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The Entrepreneur's Mode of Entry: Business Takeover or New Venture Start

  • Parker, Simon C.

    ()

    (Western University, Canada)

  • van Praag, Mirjam C.

    ()

    (Copenhagen Business School)

We analyse the decision to become an entrepreneur by either taking over an established business or starting a new venture from scratch. A model is developed which predicts how several individual- and firm-specific characteristics influence entrepreneurs’ entry mode. The new venture creation mode is associated with higher levels of schooling and wealth, whereas managerial experience, new venture start-up capital requirements and risk promote the takeover mode. Entrepreneurs whose parents run a family firm are predicted to invest the least in schooling, since schooling reduces search costs and these individuals have the lowest probability of needing to search for a business opportunity outside their family. A sample of data on entrepreneurs from the Netherlands provides broad support for the theory; implications for policy-makers concerned about the survival of family firms lacking within-family successors are discussed.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2382.

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Length: 34 pages
Date of creation: Oct 2006
Date of revision:
Publication status: published as 'in: Journal of Business Venturing, 2011, [Article in Press]
Handle: RePEc:iza:izadps:dp2382
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