality pay higher fees. Since the pricing mechanism rather than the quality‐matching mechanism sets the pairing, underwriter reputation does not have a signaling effect. Instead, we find that higher underwriting fees signal lower quality of IPO firms. Our findings shed important insights on how market participants are paired in other nascent markets, nascent technology fields and industries.

Research summary The transaction costs logic suggests that innovators cannot gain value from incumbents' unconditional termination rights in their R&D alliances with them because incumbents use these rights either to protect their own interests or as bargaining chips ex post. By contrast, the real options logic suggests that innovators can gain value from these rights because they provide them with an opportunity to release their resources from their troubled alliances. We reconcile the two logics by showing that incumbents' unconditional termination rights are their exit options in their R&D alliances and they are value‐enhancing for innovators; yet, innovators' gains from them depend on the likelihood of their opportunistic uses by incumbents at their exercises. The tests in the biopharmaceutical R&D alliances setting support our hypotheses. Managerial summary Incumbents form R&D alliances with innovators to explore new technologies and innovators join these alliances to commercialize their technologies. Yet, innovators typically possess alternative commercialization options activated once their alliances are terminated. In such R&D intensive alliances, granting unconditional termination rights to incumbents help innovators gain value from their R&D alliances. This is because incumbents' unconditional termination rights operate as their exit options and they enable easy and timely terminations of R&D alliances. This, in turn, allows innovators not to persist in troubled R&D alliances and to begin with exploring alternative commercialization options. However, the likelihood of opportunism at exit option exercises matters. The innovators' gains from exit options are likely to be higher as partner‐specific alliance experience increases because the joint history mitigates opportunism.

Research Summary We investigate the effect of high‐performer employee mobility to same‐industry startups on parent‐firm performance. High‐performer mobility induces a loss of human assets but might also enable competition by transferring human and complementary assets from the parent firm to a competitor. Only when such transfer occurs is mobility to same‐industry startups more harmful than other types of high‐performer mobility. Human and complementary asset transfer is conditional on the departing high performer's ability to accumulate (and hence transfer) knowledge from the parent firm and the recipient firm's ability to absorb such knowledge. In support of this hypothesis, we show that the high performer's tenure and the startup's resources (size) moderate the performance effect of high‐performer mobility on same‐industry startups. Managerial Summary Industry experience is critical for new venture performance, and spinoff entrepreneurs (former employees from the same industry) perform better than other start‐ups. However, studies have found that high performers' mobility to spinoffs harms the performance of their former employers. This paper asks when do spinoffs result in increasing competition and when is spinoff entrepreneurship more harmful compared to other types of high performer mobility? We show that additional detrimental performance effects on former employers depend on employee tenure and the spinoffs' start‐up size. We argue that longer tenure increases competition because it allows the employee to form and strengthen personal relations, for example, to customers, and to accumulate more knowledge on products and processes. Start‐up size is important for the recreation and appropriation of this knowledge.

Research Summary Microfinance funds are often diverted to non‐business usage, which defeats the purpose of microfinancing. Our study adopts boundary theory along with role commitment to investigate how microfinance recipients' integration of work–family roles affects microfinance diversion. We also examine the impact of family involvement and socially imposed gender role differences in microfinance diversion. We analyze data from an 11‐wave survey in which grants were provided to microenterprise owners in Sri Lanka. Our findings indicate that work–family role integration and lower owner role commitment engender more microfinance diversion. In addition, family involvement weakens the effect of role commitment on microfinance diversion while gender influences microfinance diversion, depending on the nature of the duties within the family role. Managerial Summary Why would microfinance recipients divert funds from investing in their own business when such a diversion would make it more difficult for them to escape poverty? Using data from surveys in Sri Lanka, we find that in order to prevent microfinance diversion, it is important for microenterprise owners to draw a clear boundary between their work and family roles, while also being committed to their role as a microenterprise owners. In addition, owners should be cautious about involving family members in their businesses. We also find that patriarchal values for gender roles in the society may impact microfinance diversion. Specifically, compared to men, women entrepreneurs who feel more of a burden from household chores and childcare roles tend to divert more funds.

Research Summary This special issue on “Advancing Entrepreneurship Research through Meta‐analysis” was commissioned in the belief that many entrepreneurship research topics have reached a crossroads. As a maturing, dynamic, and growing field, researchers are generating ever more empirical evidence regarding the field's central questions. Researchers can continue down this road, but for many topics, it seems time to pause and take stock of what has been learned—a task meta‐analysis was created to accomplish. We describe how the special issue articles accumulate and clarify what is known about important questions. Two of the studies highlight that entrepreneurial organizations are in fact different from other organizational settings, and all lay foundations that open new avenues for inquiry. We conclude by summarizing the types of questions meta‐analysis can help answer going forward and the advanced meta‐analytic techniques that are becoming increasingly important for answering such questions. Managerial Summary This special issue was commissioned because many entrepreneurship research streams contain mixed evidence about the nature of important relationships. Such a situation makes it difficult for entrepreneurs to leverage academic findings as they make decisions and for researchers to understand what is known. Meta‐analysis is a set of statistical tools that allows for the reconciliation of evidence that points in different directions and thereby provides actionable guidance for entrepreneurs and a solid foundation for researchers to build on. This introduction summarizes the special issue articles and describes their contributions. One key overall implication that arises from this collection of studies is that much of what works in traditional organizations is likely to work quite differently in entrepreneurial contexts.

Research Summary Health science firms have long product development horizons and need regulatory approval for market entry. In communicating with investors, they may use entrepreneurial orientation (EO) rhetoric to emphasize their strategic and behavioral commitment to product innovation and market entry. However, because EO rhetoric constitutes a soft‐information signal rather than evidence of substantive commitment, investors may suspect firm insiders using such rhetoric of impression management. The solution, we argue, is EO rhetoric sustained over time , which produces more reliable information for investors—in contrast to occasional increases in EO rhetoric, which invite skeptical scrutiny. Nevertheless, investors' potential concerns regarding changes in EO rhetoric can be mitigated by concurrent hard‐information signals that carry signaling costs or penalty costs for false signaling. Managerial Summary Entrepreneurial orientation (EO) rhetoric can reduce information asymmetry between managers and investors. In strictly regulated contexts such as health science industries, using such rhetoric may be challenging. For firms embracing entrepreneurial strategies and behaviors, maintaining EO rhetoric over time is critical to overcoming skepticism that it is merely “cheap talk.” For investors, this study also suggests that health science firms maintaining higher EO rhetoric over time deserve higher valuations, given the variety of benefits an EO can have for health science firms. If a health science firm aims to ramp up its EO rhetoric, managers should be aware that investors may interpret the increase as impression management and should confront this interpretation head‐on—for instance, by simultaneously increasing entry commitment or corporate social responsibility.

Research Summary An important strategic choice for early‐stage ventures is about how to learn about the market. This choice often translates into focusing on either experimentation or planning. These strategies are best supported by different structures. Hence, the fit between strategy and structure should be considered by stakeholders evaluating the venture. We hypothesize that communicating coherent combinations—experimentation and informal structure or planning and formal structure—is positively associated with evaluation and that evaluators with entrepreneurial experience are more sensitive to this coherent choice. We test this argument combining data from a university‐based venture competition and an online experiment. We find a robust positive correlation between coherent choice and evaluation. We find no clear evidence that this pattern is driven by evaluators with entrepreneurial experience. Managerial Summary The Lean Startup suggests that entrepreneurs should rely on experimentation rather than the more traditional planning approach. However, the value of experimentation might depend on the structure the venture adopts. We ask whether the fit between strategy and structure plays a role in the context of venture evaluation. We analyze data from a university‐based venture competition and an online experiment. We find evidence that ventures communicating coherent choices—experimentation and informal structure or planning and formal structure—tend to be evaluated better than those communicating alternative choices. However, contrary to our expectation, this pattern does not appear to be driven by evaluators with entrepreneurial experience.