Perceptions of knowledge transferability and entrepreneurial entry: The role of firm‐initiated turnover

Research Summary I examine the understudied effects of perceived non‐transferable knowledge on labor market choices after firm‐initiated turnover. Using a large, nationally representative dataset, I assess how workers' perceptions of knowledge transferability, expectations to remain at a firm, and type of turnover experienced correlate with the decision to engage in entrepreneurship. I find that the release of workers with perceived non‐transferable knowledge into the external environment through firm‐initiated turnover reliably foreshadows entrepreneurship, especially as workers' prior expectations to continue wage employment at a source firm increases. This finding indicates that beyond necessity, opportunity and financial resources, workers' self‐perceptions of their human capital and unfulfilled career expectations matter to the choice of entrepreneurship. It also suggests that firm‐initiated turnover may be a form of knowledge divestiture with important ex‐post implications when workers' perceptions of transferability align with reality. Managerial Summary Managers often overlook the role of employees' self‐perceptions in shaping post‐turnover career decisions. This study highlights that workers who perceive their knowledge as non‐transferable—skills and expertise they believe cannot easily be applied to other employers—are more likely to pursue entrepreneurship following firm‐initiated turnover. This trend is particularly pronounced among workers who expected to remain in wage employment but were unexpectedly terminated. Firm‐initiated turnover, while serving to shed human capital, can inadvertently encourage the creation of entrepreneurial ventures that may compete with the firm. To mitigate unintended outcomes, firms should (a) recognize the strategic implications of firm‐initiated turnover as a form of knowledge divestiture, with implications for both the firm and the broader market, (b) reevaluate how they manage exits for employees with the firm's specialized knowledge, to reduce the risk of competitive ventures, and (c) engage in open dialogue to align employee expectations with organizational strategies, considering retention or redeployment options for those at risk of a forced exit. By understanding how workers' perceptions and unmet expectations influence their career paths, firms can make more informed decisions about human capital management and turnover strategies, potentially reducing unintended competitive risks while fostering long‐term relationships with former employees.