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Fear not, want not: Untangling the effects of social cost of failure on high-growth entrepreneurship

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Abstract

Prior research on the effect that formal and informal institutions have on high-growth entrepreneurship has tended to propose policies aimed at either lowering the social cost of failure in society, or creating business-friendly entry environments aimed at increasing the rate of entrepreneurship. These policies have triggered a debate about whether policies that focus on stimulating high-growth entrepreneurship conflict with policy goals aimed at decreasing the social cost of failure in society. Using approach/avoidance as a lens, we examine the relationship between high social costs of failure and the odds of individuals engaging in growth-based entrepreneurship. Our unique dataset captures the entry decisions of 208,089 individuals in 29 OECD countries. We find that while countries with a higher social cost of failure experience lower total entrepreneurial activity, they have higher odds of entrepreneurs having high-growth aspirations and firms with export-led orientations.

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Fig. 1

Notes

  1. 1.

    GEM surveys were completed via telephone interview or face-to-face interview where telephone is not prevalent in the country, reducing selection bias.

  2. 2.

    The countries in our sample are Austria, Belgium, Brazil, China, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, South Korea, Latvia, Lithuania, Netherlands, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States of America.

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Appendix

Appendix

Table 4 Changing the baseline from the general population to the entrepreneur pool
Table 5 Excluding failed entrepreneurs from the dataset
Table 6 Excluding intrapreneurs from the dataset
Table 7 With controlling intellectual property rights
Table 8 Without controlling bankruptcy law

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Lee, C.K., Cottle, G.W., Simmons, S.A. et al. Fear not, want not: Untangling the effects of social cost of failure on high-growth entrepreneurship. Small Bus Econ (2020). https://doi.org/10.1007/s11187-020-00324-0

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Keywords

  • Entrepreneurship
  • Institutions
  • Stigma
  • Regulations
  • High growth
  • Social costs of failure

JEL classification

  • L26