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Is Entrepreneurial Success Predictable? An Ex-Ante Analysis of the Character-Based Approach

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Author Info
Marco Caliendo () (DIW Berlin, IAB Nuremberg and IZA)
Alexander S. Kritikos () (European University Viadrina, GfA and IAB Nuremberg)

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Abstract

This paper empirically analyzes whether the character-based approach, which is based on the personality structure and the human capital of business founders, allows prediction of entrepreneurial success. A unique data set is used consisting of 414 previously unemployed persons whose personal characteristics were screened by different methods, namely a oneday assessment center (AC) and a standardized questionnaire, before they launched their business. Results are partly unexpected: first, there is almost no correlation between the AC data and the questionnaire. Second, the predictive power of the AC data is slightly better than that of the questionnaire, but lower than expected in theory. Interestingly, for those subgroups where the AC data have low predictive power, the questionnaire does better. Third, when success is measured in terms of employees hired, the character-based approach is a poor predictor.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2687.

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Length: 38 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2687

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Related research
Keywords: entrepreneurship; psychological assessment; character-based approach; success prediction;

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Find related papers by JEL classification:
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation

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  1. Marco Caliendo & Alexander S. Kritikos, 2008. "Start-Ups by the Unemployed: Characteristics, Survival and Direct Employment Effects," Working Papers 008, Hanseatic University, Germany, Department of Economics. [Downloadable!]
    Other versions:
  2. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Blackwell Publishing, vol. 55(1), pages 3-26.
  3. Edward P. Lazear, 2004. "Balanced Skills and Entrepreneurship," American Economic Review, American Economic Association, vol. 94(2), pages 208-211, May. [Downloadable!]
  4. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April. [Downloadable!] (restricted)
  5. J. Wagner, 2003. "Testing Lazear's jack-of-all-trades view of entrepreneurship with German micro data," Applied Economics Letters, Taylor and Francis Journals, vol. 10(11), pages 687-689, September. [Downloadable!] (restricted)
    Other versions:
  6. Marco Caliendo & Alexander S. Kritikos & Frank Wießner, 2006. "Existenzgründungsförderung in Deutschland: Zwischenergebnisse aus der Hartz-Evaluation," Working Papers 0006, Gesellschaft für Arbeitsmarktaktivierung (GfA). [Downloadable!]
  7. Milo Bianchi & Magnus Henrekson, 2005. "Is Neoclassical Economics still Entrepreneurless?," Kyklos, Blackwell Publishing, vol. 58(3), pages 353-377, 07. [Downloadable!] (restricted)
    Other versions:
  8. Marco Caliendo & Frank M. Fossen & Alexander S. Kritikos, 2006. "Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey," Discussion Papers of DIW Berlin 600, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  9. Holmes, Thomas J & Schmitz, James A, Jr, 1990. "A Theory of Entrepreneurship and Its Application to the Study of Business Transfers," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 265-94, April. [Downloadable!] (restricted)
  10. Brandstatter, Hermann, 1997. "Becoming an entrepreneur -- A question of personality structure?," Journal of Economic Psychology, Elsevier, vol. 18(2-3), pages 157-177, April. [Downloadable!] (restricted)
  11. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn. [Downloadable!] (restricted)
  12. Thomas Dunn & Douglas Holtz-Eakin, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links," NBER Working Papers 5622, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August. [Downloadable!] (restricted)
  14. Pfeiffer, Friedhelm & Reize, Frank, 2000. "Business start-ups by the unemployed -- an econometric analysis based on firm data," Labour Economics, Elsevier, vol. 7(5), pages 629-663, September. [Downloadable!] (restricted)
  15. Bonnett, Celia & Furnham, Adrian, 1991. "Who wants to be an entrepreneur? A study of adolescents interested in a Young Enterprise scheme," Journal of Economic Psychology, Elsevier, vol. 12(3), pages 465-478, September. [Downloadable!] (restricted)
  16. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
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  17. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August. [Downloadable!] (restricted)
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