Description
In this particular detailed criteria regarding new venture creation in different environments towards a multi layered institutional.
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Ewald Kibler
NEW VENTURE CREATION IN DIFFERENT ENVIRONMENTS:
TOWARDS A MULTI-LAYERED INSTITUTIONAL APPROACH
TO ENTREPRENEURSHIP
Turun kauppakorkeakoulu
Turku School of Economics
ISBN 978-952-249-242-5
Turun kauppakorkeakoulu
Turku School of Economics
Ewald Kibler
Sarja/Series A-11:2012
NEW VENTURE CREATION IN DIFFERENT ENVIRONMENTS:
TOWARDS A MULTI-LAYERED INSTITUTIONAL APPROACH
TO ENTREPRENEURSHIP
Turun kauppakorkeakoulu
Turku School of Economics
Custos: Professor Päivi Oinas
Turku School of Economics
Supervisors: Professor Päivi Oinas
Turku School of Economics
Dr. Teemu Kautonen
Turku School oI Economics
Pre-examiners: Professor Erik Stam
Utrecht University
Professor David Urbano
Autonomous University of Barcelona
Opponents: Professor Erik Stam
Utrecht University
Copyright Ewald Kibler & Turku School of Economics
ISBN 978-952-249-242-5 (nid.) 978-952-249-243-2 (PDF)
ISSN 0357-4652 (nid.) 1459-4870 (PDF)
Publications of Turku School of Economics, Series A
Juvenes Print, Turku 2012
ACKNOWLEDGEMENT
First of all, I would like to express my deep gratitude to my supervisors
Professor Päivi Oinas and Dr. Teemu Kautonen, without whom this doctoral
thesis would certainly not exist. I am particularly thankful to Dr. Kautonen for
introducing me to academic research already during my Master studies, and
for being a great mentor over the past five years, providing me with constant
learning and networking opportunities whilst letting me grow and develop
independently as a scholar. I am especially grateful to Professor Oinas for her
unconditional support throughout the entire Ph.D. process; her support has
been fundamental not only for completing this dissertation, but also for the
further development of my skills and confidence to pursue an academic career.
I feel honored to have had Professor Erik Stam (Utrecht University) and
Professor David Urbano (Autonomous University of Barcelona) as the official
pre-examiners of my thesis. Their rigorous and constructive feedback has been
essential in improving the overall quality of my work. I also wish to particu-
larly express my gratitude to Professor Erik Stam for accepting the invitation
to act as the opponent.
In addition to Dr. Teemu Kautonen, it has been an honor working with my
three co-authors Professor Robert Blackburn, Professor Erno Tornikoski and
Dr. Thomas Wainwright. I have also greatly benefited in my Ph.D. work from
learning and working in different organizational settings over the past few
years, including (in chronological order) the Department of Sociology at the
University of Graz (Austria), the Department of Management at the University
of Vaasa, the Small Business Research Centre at the Kingston University
(UK) and, last but not least, TSE Entre and the Economic Geography Unit at
the Turku School of Economics.
This dissertation would certainly not have come together without the
substantial financial support from the Foundation for Economic Education, the
Ella and Georg Ehrnrooth Foundation and the Turku School of Economics. I
also thank Andrew Mulley and his colleagues (www.acedit.eu) for their
excellent work in copyediting this thesis and Auli Rahkala-Toivonen for
finalizing the layout.
Finally, I would like to express my warmest gratitude to my parents for all
their love, trust and encouragement they have given me throughout my life. I
am also very grateful to my ‘family-in-law’ for their heartfelt support over the
4
past years, and I cannot thank enough my close friends for always keeping me
on track, to appreciate the essential things in life.
Above anyone else, my deepest gratitude belongs to the love of my life,
J ohanna, to whom this dissertation is dedicated. J ohanna has always been my
essential source of energy and happiness and it is her who really knows what
an emotional roller-coaster ride this Ph.D. process has been. I love you.
Ewald Kibler
Helsinki, December 3 2012
TABLE OF CONTENTS
PART I: INTRODUCTORY ESSAY .................................................................. 7
1 INTRODUCTION ...................................................................................... 9
1.1 Background ........................................................................................ 9
1.2 Research objectives and methods...................................................... 10
1.3 Structure ........................................................................................... 13
2 THE EMERGENCE OF NEW VENTURES ............................................ 15
2.1 Towards a process-orientated view of entrepreneurship .................... 15
2.2 The different phases of new venture creation .................................... 16
2.3 Entrepreneurial intentions and the theory of planned behavior .......... 18
2.4 Understanding the emergence of new ventures ................................. 21
3 CONTEXTUALIZATING THE EMERGENCE OF NEW
VENTURES ............................................................................................. 23
3.1 Towards a contextual view of entrepreneurship ................................ 23
3.2 Social context ................................................................................... 25
3.3 Spatial context .................................................................................. 28
3.4 Institutional context .......................................................................... 33
3.5 Contextualizing the emergence of new ventures: challenges for
the present study ............................................................................... 42
4 A MULTI-LAYERED INSTITUTIONAL APPROACH TO NEW
VENTURE CREATION ........................................................................... 49
4.1 Towards a theorizing context for new venture creation ..................... 49
4.1.1 Why adopt an institutional approach to entrepreneurship? ..... 50
4.2 Early traditions in institutional economics ........................................ 51
4.3 Evolution of new institutional economics ......................................... 53
4.4 (Synergetic) Developments of old and new institutionalism ............. 54
4.4.1 Sociological institutionalism and economic sociology ........... 58
4.4.2 Emerging definitions of institutions ....................................... 60
4.5 Building blocks of a multi-layered institutional approach ................. 62
5 SUMMARY OF THE RESEARCH PAPERS ........................................... 71
5.1 Research methodologies ................................................................... 71
5.2 Paper 1 ............................................................................................. 73
5.3 Paper 2 ............................................................................................. 74
6
5.4 Paper 3 ............................................................................................. 74
5.5 Paper 4 ............................................................................................. 75
6 DISCUSSIONS AND CONCLUSIONS ................................................... 77
6.1 Key empirical findings ..................................................................... 78
6.2 Theoretical contributions .................................................................. 80
6.3 Practical implications ....................................................................... 87
6.4 Limitations and Future Directions .................................................... 89
REFERENCES ................................................................................................. 95
PART II: RESEARCH PAPERS ..................................................................... 125
Paper 1: Kibler, E. (2012). Moral legitimacy of entrepreneurship and its
impact on the firm formation process. ............................................ 127
Paper 2: Kibler, E. (2012). The formation of entrepreneurial intentions in
a regional context. Entrepreneurship & Regional Development:
An International Journal, Doi:10.1080/08985626.2012.721008 ..... 153
Paper 3: Kautonen, T., E. Tornikoski, and E. Kibler (2011). Entrepreneur-
ial intentions in the third-age: The impact of perceived age
norms. Small Business Economics, 37(2), 219–234. ....................... 187
Paper 4: Wainwright, T., E. Kibler, T. Kautonen, and R. Blackburn. Who
are you calling old? Negotiating ‘deviance’ of older
entrepreneurs. ................................................................................. 205
LIST OF TABLES
Table 1 Research focus of the four research papers ................................... 12
Table 2 Research methodologies in the four research papers .................... 72
PART I: INTRODUCTORY ESSAY
9
1 INTRODUCTION
1.1 Background
Entrepreneurship has long been recognized as an important source of innova-
tion, job creation and economic development (see e.g., Audretsch et al. 2006;
Baumol 2002; Carree and Thurik 2010; Reynolds 1994), even if these rela-
tionships are not always straightforward (Carree et al. 2007) due to the diverse
forms of entrepreneurial activity and economic contexts (Stam and Van Stel
2011). Subsequently, fostering entrepreneurship has been widely viewed by
policy-makers and academics as a potential vehicle to address social and eco-
nomic challenges in different societies, which in turn has triggered research to
increasingly seek to identify the elements that can explain and promote entre-
preneurial behaviors.
A large body of the previous research on entrepreneurship has sought to
provide useful insights into how personal attributes and economic conditions
shape either the entrepreneur’s behavior or the activity of new firms (Thornton
et al. 2011). This, however, has led to a tendency in entrepreneurship research
to overlook the early phases of the individual venture creation process
(Davidsson and Honig 2003; Newbert and Tornikoski 2011), while underesti-
mating the role of the variety of external environments, which has limited our
knowledge of the influence of spatial, social, and institutional contexts in
particular (Welter 2011) on the pre-emergent phase of entrepreneurship.
Even though the importance of understanding the pre-firm formation phase
on the one hand (Bird 1988; Katz and Gartner 1988; Reynolds and White
1997) and the different contexts for economic behavior on the other (Dicken
1990; Granovetter 1985; Polanyi 1957; Veblen 1919; Weber 1904, 1905) have
long been recognized, academics have only recently emphasized the need for a
more contextualized and multilayered approach to enhance our knowledge of
when, why, and how entrepreneurship evolves in certain environments (Autio
and Wennberg 2010; J ennings et al. 2013; Thornton 1999; Thornton et al.
2011; Welter 2011). This recent call for a more contextualized view of entre-
preneurship has gained even more importance as environments have become
more diversified and interconnected, thus creating further variations in entre-
preneurial activity and economic growth on different spatial scales (Bosma et
al. 2008; Veciana and Urbano 2008). While these variations over time are
closely related to economic development, technological change and the
10
emergence of new markets, scholars have recently argued that entrepreneur-
ship variations across nations and regions seem to be the outcome of socio-
cultural contexts, emphasizing the importance of identifying other environ-
mental conditions than economic and business contexts (Freytag and Thurik
2007; Thurik and Dejardin 2011a; Welter 2011). In other words, it has been
recognized in the recent literature that entrepreneurship needs to be understood
in the various contexts in which it emerges (J ennings et al. 2013; Gartner et al.
2006; Stam 2010; Sternberg 2009; Welter and Smallbone 2011; Zahra 2007).
The challenge remains, however, to conceptualize and empirically examine a
context ‘which cuts across levels of analysis and influences entrepreneurship
directly or indirectly, but which also is influenced by entrepreneurial activi-
ties’ (Welter 2011: 176).
As a consequence, successive research has sought to address the different
contexts of entrepreneurship by shifting to spatial, cultural and institutional
perspectives. An institutional perspective, in particular, has been increasingly
suggested as a fruitful meta-framework with which to develop our under-
standing of the different environmental settings that interact with entrepre-
neurship (Autio and Wennberg 2010; Bruton et al. 2010; Kalantaridis and
Fletcher 2012; Stenholm et al. 2013; Thornton et al. 2011; Veciana and
Urbano 2008; Welter 2011). Moreover, scholars have recently suggested that
an institutional perspective can serve as a useful frame to uncover the various
contexts for entrepreneurial cognitions and the individual decision to found
new firms (Lafuente et al. 2007; Liñán et al. 2011; Lim et al. 2010; Thornton
et. al 2011). At the same time, it assists in better understanding the individ-
ual’s role in changing the contexts for entrepreneurship, such as the social and
institutional environment (Welter 2011; Kalantaridis and Fletcher 2012). This
way of thinking is in line with Veciana and Urbano’s (2008: 373) seminal
work on institutional theory and entrepreneurship, which has emphasized that
‘n the field of entrepreneurship the concern should be how the institutional
context affects […] the emergence of entrepreneurs’ and new venture creation.
Taken together, there is an obvious need for further research that seeks to
address both the conceptual and empirical challenges of contextualizing the
emergence of entrepreneurship. This dissertation argues that developing a
multi-layered institutional understanding of new venture creation can offer a
fruitful way forward.
1.2 Research objectives and methods
This dissertation seeks to contribute to the new debates and challenges in
entrepreneurship research by theorizing and empirically analyzing the
11
influence of social, spatial and institutional environments on entrepreneurial
cognitions and intentions, as well as on the subsequent venture creation
process. Here, it particularly adds to the knowledge of how informal institu-
tions, across different spatial contexts, shape an individual’s entrepreneurial
intent and progress in the business start-up process, which has received very
limited attention in the previous (cross-) regional and country studies on
entrepreneurship. In so doing, it will also contribute to our understanding of
the role of external, institutional environments in entrepreneurial cognition
processes (see Lim et al. 2010; Mitchell et al. 2007), especially the emerging
literature that examines the formation of entrepreneurial intentions in different
regional milieus (Lafuente et al. 2007; Liñán et al. 2011).
In addition, this dissertation provides new insights into how potential entre-
preneurs are affected by their social networks, and how they can resist and
potentially change social norms prevalent in their surrounding environment.
Thus, it also responds to the call for further development of an institutional
approach to entrepreneurship by including an individual perspective that
addresses the recursive (bottom-up effects) relationship between normative
institutions and entrepreneurship (Welter 2011; Welter and Smallbone 2008,
2011). Within this context, the dissertation will particularly draw attention to
the under-researched topic of older individuals who shift from earning a wage
to starting up a business of their own. In studying their creating and negotiat-
ing legitimacy for such a shift at a later stage in their careers the aim is to add
to the knowledge of how potential entrepreneurs at an ‘older’ age interact with
social barriers emerging from enterprising cultures, which tend to ‘praise’
younger entrepreneurs (Ainsworth and Hardy 2008, 2009). This will serve as a
useful basis to offer new thought-provoking ideas to capture informal institu-
tional settings for entrepreneurship, while adding to our understanding of the
influence of norms on potential entrepreneurs as well as their strategic
responses to normative barriers within different environments.
Finally, this dissertation aims to develop a multi-layered institutional under-
standing of the emergence of entrepreneurial intentions and new ventures, by
both theoretically and empirically incorporating the social, spatial and (infor-
mal and formal) institutional influences on the potential entrepreneur (Welter
2011). It seeks to provide new insights into the multi-layered nature of con-
textual influences on new venture creation, and the role of the individual and
the formation individual entrepreneurial cognitions in these processes. Here, it
also responds to the need for multilevel empirical research (Autio and Acs
2010; Bosma and Schutjens 2011), while addressing the important challenges
of capturing the context of entrepreneurship, by using both quantitative and
qualitative methods (Trettin and Welter 2011; Welter 2011). Besides contrib-
uting to these recent scholarly debates and challenges, this dissertation aims to
12
generate practical implications for policy-makers and the enterprise commu-
nity to assist in customizing initiatives to encourage potential entrepreneurs in
different types of environments. In summary, the present dissertation seeks to
generate new knowledge to help tackle the following main research question:
What role do social, spatial and institutional contexts play in the
formation of entrepreneurial intentions and the subsequent
venture creation process, and in how potential entrepreneurs are
able to resist and shape their surrounding contexts?
This dissertation is a cumulative effort comprising of a critical literature
review, substantial theoretical work, and four empirical research papers, each
of which adds nuanced insight to the research aims and main research
question, outlined above. Specifically, paper 1 investigates how the perceived
moral legitimacy of entrepreneurship in society influences an individual’s
progress in the venture creation process, while paper 2 examines how the
regional, institutional environment impacts on entrepreneurial cognitions and
intention. Paper 3 examines how perceived social norms in a regional context
influence the formation of entrepreneurial intentions. Paper 4 particularly
addresses the second part of the main research question by exploring how
social networks’ normative evaluation of entrepreneurship affect individual
entrepreneurial behavior, but also how potential entrepreneurs are able to
resist and change these social norms. A general overview of the research
papers, including the entrepreneurship aspect and the environmental contexts
studied is further given in Table 1, while the specific research gaps addressed
by the four papers will be illustrated in detail in the course of the critical
literature reviews.
Table 1 Research focus of the four research papers
Paper 1 Paper 2 Paper 3 Paper 4
Individual
entrepreneurship
aspect
Progress
across differ-
ent stages of
the venture
creation
process
Entrepreneurial
cognitions and the
formation of
entrepreneurial
intentions
Entrepreneurial
cognitions and the
formation of
entrepreneurial
intentions
Venture
creation
process and
early firm
phase
Contextual
influences
Societal,
informal
institutional
context
Regional, formal
and informal
institutional
context
Regional,
informal
institutional
context
Social,
informal
institutional
context
13
In order to tackle the research aims and question set in this dissertation, the
theoretical rationale of this work is based on the previous literature which
views entrepreneurship as the creation of new firms (Davidsson 2006; Gartner
et al. 1988; 2010), an evolving process determined by the relationship between
the individual and the environment (Stam 2010; Sternberg 2009; Malecki
2009). Embedded in the recent institutional scholarly work on entrepreneur-
ship (Bruton et al. 2010; Veciana and Urbano 2008; Welter and Smallbone
2011), the dissertation develops a multi-layered institutional approach drawing
upon institutional perspectives in economics (Hodgson 2006; 2009; North
1990) and economic geography (Gertler 2010; Martin 2000; Rafiqui 2009) as
well as organizational institutionalism (Powell and Colyvas 2008; Scott 1995,
2010) and institutional economic sociology (Fligstein 2001; Nee 2003;
Swedberg 2003). The institutional perspective is combined with a social
psychological approach to entrepreneurial behavior (Lim et al. 2010; Liñán et
al. 2011; Mitchell et al. 2007). In doing so, the theoretical frame of this
research seeks to incorporate three recently discussed contexts of entrepre-
neurial behavior: the social, spatial, and institutional contexts (Welter 2011),
and how the impact of these contexts on entrepreneurship is reflected in
individual cognitive processes and intentions, but also how individuals can
shape their surrounding contexts. The empirical work of this dissertation
involves both quantitative and qualitative empirical research, based on
multilevel data derived at the individual, regional and national levels. In
particular, the empirical analyses use primary surveys combined with official
regional statistics, in-depth interviews, and a secondary cross-country dataset,
while different quantitative and qualitative techniques are used to analyze and
interpret the data.
1.3 Structure
The remainder of this dissertation is organized as follows. Section 2 reviews
the academic literature that explores the different phases of the new venture
creation process and the formation of entrepreneurial intentions. It then goes
on to briefly summarize the main insights of the previous research, while
outlining the concepts that will be used in this dissertation to capture these
start-up processes at the individual level. The section will conclude with an
exploration of specific research gaps, serving as a basis for the further
exploration in Section 3.
Section 3 examines the academic debates that concern the contextualization
of entrepreneurial behavior, and reviews the main insights of the previous
research that addresses the influence of social, spatial and institutional
14
contexts on new venture creation processes. In light of this research, the
section will conclude with a critical summary of the prior literature, outlining
the specific knowledge gaps which this dissertation seeks to address.
Drawing upon the conceptual ideas and empirical insights presented in
Section 3, Section 4 starts with an introduction of the main arguments amongst
scholars about developing an institutional approach to entrepreneurship. It
then provides a historical overview of the different, emerging institutional
streams and approaches in social and economic sciences, and discusses their
potential synergies applicable to the approach developed in this dissertation.
Finally, this section develops a multi-layered institutional approach, setting the
underlying theoretical basis of the dissertation and the theoretical lens to frame
and interpret the empirical work in the four papers.
Section 6 describes the research methodologies used in the four individual
research papers, and provides short summaries of the paper contributions.
Section 7 critically discusses the main insights of the dissertation and
discusses its theoretical and empirical contributions to our improved contextu-
alized understanding of the formation of entrepreneurial intentions and new
venture creation processes. This section proposes a multi-layered institutional
approach to entrepreneurship. Further, it discusses the practical implications
for policy-makers and the enterprise support community. Finally, it offers a
critical reading of the limitations of the study, and outlines potential directions
for future research.
15
2 THE EMERGENCE OF NEW VENTURES
‘New businesses are not
created by accident’
(Carter et al. 2003: 17)
2.1 Towards a process-orientated view of entrepreneurship
Towards the end of the twentieth century, entrepreneurship scholars increas-
ingly highlighted the process nature of new firm formation, emphasizing the
importance of understanding the initial and pre-emergent phase of entrepre-
neurial behavior and new ventures (Bhave 1994; Bird 1988; Bull and Willard
1993; Carter et al. 1996; Gartner 1985, 1988; Katz 1990; Low and MacMillan
1988; Reynolds and Miller 1992; Reynolds and White 1997; Van de Ven et al.
1989; Venkataraman 1996). Accordingly, academics have steadily recognized
that ‘the creation of an organization is a very complicated and intricate pro-
cess’ (Gartner 1988: 28), and that ‘before there can be entrepreneurship there
must be the potential for entrepreneurship’ (Krueger and Brazeal 1994: 91).
This growing body of research has sought to respond to the over-dominance
of studies on existing entrepreneurs and firms or, in other words, to the lack of
knowledge of how (potential) entrepreneurs and firms emerge (Reynolds and
White 1997). This branch of academic work has also started to critically
address a prior, established research stream (see e.g., McClelland 1961),
which mainly focused on the traits that distinguish entrepreneurs from non-
entrepreneurs in society, for instance by tackling questions on whether
‘entrepreneurs are born or made’ (Lundström and Stevenson 2005: 18). Here,
Gartner (1988) and Katz and Gartner (1993) in the late 1980s, symbolically
raised the need for ‘a reorientation of entrepreneurship research from charac-
teristics of individuals to behaviors in the process of emergence’ (Davidsson
2006: 1). Moreover, inspired by the emphasis laid by other influential scholars
on the process nature of venture creation (Bhave 1994; Van de Ven et al.
1989), a dynamic and process-oriented view of entrepreneurship has begun to
replace an established static view, rooted in the work of Knight (1921), ‘which
sees entrepreneurship as a state which one can adopt or not’ (Van der Zwan et
al. 2010: 2183).
In this context, one major stream of this emerging research has begun to
seek to uncover the factors that influence the very early stage of the
16
entrepreneurial process, that is, an individual’s intention to start up in business
(Bird 1988; Krueger 1993; Shapero and Sokol 1982; Tkachev and Kolveried
1999). Another stream has started to investigate the decisions and activities of
individuals (often called nascent entrepreneurs) who are already actively
preparing their business (Delmar and Davidsson 2000; Reynolds and White
1997), while other scholars have sought to develop frameworks that explore
the different phases of the entire business start-up and early firm process (Katz
1990; Katz and Gartner 1988; Carter et al. 1996). Thus, there is an increasing
body of research that seeks to develop our knowledge of the emergence of
entrepreneurship, by investigating entrepreneurial cognitions (Mitchell et al.
2002a,b; Mitchell et al. 2007), the formation of entrepreneurial intentions
(Kautonen et al. 2013; Liñán and Chen 2009), the nascent entrepreneurship
phase (Müller 2006; Newbert and Tornikoski 2011, 2012; Reynolds et al.
2005) or a combination of different phases of the entrepreneurial process
(Rotefoss and Kolvereid 2005; Van der Zwan et al. 2010).
2.2 The different phases of new venture creation
At this point, many scholars agree that ‘entrepreneurship is a process of
emergence’ (Baron and Shane 2005; Davidsson 2006; Grilo and Thurik 2008;
Reynolds 2007; Sternberg 2009: 15; Stam 2007; Welter 2011), while others
even consider the processes of new venture creation to be the core characteris-
tic of entrepreneurship (Carter et al. 1996; Gartner and Carter 2003; Gartner
2010: 100). Subsequently, many theoretical conceptions and empirical studies
have emerged in the past decades seeking to describe and explore the various
phases involved in the individual process of founding a business, while also
focusing on the continuation of different stages after the business start-up
(Gartner and Carter 2003).
For instance, Wilken (1979) has sought to explain how individuals need to
develop a business idea and concept, and then carefully plan the new business
before actively engaging in the business establishment. Birley (1984) has
suggested that the firm formation process emerges in a sequential order, from
deciding to found a business, creating a bank account, acquiring premises and
resources, handling initial orders, and paying the first taxes through to hiring
workers. Vesper (1990) has stated that the venture creation process consists of
the acquisition of five key elements, while adding that these elements can be
combined in a different order: technical know-how, product or service idea,
personal contacts, physical resources and customer orders.
Katz and Gartner (1988) have proposed four significant properties that
conceptualize the creation of a new venture: intention to found an
17
organization, acquiring resources to form an organization, establishing the
boundaries of the organization, and exchanging resources across these bounda-
ries. Katz (1990) has further argued that individuals need to overcome three
hurdles in the process of becoming self-employed, those being the hurdles of
aspiring, preparing and entering. The aspiring hurdle indicates an individual’s
intent to become self-employed, while the preparing hurdle reflects their
preparations (e.g., scanning the environment and acquiring resources) before
facing the entering hurdle that arises when they actually open the business.
Learned (1992) has suggested a framework that illustrates three sequential
elements that lead to an individual’s decision to start or not to start a business:
propensity to become an entrepreneur, intention to start a business, and
making sense of information acquired during the attempt to develop ideas and
accumulate resources. Rotefoss and Kolvereid (2005) have conceptualized
three milestones of the business creation process (i.e., the aspiring, preparing
and entering milestone) by combining the models developed by Katz (1990)
and Learned (1992). According to their definitions, ‘reaching the aspiring
milestone represents an intention to pursue, or commitment to continue, an
entrepreneurial career; […] reaching the preparing milestone indicates an
attempt to establish a business; and […] the entering milestone implies the
actual start-up of a fledgling new business’ (Rotefoss and Kolvereid 2005:
110).
Moreover, Reynolds and Miller (1992) have sought to trace four different
events that can indicate the ‘gestation markers’ of the emergence of an
operating business: personal commitment (i.e., starting to invest personal time
and resources), financial support (i.e., obtaining external financial support),
sales (i.e., receiving first sales income) and hiring (i.e., employing someone
full- or part-time). Their study has indicated that not all events necessarily
occur in the firm creation process and that the events do not take place in a
particular order, while mainly concluding that ‘[t]he gestation period, from
conception to birth, should be treated separately from the post-birth period’
(Reynolds and Miller 1992: 416). Reynolds (1997) and Reynolds and White
(1997) have continued to propose a specific distinction between the different
stages of the firm formation processes, which includes the conception,
gestation, infancy, adolescence, maturity and decline stages; whereas the
notion of ‘nascent entrepreneurship’ has subsequently become increasingly
pronounced in entrepreneurship research (Reynolds et al. 2005), representing
the gestation and infancy phase. Supporting these developments, the study by
Carter et al. (1996) has uncovered three different profiles of nascent entrepre-
neurs. They have distinguished between those who are very active and actually
open a new business; those who are active but give up when realizing that
their business would not lead to success, and those who are still ‘trying’ to
18
found a business, as they tend not to put ‘enough effort into the start-up
process in order to find out whether they should start the business or give up’
(Carter et al. 1996: 152). These critical processes and outcomes in the nascent
entrepreneurship phase can be further understood by the suggestion that
potential entrepreneurs need–almost constantly–to discover and exploit
entrepreneurial opportunities to successfully found and establish businesses
(Shane and Venkataraman 2000).
Inspired by these prior studies, Grilo and Thurik (2005, 2008: 1114) have
proposed seven levels of an individual’s involvement in the entrepreneurial
process, noting that the levels do not necessarily indicate an increasing degree
of entrepreneurial engagement. Their concept includes two early stages of
entrepreneurial engagement (‘thinking about it’ and ‘taking steps to start a
business’), and levels that indicate if an entrepreneur is running a young or
older business, or has given up or even closed their business. Besides that,
they have defined a level that represents individuals who are not thinking of
becoming an entrepreneur, and thus are not (yet) engaging in the entrepre-
neurial process. Following their work, Van der Zwan et al. (2010) invented the
concept of the entrepreneurial ladder, by incorporating five of the seven entre-
preneurial engagement levels in a sequential order: ‘Never thought about it’,
‘Thinking about it’, ‘Taking Steps’, ‘Young business’ and ‘Old business’. The
idea behind this framework is that entrepreneurship is seen as a process, where
each level captures an increasing degree of engagement in the entrepreneurial
process, while the determinants of entrepreneurship can vary across these
levels (Grilo and Thurik 2008; Van der Zwan et al. 2010: 2184). This disser-
tation will particularly focus on the very early phase of the venture creation
process (see research paper 2 and 3), suggesting that the formation of entre-
preneurial intentions represent the initial phase of the start-up process.
2.3 Entrepreneurial intentions and the theory of planned behavior
‘The study of entrepreneurial intentions opens new arenas to theory-based
research [… as it] directs attention toward the complex relationships among
entrepreneurial ideas and the consequent outcomes of these ideas’ (Bird 1988:
442). This concluding statement by Bird (1988) in her article ‘Implementing
entrepreneurial ideas: The case for intention’ symbolizes the growing interest
from the 1980s onward in intentions when researching the emergence of
entrepreneurial behavior. Bird (1988) together with Katz and Gartner (1988)
were among the first scholars to develop a concept of the nature of entrepre-
neurial intentions. Following their work, mainly starting from the 1990s, the
explanation of entrepreneurial intentions has become an area of research
19
where a large body of entrepreneurship studies using social psychological
theories has emerged
1
(Bird 1992; Kolvereid 1996; Krueger 1993; Krueger et
al. 2000; Gird and Bagraim 2008; Liñán and Chen 2009; Van Gelderen et al.
2008; Kautonen et al. 2013).
In light of this emerging research, scholars have suggested that becoming
an entrepreneur involves a complex cognitive and decision-making process
(Gatewood et al. 1995; Liñán 2008; Mitchell et al. 2002a; 2007), while, as
outlined earlier, the start-up process involves a range of actions, such as saving
money, finding premises and equipment, or innovating and developing a
product or service, among others (Carr and Sequeira 2007; Aldrich and
Martinez 2001). Considering these initial decisions and steps as essential in
the pre-start-up phase of founding a business, many scholars agree that
becoming an entrepreneur is an emerging (Gartner et al. 2010; Sternberg
2009), but also intentional process (Carr and Sequeira 2007; Carter et al. 1996;
Krueger et al. 2000; Lafuente et al. 2007). In this context, Kolvereid (1996)
has already emphasized the intentional nature of entrepreneurial behavior by
suggesting that entrepreneurial intentions, among other things, include a
willingness to make decisions, being independent and creative, and seeking
performance-based remuneration.
Based on this logic, entrepreneurship scholars have increasingly suggested
that since entrepreneurial behavior is intentional, entrepreneurial intentions
can predict subsequent behavior aimed at starting a business (Bird 1988;
Krueger and Carsrud, 1993; Liñán and Chen 2009). Underlying this argumen-
tation, a substantial amount of empirical research from diverse behavioral
domains has demonstrated that intention is a good predictor of subsequent
action. For instance, meta-analyses by Armitage and Conner (2001) and
Sheeran (2002) have reported mean correlations of 0.53 and 0.47 between
intention and behavior, while a recent study by Kautonen et al. (2013) shows
that entrepreneurial intention explains a significant amount of the variance in
subsequent start-up behavior. Accordingly, the present dissertation considers
entrepreneurial intention as a strong predictor of future (nascent) entrepre-
neurial behavior.
Recognizing new firm formation as an intentional act calls for theory-
driven process models of entrepreneurial cognition focusing on intentions and
their perceptual bases (Bird 1988; Katz and Gartner 1988). Building on the
theory of reasoned action (Fishbein and Ajzen 1975), the theory of planned
behavior (TPB) (Ajzen 1988; 1991) has become one of the most widely used
psychological theories when explaining and predicting human behavior
1
See e.g., Krueger (2009) for a detailed, critical overview of the history, developments and recent
challenges of entrepreneurial intention research.
20
(Armitage and Conner 2001). It is also the most common theoretical frame-
work in the study of entrepreneurial intention
2
to this day (Carr and Sequeira
2007; Liñán and Chen 2009; Kautonen et al. 2013; Kolvereid 1996; Krueger
and Carsrud 1993; Krueger 2009; Tkachev and Kolvereid 1999). According to
Thompson’s definition (2009: 676), entrepreneurial intent is ‘a self-acknowl-
edged conviction by a person that they intend to set up a new business venture
and consciously plan to do so at some point in the future’, while Ajzen (1991:
181) defines intentions as ‘indications of how hard individuals are willing to
try, of how much of an effort they are planning to exert, to perform the
behavior’. Subsequently, the stronger an individual’s intention to engage in a
specific behavior, the more likely it should be to translate into their actual
performance or, in other words, intention is the immediate antecedent of
behavior (Ajzen 1991; 2000).
Ajzen’s (1991) TPB framework is here adopted as the basis for under-
standing entrepreneurial cognitions and the formation of entrepreneurial
intentions. Within this framework, entrepreneurial intention is conceptualized
as a function of three cognitive antecedents which, as prior applications of the
TPB show (Kolvereid, 1996; Liñán and Chen, 2009; Van Gelderen et al.,
2008), explain 30–45% of the variance in entrepreneurial intention: attitude,
subjective norm and perceived behavioral control. According to Ajzen (1991),
attitude refers to the degree to which a person makes a favorable or unfavora-
ble evaluation or appraisal of the behavior in question. Subjective norm stands
for an individual’s perceived social acceptance, with their closer social
environment, of performing that behavior. Perceived behavioral control refers
to the degree to which an individual believes they are able to perform the
behavior. Accordingly, Ajzen and Fishbein (2004) suggest that the three
theoretical antecedents should be sufficient to predict intentions. Thus,
generally speaking, the more favorable the attitude and the subjective norm
with respect to the behavior, and the greater the perceived behavioral control,
the stronger is the individual’s intention to perform the behavior (see also
research paper 2 and 3 for the dissertation’s specific theoretical and empirical
application of the TPB model).
2
Even though Ajzen's TPB has gained most popularity among scholars in research on
entrepreneurial intentions (Krueger 2009), Shapero's model of the ‘entrepreneurial event’ (see e.g.,
Shapero 1984; Shapero and Sokol 1982) has to be considered as a further dominant, useful model of
behavioural intentions in entrepreneurship research (Krueger et al. 2000, 2009).
21
2.4 Understanding the emergence of new ventures
Research over the past decades has suggested that becoming an entrepreneur is
an emerging process consisting of complex choices and different activities
depending on the level of engagement in the venture creation process. While
scholars have focused on developing concepts and measurements to capture
the different phases and levels of the entrepreneurial process, they have also
explored the practical decisions and activities involved in founding and
developing a business. This dissertation will draw mainly upon the former
research branch, since the aim is to investigate factors that influence intentions
to engage in and their progress across the different conceptual phases of the
firm formation process; thus it will draw less attention to the variety of
practical start-up activities.
As indicated above, scholars have particularly explored different notions
applied to the very early phase of the emergence of new ventures, such as
aspiration (Katz 1990), intention (Katz and Gartner 1988; Learned 1992),
personal commitment (Reynolds and Miller 1992), the conception (Reynolds
1997) and the initial thought (Grilo and Thurik 2008) of founding a business.
However, referring to the work of Rotefoss and Kolvereid (2005), an individ-
ual’s entrepreneurial intent to start up in business reflects in their aspiration
and commitment to found a venture, while these elements arguably mirror that
an individual considers becoming an entrepreneur as a potential career option.
Furthermore, the notion of conception indirectly refers to the emergence of an
individual’s intention and commitment to found a firm, which, in turn, is a
prerequisite of starting to prepare their business, and entering the nascent en-
trepreneurial phase (Reynolds and Miller 1992; Reynolds 1997). Accordingly,
the formation of an individual’s intention to start a new venture is argued to
relate to or capture the different elements of the initial start-up phase that has
been discussed in the prior literature. Supporting the role of intentions in the
new firm formation process, Gartner et al. (1992: 17) have stated that
‘Emerging organizations are elaborate fictions of proposed possible future
states of existence.’ Krueger (2009) has even suggested that entrepreneurial
intentions may reflect the final phase before actually launching a business,
highlighting the closeness of the genuine form of intent and nascent activity.
Subsequently, this section of the dissertation suggests that, in order to
understand the pre-emergent phase of entrepreneurship, from an individual
perspective, it is important to recognize the process nature of starting up in
business, the different levels of entrepreneurial engagement, and particularly
the entrepreneurial cognitions and intentions that deter the translation into the
nascent entrepreneurial activities respectively starting up in business.
Following this, and from the existing body of entrepreneurship research
22
discussed above, Rotefoss and Kolvereid’s (2005) three-stage-concept
(aspiring, nascent and fledgling entrepreneur) is adopted as a broad basis for
understanding the firm formation process in this study. Additionally, the
concept of the entrepreneurial ladder by Van der Zwan et al. (2010) is used to
complement the three-stage concept particularly with the stage of ‘never
thinking about starting a business’ as well as a more specific differentiation
between the early firm phases (i.e., ‘young’ and ‘old’ business). These two
proposals are combined here to suggest that the relevant stages in the
entrepreneurial processes are as follows: never thinking about starting a
business; intending to become an entrepreneur (aspiring entrepreneur);
preparing a business (nascent entrepreneur); young business (fledgling entre-
preneur); and operating a mature business. Further, as explored above, the
phase of intending to become an entrepreneur is particularly understood in line
with the TPB framework, which emphasizes that entrepreneurial intentions
are determined by three cognitive antecedents (attitude, subjective norm and
perceived behavioral control). Against this backdrop, this dissertation will
now turn to exploring some of the main challenges in contextualizing the new
venture creation processes. In doing so, it examines the existing literature that
discusses and empirically analyzes the different contexts of entrepreneurship,
while particularly drawing attention to studies that explore the role of those
contexts in the formation of entrepreneurial intention and the business start-up
process.
23
3 CONTEXTUALIZATING THE EMERGENCE
OF NEW VENTURES
‘Ventures are not
started in isolation’
(Vesper 1990: 109)
3.1 Towards a contextual view of entrepreneurship
For many years, academics have been illustrating that economic behavior is
facilitated by different social, cultural, economic and geographical contexts
(Amin and Thrift 1994; Dickens 1990; Granovetter 1985; J acobs 1969;
Hodgson 1988, 2004; Lee and Wills 1997; Martin 1994; Massey 1973, 1984;
North 1990; Oinas 1997; Polanyi 1957; Thrift and Olds 1996; Storper 1997;
Veblen 1919; Weber 1904, 1905). In the last two decades there has been also
an increasing recognition that entrepreneurship can be better understood when
considering the context(s) within which it is embedded (Aldrich and Fiol
1994; Aldrich and Zimmer 1986; Drakopoulou-Dodd and Anderson 2007;
Gartner 1995; J ack and Anderson 2002; Steyart and Katz 2004; Stam 2010;
Sternberg 2009; Thornton 1999; Thornton and Flynn 2003; Ucbasaran et al.
2001; Veciana and Urbano 2008; Wennekers and Thurik 1999; Welter 2011;
Zafirowski 1999). Reflecting these rather recent developments in entrepre-
neurship research, Welter’s (2011: 166) recent work has sought to
(re)emphasize the importance of exploring ‘the multiplicity of contexts and
their impact on entrepreneurship […] for understanding when, how, and why
entrepreneurship happens and who becomes involved.’
Such a contextualized lens has become even more important in recent
entrepreneurship research since environments have become more diversified
and interconnected, as a result of globalization processes, thus creating further
spatial variations in entrepreneurial activity (Veciana and Urbano 2008;
Thornton et al. 2011). This has led recent research to increasingly argue that
the–conceptual idea of–‘context’ is a very ‘multiplex phenomenon’ (Welter
2011), which directly or indirectly facilitates entrepreneurship at various levels
of analysis (Thornton 1999; Thornton et al. 2011; Welter 2011), while
acknowledging that context is shaped by entrepreneurial activities themselves
(Welter 2011; Garud et al. 2007; Bruton et al. 2010). Complementary to this
24
view, academics have further emphasized ‘entrepreneurship as a
multidimensional phenomenon spanning different units of observation ranging
from the individual to the firm, region or industry, and even nation’ (Grilo and
Thurik 2008: 1116; see also, Lundström and Stevenson 2005; Wennekers and
Thurik 1999; Davidsson, 2004; Wennekers et al. 2002). Subsequently, there is
a growing body of scholars, from different disciplinary and theoretical strands
that has begun to recognize the multiple nature of both context and entrepre-
neurship, aiming to develop our understanding of the contextual conditions
and boundaries that support, restrict or interact with the different forms and
levels of entrepreneurship (Aldrich and Martinez 2001: Armington and Acs
2002; Fritsch and Schmude 2006; Begley et al. 2005; Blanchflower 2000;
Bosma et al. 2009; Brixy and Grotz 2007; Gartner et al. 2006; Malecki 2009;
Stam 2010; Stam and Van Stel 2011; Sternberg 2009; Tamásy 2006; Thornton
1999; Thornton et al. 2011; Welter 2011; Veciana and Urbano 2008).
While a range of influencing factors has been identified and discussed
(Blanchflower 2000), scholars have pointed out that economic factors and
business contexts have been widely addressed (and perhaps even overempha-
sized) in studies on entrepreneurship, which, in turn, has limited our multilevel
understanding of the social and cultural influences on entrepreneurial behavior
(Autio and Wennberg 2010; Freytag and Thurik 2007; Schendel and Hitt
2007; Thornton et al. 2011; Welter 2011). These developments have appar-
ently come as a surprise to many academics as the idea that individuals
influence and are influenced by their social context is not new (Thornton et al.
2011; Welter 2011), for instance, when remembering the work of Max Weber
(1904, 1905) in the early twentieth century. Here, scholars are reminded that
Weber’s work has already highlighted the validity of holding a multi-layered
lens up to approaching the relationship between culture and economy, by
arguing that the protestant culture has promoted individualism, which in turn
has deterred economic activity and development (Steyaert and Hjorth 2006;
Thornton et al. 2011; Welter 2011).
In this context, Thornton et al. (2011) have emphasized the importance of
combining the social and cultural context to understanding the nature of entre-
preneurial decisions and behavior, while Welter (2011) has offered a similar,
but somewhat broader conceptual approach. Inspired by the work of J ohn
(2006), Whetten (2009) and Hackman (2003), among others, Welter (2011)
has suggested that in order to be able to conceptualize and analyze entrepre-
neurship through a ‘context lens’, it is important to capture the lower and
higher levels of analysis, by particularly at the social, spatial (or geographical),
and institutional (cultural and political) (‘where’ contexts), within which the
(potential) entrepreneur is embedded.
25
Against this backdrop, this dissertation seeks to contribute to these recent
challenges in entrepreneurship research, drawing upon a contextual view of
the emergence of entrepreneurship, where entrepreneurship is ‘taking place in
intertwined social, societal, and geographical contexts, which […] can be
perceived as an asset or a liability by entrepreneurs’ (Welter 2011: 176-177).
In the current research, that statement is taken as being equally applicable to
prospective entrepreneurs. Underlying this argumentation, Low and McMillan
(1988) have already suggested that it is important to capture process and
context, to understand the emergence of entrepreneurship. More recently,
Newbert and Tornikoski (2011) have concluded that nascent entrepreneurs are
embedded in different relational and structural relationships that in turn affect
a nascent organization’s transformation into an operating business. Fuller et al.
(2008) have argued that the core rationale for the emergence of entrepreneur-
ship assumes that it is due to interactions between the individual and the
environment, calling for future research that addresses the different levels of
contextual analyses, applying multilevel theoretical concepts. Supportive of
this call, Bosma and Schutjens’ (2011: 737) recent work has argued ‘that
understanding entrepreneurial behavior and attitudes, and eventually
influencing entrepreneurship in general, calls for different instruments at
different spatial scales in different stages of entrepreneurship’. Drawing upon
such conceptual introductions, this dissertation now proceeds to provide an
extensive review of the entrepreneurship studies that have both explicitly and
implicitly sought to explore the social, spatial, and (formal and informal)
institutional influences on (the emergence of) entrepreneurship.
‘[T]he notion of entrepreneurship […]
in isolation from social process is passé’
(Anderson and Miller 2003)
3.2 Social context
Inspired by the well-established, sociological literature on the intertwined
notions of social capital (J acobs 1962; Coleman 1988), social networks (Burt
1992; Podolny 2001) and social embeddedness (Granovetter 1985;
Stinchombe 1965), many studies have emerged over the past two decades that
seek to understand entrepreneurship as a social phenomenon (Aldrich and
Zimmer 1986; Anderson and J ack 2002; Baron and Markman 2003; De
Carolis and Saparito, 2006; Greve and Salaff 2003; J ack and Anderson 2002;
Katz 1993; Liao and Welsch 2005; Drakopoulou-Dodd and Anderson 2007).
This increasing body of literature has begun to address the limitations of the
26
dominant ‘atomized’ view of entrepreneurs in research, calling for a more
socially embedded, process-based view of entrepreneurial activity
(Drakopoulou-Dodd and Anderson 2007). Welter and Smallbone (2011: 120)
have further underlined that ‘it is necessary […] to incorporate the role of
social context if […] the nature and extent of entrepreneurship […] are to be
understood.’ Thus, even if academics differ in their views on the role of the
individual in the entrepreneurial process (see Section 2), it has been increas-
ingly recognized that the emergence of new firms is embedded in and affected
by social processes (Anderson and Miller 2003; Davidsson and Honig 2003;
Katz and Gartner 1993; Liao and Welsch 2005; Gartner et al. 2010).
Drawing upon these ideas, academics are increasingly exploring and theo-
rizing on the social embeddedness of entrepreneurship. For instance, Alistair
Anderson and his colleagues (J ack and Anderson 2002; Anderson and Miller
2003; Drakopoulou-Dodd and Anderson 2007) have begun to postulate that
‘the formation and development of a firm is related to the business founder’s
social world [i.e., social groups and social ties], and to all of the subjective
configurations associated with this social world’ (Anderson and Miller 2003:
19). Linking to the work of Becker and Gordon (1966), Nelson and Winter
(1982), Pfeffer (1982), among others, Gartner et al. (2010) have also argued
that the process of organization formation is rooted in social interaction where
individuals continuously re-organize resources, routines and structures, to
found their business. Underlining these developments, Anderson and Miller
(2003) have illustrated that social capital is embodied within social networks,
supporting resource-acquisition strategies necessary for operating a business.
Thornton et al. (2011) have outlined that many social network analyses have
emerged that highlight how entrepreneurs access non-internal resources,
which emphasizes that entrepreneurs have the necessary resources available
(i.e., human capital), but that they also need to proactively acquire resources,
such as information and financial capital, through their social contacts
(Aldrich and Zimmer 1986; Casson and Della Guista 2007; Cooper et al.
1995; Hoang and Antoncic 2003; Ribeiro-Soriano and Urbano 2009). This
also links to the literature that has sought to investigate how entrepreneurial
opportunities are recognized and created through social network members (De
Carolis and Saparito 2006; Fletcher 2006), suggesting that social contexts
influence the entrepreneurial process, but that these contexts are also shaped
by individual action (Welter 2011). In other words, entrepreneurs’ ability to
use social capital gained through social networks is essential for new venture
creation (Granovetter 2004; Greve and Salaff 2003; Nahapiet and Ghoshal
1998).
Specifically referring to the pre-emergent phase of entrepreneurship,
Sirmon and Hitt (2003) and Greve and Salaff (2003) have suggested that
27
individuals need to utilize their human capital and interact within the closer
social contexts to obtain resources that are important to prepare their new
business. David and Honig (2003) have shown that bonding social capital
based on strong ties, such as having parents or close friends who are entrepre-
neurs, and the active support from family and friends encourages individuals
to engage in nascent entrepreneurial activities. Their study has further
illustrated that bridging social capital based on weak ties, such as membership
of Chambers of Commerce, enhanced an individual’s general activity level
and progress in the nascent entrepreneurial phase. Applying the widely used
social network concept of Nahapiet and Goshal (1998), Liao’s and Welsch’s
(2005: 358) empirical study has concluded that, ‘[f]or nascent entrepreneurs,
what matters is how to utilize their social ties and interaction (structural
capital) to influence and shape the norms and practices of their networks
(cognitive capital) and in turn to develop trust and trustfulness and access to
various actors’ support (relational capital).’
Tornikoski and Newbert (2007) have further emphasized that it is important
for a nascent entrepreneur to be legitimatized in the eyes of their potential
network members and resource gatekeepers, by convincing them that their
nascent organization is operational. In a later study, these authors added that
while a nascent entrepreneur might have a large number of ties with contacts,
it does not necessarily mean that those contacts have the ability and motivation
to support their venture creation. They have also concluded that once the
nascent entrepreneur has a larger number of contacts that directly support
them with valuable resources, the importance of enlarging the network
diminishes (Newbert and Tornikoski 2012).
Academics have also begun to add family perspectives more explicitly to
social capital and network approaches (Chang et al. 2009). For instance,
Anderson and Miller (2003) have illustrated how the development of an
entrepreneur’s social capital is determined by their family background, while
Aldrich and Cliff (2003) have explored how family networks influence the
emergence and recognition of entrepreneurial opportunities and resources, and
the final decision to go ahead and create a new venture. Greve and Salaff
(2003) have argued that family members act as important resource holders to
potential entrepreneurs who lack access to other social support networks
during the firm formation process, while previous research has pointed out that
this is particularly the case when family members have an entrepreneurial
background (Aldrich and Cliff 2003). However, investigating family
businesses, Anderson et al. (2005) have also shown that family members that
are not directly involved in the (family) business or in other entrepreneurial
activities also offer essential resources to entrepreneurs, such as professional
advice and emotional support. Supporting this argumentation, Chang et al.’s
28
study (2009) has highlighted that the support of family networks (in)directly
influences new venture creation by helping individuals to become better
prepared for entrepreneurial activities and to carry out their ideas to actually
open their new business. Their study has further argued that support from both
family and other social actors facilitates an individual’s entrepreneurial inten-
tions and their subsequent acquisition of resources to prepare the new venture.
These insights are in line with the large number of entrepreneurship studies
that apply Ajzen’s (1991) TPB, where the perceived social support is concep-
tualized as one important determinant of intention. Thus, most of these studies
have empirically demonstrated that an individual’s entrepreneurial intention is
stronger when they perceive positive social support and approval from
networks of family and friends (see e.g., Krueger 1993; Van Gelderen et al.
2008; see also discussion in Section 2.2.). Liñán and Chen (2009) have further
argued that the social expectations of family and friends can indirectly shape
an individual’s entrepreneurial intention by affecting their entrepreneurial
attitude and self-belief in being able to operate a venture. Utilizing the inten-
tion model of Shapero and Sokol (1982), Liñán and Santos (2007) have shown
that individuals’ perceived bonding social capital, as outlined above, influ-
ences their desire to become an entrepreneur, while illustrating that bridging
social capital, in other words the perceived social support in a broader
network context, has an impact on their perception of the feasibility of entre-
preneurial activity. Uniting those ideas, De Caloris et al. (2009) have
suggested that an individual’s social capital and ties with social networks can
influence their entrepreneurial cognitions, such as risk propensity and impres-
sion of being in control in the context of entrepreneurship, and consequently,
their progress in preparing and starting a new venture.
‘[T]he [firm formation] process is
essentially geographically constrained’
(Birley 1985: 112)
3.3 Spatial context
Over the last two decades, the spatial, or geographical, dimension of entrepre-
neurship has become increasingly pronounced (Trettin and Welter 2011) in
light of the emerging body of (inter)national and regional studies that have
found spatial variations in and conditions for new firm creation, (pre-)nascent
entrepreneurial activity and (macro-) economic development (Armington and
Acs 2002; Bosma et al. 2008; Bosma and Levie 2010; Blanchflower 2000;
Reynolds et al. 1994; Stam 2007; Tödtling and Wanzenböck 2003; Wennekers
29
and Thurik 1999; Wennekers et al. 2002). Accordingly, entrepreneurship
scholars have steadily begun to explore the role of spatial contexts in co-
determining the opportunity structure (on the demand side) and the resources,
capabilities and interests (on the supply side) that affect different forms of
entrepreneurship (Blanchflower 2000; Bosma et al. 2009; Malecki 1997, 2009;
Schmude et al. 2008; Stam 2009, 2010; Sternberg 2009; Thurik et al. 2002;
Trettin and Welter 2011).
While the existing literature addresses different spatial influences on
various forms of entrepreneurship, spatial contexts have been analyzed along a
range of different geographical scales. To give a brief overview, a recent
literature review by Trettin and Welter (2011: 28, see Table 3) has summa-
rized the main applied geographical foci and scales as follows: (1) cross-na-
tional comparison (2) research of the national situation (3) nationwide
comparison of larger regions / different types of regions (4) comparison of
sub-regions within one larger region of a nation (5) large city (incl. hinterland)
(6) urban district(s) of a large city or small towns / villages in a peripheral
location. Following that literature analysis, studies on the larger geographical
scales (see 1–3) have dominated previous spatial entrepreneurship research,
while focusing to a large extent on spatial variations in business start-up and
death rates, nascent entrepreneurial activity, individual start-up decisions and
economic influences of entrepreneurship. In contrast, the smaller, but increas-
ing, body of studies at the lower geographical scale (see 4–6) has tended to
explore ‘policies, entrepreneurship promotion and services,’ and ‘networks,
social capital, embeddedness, culture and ethnicity’ (Trettin and Welter 2011:
7–8).
Scholars have argued that, due to the processes of globalization, spatial
contexts at local, regional and (inter)national levels have become more diver-
sified and interconnected, so creating further variations in entrepreneurship
and economic growth (Bosma et al. 2008; Lundström and Stevenson 2005;
Reynolds et al. 2000; Tödtling and Wanzenböck 2003; Veciana and Urbano
2008) as well as challenges for spatially orientated research (Trettin and
Welter 2011). At the same time, scholarly debates have suggested that these
globalization processes have increased the importance of local and regional
markets, limiting the possibility of macroeconomic policy actions in order to
support and regulate the economy (Bosma et al. 2008; Lundström and
Stevenson 2005; Nyström 2009). Moreover, while certain spatial variations of
entrepreneurship can be better explained at national levels, such as areas of tax
legislation, Sternberg (2009: 14) has suggested ‘that in addition to nationally
more or less similar framework conditions, there are also a large number of
other framework conditions that vary between regions of the same country and
which influence the individual decision for and against (entrepreneurship).’
30
Stam (2009: 497) has further underlined that the increasing ‘regional hetero-
geneity in the determinants of entrepreneurship leads to an even higher
heterogeneity in the spatial distribution of entrepreneurship.’ Subsequently,
while entrepreneurship research on larger geographical scales has become
widely established, for instance via the US-Panel Study of Entrepreneurial
Dynamics (PSED) and the GEM national surveys (Trettin and Welter 2011),
the openness of markets and heterogeneity of regions has increasingly forced
the debates to focus on local and regional contexts for entrepreneurship, as the
relevance of national markets has been gradually diminished (Bosma et al.
2008). In other words, scholars now widely acknowledge that the local and
regional dimension (see classification groups 3–6) must be included in entre-
preneurship research (Acs and Stough 2008; Fritsch and Schmude 2006),
particularly when seeking to understand the emerging process of new ventures
(Sternberg 2009; Stam 2010).
Against this backdrop, scholars have steadily turned to discussing different
forms of local and community entrepreneurship (J ohannisson 1990;
Frederking 2004; Haugh 2007; Spilling 2011; Trettin and Welter 2011; Welter
et al. 2008) and to a larger extent to investigate the local and regional condi-
tions (on the demand and supply side (Stam 2010)) that positively or
negatively influence firm creation and exit strategies, nascent entrepreneurship
and economic development (Armington and Acs 2002; Audretsch and
Keilbach 2004; Bosma et al. 2008; Brixy and Grotz 2007; Fritsch and Mueller
2007; Fritsch and Schmude 2006), including support policies, attitudes and
skills of the population, availability of incubators, and demographic and
industry structure (Sternberg 2009; Stam 2010), among others. To give some
specific examples, for instance, Tödtling and Wanzenböck (2003) have shown
that urban and tertiary regions display significantly above-average rates of
company formation and more favorable structural features in their new
businesses, compared to traditionally industrial and rural areas. Here, previous
research suggests that urban areas support company creation by providing
more (accessible) local entrepreneurial opportunities and resources than rural
areas (Armington and Acs 2002; Bosma et al. 2008; Reynolds et al. 1994;
Stam 2009, 2010), while the threshold of starting a business is usually much
lower in the service sector than in the capital-intensive manufacturing sector
(Bates 1995; Brixy and Grotz 2007; Fritsch et al. 2006; Tamásy 2006). At the
same time, scholars have begun to indicate that urban environments can also
undermine entrepreneurial interests and activities due to ‘congesting factors’
(Naudé et al. 2008: 120), such as intense competition, high barriers to entry
and less room for innovation-based differentiation (Bosma et al. 2008; Naudé
et al. 2008).
31
The literature has further suggested the regional supply of well-educated
labor–often associated with agglomerated areas (Tödtling and Wanzenböck
2003)– supports local entrepreneurship (Armington and Acs 2002; Bosma et
al. 2008; Naudé et al. 2008), for instance, due to higher levels of creativity and
innovation (Davelaar and Nijkamp 1997; Ritsilä 1999; Gregerson and J ohnson
1997) and more established social, professional networks (Maillat 1995), thus,
enhancing the recognition and exploitation of entrepreneurial opportunities
(Lundström and Stevenson 2005; Nyström 2005; Reynolds et al. 2004).
Mueller (2006) has further shown that nascent entrepreneurial activity across
German regions is positively related to education, while Naudé et al. (2008)
have demonstrated that firm birth rates in South African regions are higher
when nascent entrepreneurs are better educated than the average person.
Armington and Acs (2002) have illustrated that the presence of universities in
U.S. regions and a higher degree of knowledge transfer to the private sector
encourage higher entrepreneurial activity levels and provide support for firms
to succeed.
Moreover, research has suggested that regions with higher financial wealth
levels can support entrepreneurial processes through an increased spending
capacity (Bergmann 2005), higher demand for products (Bosma et al. 2008;
Reynolds et al. 1994), and a greater supply of resources for business capitali-
zation and lower borrowing costs (Bates 1995; Kangasharju 2000; Naudé et al.
2008; Stam 2010). On the other hand, prior literature has argued that higher
wage levels in a region increase the labor costs for (new) firms (Nyström
2005), and raise the comparative attractiveness of paid employment (Bosma et
al. 2008). Audretsch and Fritsch (1994a,b) have further indicated that a
perception that there are few employment prospects in a region can force
individuals to become entrepreneurs, while other studies have shown that high
unemployment reflects a weak regional economic situation, indicating a
relatively low demand and correspondingly weak prospects of successful
company formation (Bosma et al. 2008; Carree 2002; Reynolds et al. 1994).
Scholars have further suggested that the local government and its policy
actions affect the level of nascent entrepreneurship (Acs and Stough 2008;
Bosma et al. 2008; Keeble and Walker 1994; Lundström and Stevenson 2005;
Reynolds et al. 1994), where, for instance, the dominant political ethos in
regions reflects in different support and spending policies towards entrepre-
neurship (Garofoli 1994; J ohnson and Parker 1996; Reynolds et al. 1994;
Rotefoss and Kolvereid 2005; Kangasharju 2000).
Academics have further discussed how the regional culture reflects an
important indicator in the supply side of entrepreneurship, co-determining the
preference structures for entrepreneurial activity (Bosma and Schutjens 2011;
Stam 2009, 2010; Sternberg 2009). For instance, the presence of entrepre-
32
neurial role models in a regional community has been found to influence the
individual’s perceptions of desirability of entrepreneurship and, thus, their
potential to start up in business (Fornahl 2003; Lafuente et al. 2007; Vaillant
and Lafuente 2007). In this context, previous studies have explored whether
positive entrepreneurial examples and a high number of entrepreneurs within a
regional and socially tight context can foster the local acceptance of entrepre-
neurial activity (Gibson 2004; Lafuente et al. 2007; Lundström and Stevenson
2005; Reynolds et al. 2000). Alongside the number of entrepreneurs, high
density of small enterprises in a region has often been singled out as a factor
that enhances entrepreneurial aspirations (Reynolds 1994; Rotefoss and
Kolvereid 2005) by providing business ideas for potential entrepreneurs as
well as opportunities for them to familiarize themselves with the management
of a small business (Kangasharju 2000; Rotefoss and Kolvereid 2005).
Mueller (2006) has further illustrated that the local entrepreneurial
environment tends to exert particular influence on the early phase of an
individual’s decision process on whether to start a business, while this impact
decreases once an entrepreneurial desire has been established. Here, Liñán et
al. (2011) have recently shown that an individual’s perceived valuation of an
entrepreneur, in a broader societal and closer social context, has an impact on
their entrepreneurial intention level, and that this influence significantly varies
between regions. Vaillant and Lafuente (2007) have also argued that,
especially in European regions, entrepreneurial failure is socially stigmatized,
which increases the perceived obstacles to engaging in entrepreneurial
activities. Other studies have explored whether a higher regional start-up rate
in the past serves as an ongoing conduit for higher entrepreneurial activity, for
example by increasing innovation activity, knowledge spillovers, competition
and firm diversity (Audretsch and Keilbach 2004; Bosma et al. 2008; Fritsch
and Mueller 2007; Ritsilä 1999). Taken together, these empirical examples are
all indications of the need for the inclusion of spatially orientated–both
theoretical and empirical–research when investigating the emergence of
entrepreneurship.
The role of spatial contexts, at the regional and local scale, for new firm
formation processes has become even more pronounced in light of studies that
have underlined the stylized fact (Stam 2009; 2010) that entrepreneurs
establish their businesses near where they live (Cooper and Folta 2000;
Sorensen and Audia 2000; Sorenson 2003; Stam 2007). For instance, Stam’s
(2007, 2009, 2010) work has suggested that most entrepreneurs base their
business in their home region because of personal motives and support from
personal networks (e.g., family, friends, work colleagues) who live in the
surrounding environment. Further, the author has argued that ‘entrepreneurs
[tend to] discover opportunities in markets with which they are familiar, most
33
likely in or near their former working and living environments’ (Stam 2007:
12). Supporting this line of argument, the study of Dahl and Sorenson (2009)
has shown that it is emotionally important for entrepreneurs to locate their
business close to the area where their family and friends live, while Figueiredo
et al. (2002) have emphasized the role of personal relationships by showing
that entrepreneurs tend to accept far higher labor costs to operate their new
business where they live.
Moreover, Malecki (2009) has suggested that most of the (nascent)
entrepreneur’s contacts are in fact local, which, in turn, enables them to
accumulate extensive knowledge about the local industry and to gain competi-
tive advantage in the resident region. Michelacci and Silva (2007) have illus-
trated that entrepreneurs are more likely to stay in the area where they were
born than are dependent workers. Their study has further concluded that local
entrepreneurs are better at exploiting entrepreneurial opportunities in the
region than non-locals, as they are able to use more capital-intensive technolo-
gies and generally to develop more profitable and larger businesses. Besides
that, it has to be noted that entrepreneurs often consider local or home-based
locations because they have limited financial resources (Stam 2007) and/or run
their new business on a part-time basis, delaying their decision to become a
full-time entrepreneur until the new business starts to prosper (Stam 2010).
Subsequently, ‘for nascent entrepreneurs the focal choice is [often] what kind
of firm to start given their location, not so much choosing a location for a
given firm (Stam 2007, 2010: 142). This, in turn, emphasizes the important
role of considering the ‘“environment for entrepreneurship” in a region or
locale [as] a critical part of the entrepreneurial process itself, as well as of the
chances for local economic development’ (Malecki 2009: 176).
‘The process of becoming entrepreneur
is highly conditioned by the formal
and informal institutions’
(Veciana and Urbano 2008: 373)
3.4 Institutional context
While scholars have long been exploring the role of broader cultural,
economic and political contexts for economic activity (Cochran 1960;
Hodgson 1988; Polanyi 1957; North 1990; Veblen 1919; Weber 1904, 1905),
more recent research has begun to explicitly explore the influence of culture
and society and also political and economic systems on entrepreneurship
(Welter 2011). Such research often, whether directly or indirectly, refers to
34
informal institutions (e.g., culture, values, norms, traditions) and/or formal
institutions (e.g., laws, property rights, economic regulations), as were intro-
duced by the work of North (1991). Accordingly, a number of studies have
emerged particularly since the 1990s, that draw attention to the various forms
of entrepreneurship embedded in different institutional environments
(Ahlstrom and Bruton 2002; Aidis et al. 2008; Kalantaridis 2007; Freytag and
Thurik 2007; Lim et al. 2010; Nee 1992; Stephen et al. 2005; Stenholm et al.
2013; Welter and Smallbone 2008, 2011), increasingly suggesting that ‘[t]he
process of becoming (an) entrepreneur is highly conditioned by the formal and
informal institutions’ (Veciana and Urbano 2008).
It has also come to be widely acknowledged that informal institutional
contexts need to be combined in order to understand the influence of each
pillar on entrepreneurial activity as well as the interaction between institutions
and entrepreneurship more generally (Acs and Karlsson 2002; Davidsson et al.
2006; Li and Zahra 2012; Welter and Smallbone 2011). However, while
several theoretical conceptions of (the different forms of) institutions strongly
consider the interactive elements between formal and informal institutions (or
even neglect this simplified, binary distinction (see Section 4, and particular
Hodgson (2006) for a critical overview), the existing empirical research that
tackles relationships between institutions and entrepreneurship is often
characterized by focusing either on formal or on informal structures for
entrepreneurial activity (Welter 2011). To this, Bruton et al.’s (2010) literature
review has underlined that only a small body of the institutional research on
entrepreneurship explicitly engages in institutional theoretical work, apart
from using established classifications of institutional pillars (North 1991; Scott
1995). Accordingly, North’s (1991) binary distinction of formal and informal
institutions is used to structure the following literature review.
Formal institutional context
Scholars have increasingly sought to understand formal institutional structures
for entrepreneurial activity by investigating regulatory frameworks of both a
political and an economic nature. For instance, Smallbone and Welter (2009)
have researched the initial reforms of legal systems in Central and Eastern
European countries showing how changes in formal institutional frameworks
can profoundly determine entrepreneurial activity by permitting private
businesses to exist. These authors have also uncovered different ways in which
the governments of Estonia and Belarus influence the nature and pace of
business development, thus emphasizing the role of institutionalized behaviors
in this emerging process (Smallbone and Welter 2010). In addition, Ireland et
al. (2008: 124) have suggested that in the transition economies of Central and
Eastern Europe ‘social movement activity by groups with different political
35
identities [can] influence the rules that support or constrain entrepreneurship.’
Meanwhile Shane (2003) has argued that political forces, technological change
and business regulations are decisive factors in the existence and number of
new entrepreneurial opportunities.
The recent multi-country research by Stenholm et al. (2013) has suggested
that regulatory frameworks tend to have a stronger effect on entrepreneurial
activity than informal institutions, while Stephen et al.’s (2005) cross-country
study has demonstrated that legal institutions have an impact on the countries’
level of entrepreneurship. In particular, Stephen et al. (2005) have shown that
nations with legal systems akin to the English common law system exhibit
significantly higher entrepreneurial activity rates than countries with any of
the four other legal system types referred to. The implication is that regulatory
frameworks based on English common law tend to offer stronger protection of
property, investor and creditor rights. Acs and Karlsson (2002: 184) have
further emphasized the role of government expenditure and taxation in entre-
preneurship, concluding that ‘it appears as if there is a negative correlation
between entrepreneurship and the total taxes as a share of GDP, the public
spending as a share of GDP, [and] the average corporate tax level.’ Klapper et
al.’s (2009) study, based on the World Bank Group Entrepreneurship Survey
data, has further shown that entrepreneurially-friendly countries tend to have
high business start-up rates matched with a stable political environment,
modern business registration systems, reduced bureaucratic requirements, and
simplified business laws. Nyström (2009) supports this line of argument with a
cross-country study that found that a smaller government sector, well-devel-
oped legal structure and security of property rights, and less strict regulations
of credit, labor and business are positively related to entrepreneurial activity.
Moreover, Grilo and Thurik (2005) have demonstrated that the majority of
the population of the 15 EU member states of the time and the USA perceives
administrative and bureaucratic complexities as a formal start-up barrier,
exerting a negative impact on nascent and actual entrepreneurship levels. Lim
et al.’s (2010) research on formal institutional influences in entrepreneurial
cognitive and decision-making processes has shown that individuals in
countries with less complex regulatory regimes and more property rights
protection generally show higher levels of venture arrangements and willing-
ness scripts. They define venture arrangement scripts as the knowledge indi-
viduals have about the utilization of specic arrangements (e.g., tools,
networks, resources) that are needed to found a new business; while willing-
ness scripts are the knowledge that reflects an individual’s commitment to
become an entrepreneur. To this, the study of Bosma and Schutjens (2011:
737) has added that the identified ‘positive relation between strong entrepre-
neurial attitudes and subsequent entrepreneurial activity is not straightforward.
36
There are national formal institutional […] forces at play, which at the
individual level reinforce or deter the decision to indeed start a business.’
Klapper et al. (2006) have further reported that cost intensive market regu-
lations hinder the formation of new limited liability firms and the growth of
incumbent firms, even when controlling for other formal structures, such as
protection of property rights and labor regulations, particularly in industries
with presumed high entry rates. Furthermore, the study of Spencer and Gómez
(2004), based on data from 23 countries, has suggested that the regulative
institutional environment relates to the success of new ventures by showing
that government policies have a strong effect on the percentage of firms listed
on the stock market. Earlier studies underline these arguments by showing that
the potential of business creation and development can be undermined as a
result of the entrepreneur’s awareness of a broader range of rules and proce-
dural requirements, and obligation to report to many institutions (Dana 1987,
1990; Young and Welsch 1993; Gnyawali and Fogel 1994). For instance,
Dana’s (1990) comparative study of two national environments located on the
same Caribbean island–Saint Martin, under French administration and Saint
Maarten, which is a Dutch territory–has revealed entrepreneurship levels were
higher in Saint Maarten, which supported new ventures by providing low
taxes, essential duties and direct support programs as well as eliminating
exchange controls and complex bureaucratic procedures. On the contrary
entrepreneurial activity faltered in Saint Martin, where entrepreneurs faced
barriers resulting from regulatory restrictions and extensive bureaucracy.
However, Van Stel et al.’s study (2007), across 39 countries, found that
while capital requirement is negatively related to entrepreneurship levels,
administrative burdens, such as time, cost and the number of procedural
requirements, do not relate to birth rates of nascent or young ventures.
Accordingly, they have suggested that formal regulatory efforts by the
governments may not in themselves support entrepreneurship. Similarly,
Begley et al.’s (2005) study, across 13 Anglo-Saxon, East Asian, and South
Asian countries, has demonstrated that government regulatory efforts to
support entrepreneurship can have a reverse effect by decreasing the attraction
of the potential entrepreneur’s start-up. In line with Little’s (1987) work, they
have concluded that the increasing regulatory support by governments of
entrepreneurship, may reflect greater support for larger businesses, thus
indirectly hindering the emergence of small businesses by increasing the
attractiveness of a career in larger companies.
While Aidis et al. (2008) have suggested that in the Russian case, institu-
tional voids have a negative effect on new venture creation, Puffer et al.’s
(2010) study has highlighted that formal institutional voids in Russia and
China can give rise to high risk and uncertainty for entrepreneurs, but that the
37
challenging entrepreneurial environments in transition economies can also
stimulate creative entrepreneurship. Underlining this argumentation,
Kalantaridis (2007) has illustrated that in post-socialist countries entrepreneurs
have developed their own way of dealing with ongoing formal institutional
changes and deficiencies, which, in turn, often spawn institutional change.
This is in line with the early work of Nee (1992), which has explained institu-
tional and market transitions in China by investigating the relationship
between the role of government, enterprises and market regulations. Referring
to the case of service businesses in Ukraine, Welter and Smallbone (2011)
have further argued that ‘y commercially exploiting institutional holes,
these entrepreneurs might trigger change in the formal institutions aimed at
leveling out the institutional deficiencies that created the opportunities.’
Brautigam’s (1997) case analysis on local industrialists in one part of Nigeria
has also uncovered similar patterns in the relationship between holes in formal
institutional practices and entrepreneurship by showing how entrepreneurs
‘have substituted for the absence of a developmental state by themselves
filling in the gaps left by market failures, particularly of information, and of
public goods.’
Lee et al.’s (2010) cross-country research has found a negative relationship
between the risk involved in filling bankruptcy and new firm formation rates,
suggesting that more entrepreneurship-friendly (i.e., there is less time/cost
associated with the bankruptcy procedure) can lower start-up barriers by
encouraging entrepreneurs to risk more and establish more new businesses. Li
and Zahra’s (2012: 106) analysis of venture capital (VC) activity for 68
countries has provided evidence that ‘the formal institutional development has
a positive and significant impact on the level of VC activity, but [that] the
effects of formal institutions further depend on informal cultural constraints
such as uncertainty avoidance and collectivism.’ Accordingly, their study has
concluded that countries with a well-developed formal institutional framework
(mainly referring to European and OECD countries) are able to institute and
enact venture capital programs and policies (e.g., lower taxes and liberal
bankruptcy laws) that essentially support VC activity and, thereby, entrepre-
neurship. At the same time, for countries without a strong formal institutional
framework (mainly referring to emerging and transition economies), it is very
difficult to sustain VC programs and to attract VC investments.
Informal institutional context
Scholars have long emphasized that culture and the informal institutional
environment influence economic activity and development (see e.g.,
McClelland 1961; North 1990; North 2005; Shane 1993), while increasingly
acknowledging that cultural norms and values shape entrepreneurial behavior
38
(see e.g., Ahlstrom and Bruton 2002; Baumol and Strom 2007; Freytag and
Thurik, 2007; Hayton et al. 2002; Sternberg 2009; Thornton et al. 2011)
through both the demand and supply side of entrepreneurship (Verheul et al.
2002). While formal institutional and regulatory contexts have been relatively
well-researched (Welter 2011), empirical research on informal institutions and
culture in the context of entrepreneurship is still in an early phase (Hayton et
al. 2002; Freytag and Thurik 2007). Nevertheless, a range of empirical studies
have emerged, particularly in the past two decades, that provide useful insights
into the cultural and informal institutional contexts for entrepreneurship,
across and within countries.
For instance, Wilken’s (1979) often cited comparative and historical study
of the industrial development of six societies (England, France, Prussia-
Germany, J apan, the USA, and Russia) during the eighteenth and nineteenth
centuries has already explored how the more social legitimacy was accorded
to entrepreneurship in a society the higher the subsequent level of entrepre-
neurship. More recently, Shane (2003) stated that the interest in engaging in
entrepreneurial activities is higher when the level of social acceptance of
entrepreneurship in a society is high too. Further, the study of Begley and Tan
(2001) has found how socio-cultural values shape the individual interest in
entrepreneurship, and can hinder or support an individual’s decision to prepare
for and start a business. For example, they have shown that cultural percep-
tions of the entrepreneur’s social status and shame stemming from a business
failure were better indicators of entrepreneurial motivations in East Asian than
in Anglo-Saxon countries.
Mueller and Thomas (2000) found, in their study based on a student sample
across nine countries, a positive relationship between individualistic cultures
and an internal locus of control orientation, while particularly demonstrating
that internal locus of control, combined with innovativeness, tends to relate to
(Hofstede’s
3
(1998, 2001) operationalization of individualistic, low uncer-
tainty avoidance cultures than collectivistic and high uncertainty avoidance
cultural environments. Mitchell et al.’s (2000) research, across seven Pacific
Rim countries, has found that cultural values shape entrepreneurial cognitions
and their relationship with the actual decision to start a business. In particular,
they have shown that an individual’s perception of their competence to
become an entrepreneur (ability scripts) and their willingness to do so is
altered by Hofstede’s (1998, 2001) individualism and power distance cultural
attributes, ‘suggesting […] cultural permeability in the enactment (doing)
portion of the venture creation script’ (Mitchell et al. 2000: 986). Mitchell et
3
For an overview of Hofstede’s national culture dimensions seehttp://geert-hofstede.com/
dimensions.html.
39
al. (2002b) has further supported these findings by identifying significant
cross-country variations in willingness and ability cognitions among 990
entrepreneurs from 11 countries, while further exploring that a set of cognitive
entrepreneurial archetypes do indeed vary among countries.
Moreover, while the study by Langowitz and Minniti (2007: 356), across 17
countries, has concluded that ‘women tend to perceive themselves and their
business environment in a less favorable light compared to men,’ the recent
research by Shinnar et al. (2012) has particularly emphasized the role of
culture and gender in entrepreneurial cognitions and intentions. The latter
study has demonstrated that–based on a sample of 761 university students–
women in the United States and Belgium perceived lack of competency and
fear of failure a greater barrier than men, while this gender effect did not
appear in China, suggesting that the ‘Chinese culture somehow acts to shape
individual perceptions of these two barriers in a way that eliminates gender
differences’ (Shinnar et al. 2012: 22). Underlining the role of culture and
gender in the formation of entrepreneurial intention, the study by Veciana et
al. (2005) has found that in Catalonia a student’s gender relates to their desire
and intention to create a new firm, while in Puerto Rico a student’s gender
plays no role in these processes. Moreover, Welter and Smallbone (2008),
among others, have explored a number of specific institutional aspects
involved in women’s enterprising activities in transition economies. For
instance, based on case studies in Uzbekistan they have shown that formal
institutional voids, such as tax regulations and access to finance, almost
equally hinder the creation of new businesses for both female and male
entrepreneurs. However, it is the informal institutional environment (in
Uzbekistan) with its cultural norms and behavioral codes that most affects the
nature of female entrepreneurship, ‘a large part of which involve home-
based or subsistence activities in an attempt to combine family responsibilities
with the need to generate income for the household’ (Welter and Smallbone
2008: 517). Underlining how cultural norms can affect entrepreneurship, a
case study by Takyi-Asiedu (1993) had already illustrated that ‘Entrepreneur-
ial action, in [sub-Saharan Africa] […] has been viewed as being relatively
static, because a religious commitment to tradition has led to the suppression
of flexibility and adaptability to change religious commitments to traditional
values.’
Wennekers et al. (2007) have further examined the role of uncertainty
avoidance culture in an individual’s occupational choice (employment vs. self-
employment), using longitudinal-data across 21 OECD countries for the years
1976, 1990 and 2004. In opposition to the study findings presented above
(e.g., Mueller and Thomas 2000), their research found a positive relationship
between uncertainty avoidance (as defined by Hofstede 1998, 2001) and the
40
prevalence of business ownership, suggesting that a restrictive environment of
large businesses in high uncertainty avoidance countries tends to push
individuals seeking for autonomy towards self-employment. Feyrtag and
Thurik (2007) have further shown that cultural elements (across 25 EU
member states and the USA) particularly influence the individual preference
for entrepreneurship, whereas hard economic factors, such as tax rates and
direct regulatory burden, shape the actual business start-up levels. According
to the study by Stephen et al. (2005), higher levels of entrepreneurship and
business ownership can in turn enhance higher entrepreneurial potential levels
in an economy, emphasizing potential role model effects on entrepreneurial
motivations. Applying Inglehart’s post-materialism index, the study of
Uhlaner and Thurik (2007), based on data from 27 countries, has shown that a
society in which non-materialistic values are dominant tends to have lower
(early-stage and total) entrepreneurial activity levels (according to the GEM
classifications), even when controlling for a set of demographic, economic and
social indicators.
Introducing a measurement of country institutional profile for entrepreneur-
ship, Busenitz et al.’s (2000) research, based on student samples across six
countries (Germany, Italy, Norway, Spain, Sweden, and the USA), has
demonstrated that social normative contexts that approve of entrepreneurship
encourage individuals to start a new venture, whereas formal institutional
environments become essential for established firms to make initial public
offerings and to gain resources and external investors. Supporting this finding,
Spencer and Gómez’s (2004) study, across 23 countries, has shown that
informal institutional contexts (i.e., the society’s attitudes towards entrepre-
neurs) has an effect on self-employment rates, but not on more advanced
forms of entrepreneurship (i.e., new businesses with 20–100 employees and
new companies listed on a country’s stock exchange). In addition, the recent
study by Li and Zahra (2012: 107) has provided new insights into informal
institutional influences on venture capital activity by demonstrating that ‘even
though a strong formal institutional framework stimulates VC [venture capital]
investment, both uncertainty avoidance and collectivism seem to reduce the
sensitivity of VC funding to the incentives provided by formal institutions.’
Thus, in line with North (1990), they have concluded that similar formal
institutional frameworks in different societies (can) lead to different economic
outputs.
Other scholars have explored how popular metaphors, discourses or
narratives are generated, particularly by the media, and promote certain
enterprise beliefs and norms within societies, portraying who business owners
are and how they should be (Ainsworth and Hardy 2009; Anderson and
Warren 2011; Down and Warren 2008; Nicholson and Anderson 2005). For
41
instance, the work and publications of Schmölders (1971, 1973, 1978)
indicated how images and understandings of the entrepreneur can become
institutionalized within different societies (mainly referring to Germany and
other Western countries), through influences from different bodies, such as
trades unionists, intellectuals and educators. More recently, the study by
Nicholsen and Anderson (2005) has provided strong evidence of how media
texts present ideal types of entrepreneurship by portraying the entrepreneur as
heroic, a near mythical figure supporting the economy and society. Based on a
sample of 480 newspaper articles, their study has shown that print media
discourses tend to describe the entrepreneur in heroic terms, akin to masters of
time, as a lovable rogue or as a type of polite rebel, arguing that these created
images shape how people think and learn about the role of the entrepreneur. A
range of other studies of the media discourse back up the findings, emphasiz-
ing a variety of similar metaphors used to portray the entrepreneur, ranging
from warrior and superman to pioneer, thus again underlining the entrepre-
neur’s individual hero status (see e.g., De Koning and Drakopoulou-Dodd
2002; Hyrsky 1998; Koiranen 1995; Pitt 1998). Here, the recent work by
Anderson and Warren (2011: 603) has further concluded that this entrepre-
neurial discourse particularly as (re)enforced by the media ‘presents an assem-
bly of entrepreneurial virtues[ and that] these qualities, characteristics and
actions are valorized as constituents of the enterprise culture to invent and
fashion an entrepreneurial ideal type.’
In this context, previous research has also uncovered how these stereotypi-
cal images and norms reproduce informal institutional structures that can have
(negative) consequences for entrepreneurial groups that do not conform to
those established constructs. In line with the presented quantitative studies on
culture and gender, the case studies of Hamilton and colleagues (Hamilton and
Larty 2009; Hamilton 2006; Hamilton and Smith 2003) among others, have
highlighted how the dominant masculine nature of these institutionalized
discourses and ideal types of the entrepreneur can discriminate against female
entrepreneurs. In particular, Hamilton (2006) has found how established
images of the entrepreneur within society are reproduced within family firms
in ‘the construct/discourse of the “heroic male” owner-manager and the
“invisible women” embedded in the patriarchal/paternal discourses and
practices’ (Hamilton 2006: 267). Moreover, scholars have begun to uncover
informal institutional structures emerging from discourses that praise a
younger enterprising culture, which can create barriers for older individuals
who (intend to) engage in entrepreneurial activities (see e.g., Ainsworth and
Hardy 2008, 2009; Down and Revely 2004; Down and Warren 2008). For
instance, Ainsworth and Hardy (2008, 2009) have stated that entrepreneurship
and age are independent constructs that do not complement each other, and
42
that older entrepreneurs find it difficult to conform to a younger, dominant
enterprising culture. As such, they deviate from popular norms of enterprise,
within discourse, which reflect social reality, where negative stereotypes can
prevent the intentions of nascent entrepreneurs and discriminate against older
(potential) entrepreneurs (Ainsworth and Hardy 2008, 2009).
3.5 Contextualizing the emergence of new ventures: challenges for the
present study
The dissertation will now offer a summary of the main insights drawn from
the literature reviews presented above regarding the social, spatial and institu-
tional contexts, and to discuss the specific research gaps that the current study
and particularly its four research papers aim to address. In the following
Section 4, the author will then introduce and propose a multi-layered institu-
tional framework as a potential way of theorizing the role of different contexts
in economic and particularly entrepreneurial activity.
Social context
The previous research has suggested that the emergence of entrepreneurship
can be better understood when considering an individual’s embeddedness in
their various social contexts. This reasoning is justified, for instance, in the
important role of social capital in gaining access to the tangible and intangible
resources needed for preparing and founding a new venture. Social capital, in
turn, emerges through the active building of strong and weaker relationships
with(in) social networks, whereas networks with entrepreneurial backgrounds
are particular relevant to these processes. The social environment can further
provide important social and emotional support for potential entrepreneurs,
which encourages them to believe themselves able to become an entrepreneur,
and to form the intention to become one, while supporting their willingness to
progress in the nascent entrepreneurship phase. Since potential entrepreneurs
are often faced with limited resources, especially in the very early start-up
phase, close social networks, such as family and friends, play an essential role
in influencing their entrepreneurial motivation and the process involved in
forming a firm. Moreover, nascent entrepreneurs often need to proactively
gain (social) approval and support from their resource gatekeepers, in order to
be able to transform their nascent organization into an operational business.
This is in line with the emerging literature that suggests that potential entre-
preneurs can create entrepreneurial opportunities and capital through actively
forming, engaging with, and developing trust and trustfulness in new or
existing social networks.
43
Even though scholars have increasingly recognized the role of norms in
social networks, the previous research on social networks has merely focused
on the exchange of resources and information, thus limiting our understanding
of the social norms provided by the network actors (Krueger 2000; Autio and
Wennberg 2010). Scholars have also increasingly begun to argue that these
social contexts within which the potential entrepreneur operates are, in turn,
embedded in a broader environment, drawing attention to the relationship
between the social networks and cultural contexts. For instance, Welter (2011)
and Thornton et al. (2011) have recently emphasized the importance of, and
major challenge involved in, exploring social-cultural links; the social norms
and values they create both theoretically and empirically, and how they
influence entrepreneurial aspirations and behaviors. Underlining this view,
Thornton et al. (2011) have further argued that the processes of exploitation of
social capital are normative and cultural in nature, potentially implying social
rules that emerge within networks that can label people winners and losers
(Anderson and J ack 2002) or exclude outsiders (Portes and Landolt 2000).
Linan et al’s (2011) study argued that both norms and values within the closer
social environment and society at large have an impact on the formation of
entrepreneurial intentions. Autio’s and Wennberg’s (2010: 23-24) recent
multilevel study offers a first empirical insight into how ‘norms and attitudes
of entrepreneurship are spread in [social] “reference groups”’, suggesting that
‘the cues of entrepreneurial behavior propagated by external institutions are
modified […] through social interaction’ and networks. In addition, the case
study by Hamilton (2006) has highlighted how institutionalized images of the
typical entrepreneur within society are reproduced within family firms, where
it is generally men who adopt the role of owner-manager.
The above leads to calls for further multilevel research and concepts that
explore the emergence of entrepreneurship in light of the relationship between
social and cultural contexts and, particularly, the related social norms and
sanction mechanisms emerging within the potential entrepreneur’s social
networks. Here, Welter (2011) has also highlighted the need for further studies
and concepts that incorporate the recursive (bottom-up) links in contextualiz-
ing the emergence of entrepreneurship, drawing attention to the ability of
potential entrepreneurs to shape social norms and their social, and institu-
tional, contexts. We still know little of how social norms emerge from the
potential entrepreneur’s social networks; how they are co-determined by the
institutional environment; and how potential entrepreneurs are able to resist
and change prevalent social norms during their business start-up process.
These are the recent debates and emerging research gaps to which this disser-
tation, paper 2 and particularlypaper 4 contributes.
44
Spatial context
Academics are increasingly highlighting the role of spatial contexts in entre-
preneurial activity. Spatial research on larger geographical scales has become
widely established, providing useful insights into national variations of entre-
preneurship levels (e.g., nascent entrepreneurship, start-up activity). That has
spurred scholars to emphasize the regional and local dimension of entrepre-
neurship, in light of studies that have found the national framework, and other,
conditions for (pre-/nascent) entrepreneurship to vary within a country, across
larger and smaller regional units. As noted previously, a number of regional
conditions have been identified, ranging from demographic, social, economic,
to industry features of the region (Sternberg 2009). Moreover, besides the
processes of globalization and the related increasing importance of regional
markets (Bosma et al. 2008), scholars have turned their attention to the
locational inertia of entrepreneurs (Stam 2007). This has added further
impetus to the calls to include the local and regional context in research on
new venture creation. This body of research has indicated that entrepreneurs
usually start new businesses in their area of residence, owing, for instance to
personal motives, personal relationships, established local contacts and
knowledge, and / or financial issues.
However, while spatially orientated research has been growing signifi-
cantly, over the past decade, research on the local and regional nature of the
emerging process of entrepreneurship remains undeveloped. Malecki (2009:
176) has underlined that ‘relatively little research on entrepreneurship has
examined the critical nature of the [potential] entrepreneur’s local context in
which he/she operates’, while Sternberg (2009) has suggested that despite the
increasing recognition of contextual aspects, entrepreneurship research still
largely neglects spatial implications. In line with these arguments, the
literature research by Trettin and Welter (2011) revealed that only a small
body of spatial research is conceptual in nature and pointed out the lack of
studies explicitly addressing socio-spatial contexts. As indicated above, the
emerging process of new ventures is strongly affected by the potential entre-
preneur’s local environment (Stam 2007; 2010), where, for instance, role
models, social networks, and prevalent social sanctioning mechanisms can
influence entrepreneurial intentions (Liñán et al. 2011) and (nascent) entrepre-
neurial activities (Mueller 2006; Bosma et al. 2011). Thus, spatial contexts can
also be understood by reference to the social boundaries of the local commu-
nities, reflecting cognitive and culture-based norms and shared meanings
(Thornton and Flynn 2003). It is a finding that calls for further research
exploring the links between local context and socio-cultural elements, and
their implications for the emergence of new ventures (Anderson 2000; Liñán
et al. 2011; Welter 2011). Moreover, previous research on regional conditions
45
for entrepreneurship has mainly focused either on new firm formation rates or
the nascent entrepreneurship level as the dependent variable. Thus, we know
very little of how regional contexts influence the early pre-action phases of
new venture creation (for exceptions see e.g., Bosma et al. 2009; Bosma and
Schutjens 2011; Liñán et al. 2011). Accordingly, further multilevel research is
needed that seeks to develop our understanding of the role of regional
environments in entrepreneurial cognition processes (Mitchell et al. 2007) and
the formation of entrepreneurial intentions (Liñán et al. 2011), providing new
insights into the pre-conditions of venture creation (see also Section 2). These
are the research gaps in the spatially orientated entrepreneurship research to
which this dissertation and particularly paper 2 andpaper 3 theoretically and
empirically seek to narrow.
Institutional context
Scholars have shown increasing interest in examining the role of formal and
informal institutions–usually at the national level–in the emergence of
entrepreneurship. One such stream of research has demonstrated that formal
institutional frameworks, both political and economic in nature, can influence
entrepreneurial motivations, nascent entrepreneurial activities, new firm
formation rates, firm growth and VC activity. These studies have suggested
that a supportive formal institutional context for these different forms of
entrepreneurship in a country features a stable political environment, well-
developed legal structure, secure property rights, reduced bureaucratic
requirements, less complex and more liberal business regulations, less
regulation of credit and labor and reduced time/cost associated with
bankruptcy procedures. While such well-developed formal institutional
frameworks have usually been found to support entrepreneurship, several
studies have also explored how formal support initiatives and regulatory
efforts by the government can also undermine entrepreneurship. Previous
research has further suggested that formal institutional voids yield high risk
and uncertainty for entrepreneurs and new businesses, but that these
challenging environments (often exemplified in the transition economies of
eastern Europe) can also stimulate innovation and (creative) entrepreneurship.
Scholars have also found that formal institutions in different cultures and
societies can result in different economic outcomes, which leads to the body of
research that has focused primarily on informal institutional contexts.
Several single- and multi-country studies have emerged that provide useful
insights into cultural and informal institutional influences on entrepreneurial
cognitions and motivations as well as nascent entrepreneurship and business
start-up levels. In summary, these studies have suggested that social normative
contexts favoring entrepreneurship (for instance, societies with a larger
46
number of entrepreneurial role models or where entrepreneurs enjoy high
social status or are not frowned upon if their business fails) also enhance
higher entrepreneurial engagement levels. While scholars have further
indicated that individualistic, high uncertainty avoidance, and power distance
cultures tend to positively relate to an individual’s motivation and perceived
ability to run their own business, a few studies have also noted that informal
institutional contexts seem to play a stronger role in the pre-firm formation
phase than for (the development of) established enterprises. The dissertation
particularly draws attention to this research stream, and identifies several
research gaps that need to be addressed to develop our understanding of
cultural and informal institutional contexts for entrepreneurship.
Generally speaking, the existing cross-country research on culture and
entrepreneurship has mainly followed Hofstede’s (2001) seminal work
(Hayton et al. 2002) or an aggregated psychological trait approach (Freytag
and Thurik 2007). A comprehensive review by Hayton et al. (2002) of 21
empirical studies that investigate the association between national cultural
attributes and entrepreneurship has underlined that the lion’s share of these
studies is based on Hofstede’s concepts of national culture and that other
approaches have been neglected or underdeveloped. Stemming from such
research, uncertainty avoidance, among others, has become probably one of
the most prominent cultural indicators used to investigate the relationship
between culture and entrepreneurship, mainly suggesting that the greater the
uncertainty avoidance, the less entrepreneurial a society tends to be. Further-
more, ‘uncertainty avoidance is a cultural trait closely linked to attitudes of
risk and uncertainty and, consequently, to the entrepreneurial propensity
within a country according to the aggregate psychological traits approach,’
which suggests that, ‘for a given country, the more individuals with entrepre-
neurial values there are in a society, the more individuals will display
entrepreneurial behavior’ (Thurik and Dejardin 2011b: 57-58).
Accordingly, previous research has to a large extent focused on cultural
aspects of entrepreneurship from a highly individualistic view of culture, using
aggregated psychological measures to capture cultural differences in entrepre-
neurship. In addition, previous empirical research has tended to examine only
broad cultural values and their relationship with different forms of entrepre-
neurship, neglecting ‘measures of normative institutional environments that
are specific to a particular domain, such as a society’s attitudes about entre-
preneurship, [which] appear to hold greater predictive power’ (Spencer and
Gómez 2004: 7). This is reflected in the current debates on institutions and
entrepreneurship, calling for further research that addresses effects of specific
institutional and cultural contexts on entrepreneurship (Schendel and Hitt
2007: 3) and thereby adds to the literature aimed at contextualizing entrepre-
47
neurship, and particularly at conceptualizing and measuring specific socio-
cultural influences on entrepreneurial behavior (Thornton et al. 2011; Welter
and Smallbone 2011).
Now further research is needed that applies and develops approaches that
enable the capture and measurement (more directly and holistically) of cultural
and societal values towards entrepreneurship. In this regard, the social and
moral legitimation (approach) of entrepreneurship in a society (Etzioni, 1987)
has been discussed as potentially offering a way of capturing such specific
informal institutional settings for entrepreneurship (Freytag and Thurik 2007),
suggesting that the more entrepreneurship is socially legitimized in a society,
the higher the level of entrepreneurial activity should be (Etzioni 1987; Shane
2003; Wilken 1979). However, to date, very little cross-country research exists
that seeks to theorize and empirically uncover the various entrepreneurial
legitimation processes in society and their impact on entrepreneurship.
Moreover, Bruton et al. (2010: 433) have emphasized that ‘unfortunately,
unless larger samples can be identified, the interdependencies between values
and entrepreneurship may remain difficult to discern. Furthermore, [future
research] requires a more cogent conceptualization of anticipated interactions
among culture, institutional context, and behaviors than has been presented to
date’. Taken together, these are the main debates to which this dissertation and
particularlypaper 1 theoretically and empirically contributes.
Moreover, the previous cross-country studies on culture and entrepreneur-
ship have largely chosen as their explanatory variable either entrepreneurial
motivation, nascent activity or business start-up levels. In so doing they
neglect a dynamic perspective on the emergence of new ventures, as discussed
in Section 2. While, for instance, a significant relationship can be found
between certain informal institutional contexts and entrepreneurial intentions,
this does not imply that this impact endures when the individual progresses
from the pre-action phase to nascent entrepreneurship or early firm operation
phase. As a result, the conclusions of such research may not be sufficiently
specific to develop our knowledge of the influence of cultural environments
on entrepreneurial behavior. This dissertation and particularly paper 1 seek to
add to this knowledge gap by analyzing the impact of specific informal
institutional contexts in the different phases of the new venture creation
process, applying the concept introduced in section 2, that of the entrepre-
neurial ladder (Van der Zwan et al. 2010).
Reviewing the previous discussions on the need to research socio-spatial
contexts for entrepreneurship, particularly the recent work of Bosma and
Schutjens (2011) has provided useful insights into how informal institutional
contexts and specific social values at the regional level can play a stronger role
in shaping entrepreneurial attitudes and action than can national institutional
48
environments. Similarly, referring to the discussion on the social contexts for
entrepreneurship, we know that cultural values towards entrepreneurship are
often reflected and modified in the (prospective) entrepreneur’s interaction
with his or her social environment, potentially influencing entrepreneurial
thoughts, intention or actions. Underlining this argumentation are studies that
have emphasized the role of institutionalized discourses and narratives in
society (e.g., those created through the media), which at the same time mirrors
norms and beliefs guiding and affecting social interactions at the micro-level.
Thus, in order to understand the relationship between informal institutional
contexts and new venture creation processes it is important to explore socio-
cultural and institutional effects not only at the society level, but also–and
probably even more importantly–at the regional, local and social level (Bosma
and Schutjens 2011; Stenholm et al. 2013; Thornton et al. 2011; Trettin and
Welter 2011; Welter 2011). These are emerging research gaps, which this
dissertation and particularly papers 2, 3 and 4 seek to narrow by contributing
new insights.
49
4 A MULTI-LAYERED INSTITUTIONAL
APPROACH TO NEW VENTURE CREATION
‘Actor and institutional structure,
although distinct, are […] connected in a circle
of mutual interaction and interdependence’
(Hodgson 2006: 8)
4.1 Towards a theorizing context for new venture creation
As presented in the previous section, scholars have increasingly highlighted
the importance of developing our understanding of the multiplicity of
contextual influences in entrepreneurial processes, and have also demonstrated
an awareness of the challenges that brings. While this dissertation has
explored three potential contexts (social, spatial and institutional) that play a
role in shaping various forms and levels of entrepreneurship, it has also
discussed some of the emerging knowledge gaps in the previous literature,
calling for further theoretical and empirical research. On the one hand, the
literature review indicates that even though the number of studies on
contextual influences on entrepreneurship has significantly increased over the
past two decades, we still know relatively little about specific social, spatial
and institutional influences on entrepreneurial cognitions and intentions and
the process of new venture creation.
On the other hand, it suggests that in order to improve our knowledge of the
contextual embeddedness of (the early phases of) new venture creation, it is
important to continue to uncover the linkages of the different contexts, such as
certain socio-spatial or socio-institutional elements, and their influences on
entrepreneurship. Taken together, this leads to a main challenge for future
research, and that is finding ways to theorize and empirically explore the
context for venture creation, by addressing the multiple nature and levels of
both context and entrepreneurial processes (Bosma and Schutjens 2011;
Thornton et al. 2011; Welter 2011).
This section proposes a theoretical framework to assist in conceptualizing
and interpreting the complex relationships between the different contexts
(Section 3), and their interaction with new venture creation processes (Section
2). This in turn sets the theoretical basis for the empirical work in this
dissertation. Entrepreneurship scholars have suggested that such a theoretical
50
framework should be able to capture both the top-down influence of context
on entrepreneurial behavior and the bottom-up effects produced by potential
entrepreneurs on context. For instance, Welter (2011: 176) has recently argued
that ‘Multi-layered embeddedness concepts that cut across levels of analysis
can assist in theorizing top-down effects, while bottom-up effects can be
theorized through considering individual adaptability, change, and co-
evolutionary processes.’ Moreover, Thornton (1999) has pointed out that
multilevel theories and models are valuable to combine individual- and
environmental-level variables to capture the individual and contextual hetero-
geneity of entrepreneurship. Davidsson and Wiklund (2001) have further
raised the question of multilevel analysis and theory building as one of the
main issues in entrepreneurship research. In this regard, an increasing body of
scholarly work has suggested that an institutional perspective can provide a
foundation for a multi-layered framework for analyzing the different contexts
interacting with entrepreneurial processes (Bruton et al. 2010; Thornton et al.
2011; Welter 2011; Welter and Smallbone 2011), while Veciana and Urbano
(2008: 373) have suggested that the ‘process of becoming [an] entrepreneur
can be explained through the institutional theory.’ Before discussing the
developments of and different strands of institutional theory in greater detail,
the dissertation’s main conceptual arguments for applying an institutional lens
will be outlined below. The arguments are based on the recent discussion in
entrepreneurship research that addresses the advantages and challenges of
applying institutional perspectives.
4.1.1 Why adopt an institutional approach to entrepreneurship?
Generally speaking, an institutional perspective on entrepreneurship acknowl-
edges that entrepreneurial behavior and firm formation processes depend on
the individual’s relationship with the external environment, particularly the
institutional environment (Garud et al. 2007; Thornton et al. 2011; Veciana
and Urbano 2008; Welter and Smallbone 2011). Added to this, an institutional
perspective has the advantage that ‘it does not have restrictive scope
conditions with respect to the rationality of actors, historical time, and level of
analysis. […] This theoretical flexibility provides the ability to link the micro
supply-side and macro demand-side perspectives’ (Thornton 1999: 35,
referring to Scott 1995). In this context, scholars have also noted that institu-
tional perspectives can incorporate both links of macro-institutional (culture)
and micro-institutional mindsets (e.g., organizational or family mindsets)
shaping individual entrepreneurial behavior (Bruton et al. 2010; Wicks 2001).
Similarly, other scholars have argued that an institutional perspective
51
acknowledges the linkage of both social and cultural elements relating to
entrepreneurship, potentially serving as a fruitful framework to explore the
social and cultural influences on entrepreneurial decisions and the new venture
creation process (Thornton et al. 2011; Welter 2011).
Moreover, it has been suggested that an institutional perspective allows
consideration of the embeddedness of entrepreneurial processes not only in
socio-cultural contexts, but also in different spatial contexts including the
socio-spatial, and economic systems (Roxas et al. 2008; Veciana and Urbano
2008; Welter 2011). In this context, institutional theory has been viewed as
providing a useful theoretical means to address many different contexts and
factors, ranging from culture, legal structures, tradition and history of regions
and industries to economic incentives that can influence entrepreneurial
processes. Scholars have also increasingly emphasized that an institutional
perspective can complement socio-psychological approaches to entrepreneur-
ship, to theorize and explore environmental influences on entrepreneurial
cognitions and intentions (Lim et al. 2010; Liñán et al. 2011) and also the
actual venture creation decision (Lim et al. 2010).
Further, modified institutional theories have been suggested to offer an
overarching approach to link the bottom-up and top-down processes in the
emergence of entrepreneurship, by combining multi-layered embeddedness
concepts with theoretical lenses of the individual change agent and co-evolu-
tionary processes (Welter 2011; Welter and Smallbone 2011). Following these
conceptual arguments by entrepreneurship scholars, this dissertation will now
turn to providing a (critical) historical review of the evolution and thoughts of
the old and new institutional economics (Hodgson 2004, 2006, 2007a,b,c,
2009; Rutherford 1995, 2000, 2001), while also exploring the developments of
old and new sociological institutionalism, and their role in institutional
economic research (Nee 2003; Rowan 2010; Scott 2004, 2010).
4.2 Early traditions in institutional economics
The nature and economic role of institutions has long been of interest. Both
the ‘German’ historical school (1840–1930) and the ‘old’ American institu-
tional economics (dominant in the interwar period) held varied theoretical,
philosophical and political viewpoints, but they had already a common interest
in adjusting economic theory to institutional, cultural and historical circum-
stances. While some members of the historical school developed a strong
belief that data collection and analysis is the basis for theory development,
others such as Schmoller (1900) and Sombart (1930) became firm advocates
of the development of a systematic theory, especially after the Austrian
52
school’s or in other words Carl Menger’s attack on the historical school in the
‘Methodenstreit’ in the 1880s. Their theoretical work inspired many other
scholars, such as Max Weber and J ospeh Schumpeter; however, the tradition
of German institutionalists disappeared with the beginning of the Second
World War (Chavance 2008; Rutherford 2000, 2001; Hodgson 2004, 2007b).
The American institutional scholars, inspired by their founder, Thorstein
Veblen (1899, 1919), recall his emphasis on both the central analytical role of
institutions and institutional change as well as the rejection of hedonist
psychology (Rutherford 2001). Accordingly, Veblen’s view has been ‘highly
critical of the underlying economic assumptions regarding individual behavior
and the “homo economicus”’, suggesting that ‘much behavior was governed
by habit and convention’ (Veciana and Urbano 2008: 370). Together with
Veblen, who was instrumental in developing the intellectual foundations,
Mitchell (1927, 1937) and Commons (1924, 1934) have been strongly
involved in the early developments of institutional economics (Rutherford
2001, Hodgson 2007b). In the concepts they developed, markets themselves
have been defined as institutions, and as partly constituted by the state’s
action. Another popular theme in their work referred to the notion of endoge-
nous preferences, which approached individual preferences as not given, but
as being shaped by institutional and cultural conditions. In addition, their
scientific work was strongly empirically driven, with the aim of supporting the
state in dealing with critical economic and societal issues, such as poverty and
business recessions. (Rutherford 2000, 2001; Hodgson 2004, 2009)
The notion of endogenous preferences has been frequently criticized as a
reduction to cultural and structural determinism. However, while some
traditional institutionalists have strongly supported this perspective, these
solely ‘top-down’ logics were not adopted by all institutional scholars
(Hodgson 2004, 2009). Referring to the pioneering theoretical work of Veblen
(1919) and Common (1934), Hodgson (2009: 5) noted that ‘there is both
upward and downward causation; individuals create and change institutions,
just as institutions mold and constrain individuals’, suggesting that ‘[t]he old
institutionalism is not necessarily confined to the cultural and institutional
determinism with which it is sometimes associated.’ Further, the pragmatist
philosophy of Charles Sanders Peirce (1923), among others, as well as the
instinct-habit psychology inspired by William J ames (1890) proved
fundamental to the work of Veblen and Common, while Veblen even called
for an ‘evolutionary science’, following Darwinian principles
4
. Thus, the
4
‘In ‘generalized Darwinism’ the key concepts of variation, selection and continuity are assumed
to apply to all domains including the social, but their meaning and underlying mechanisms may vary
between domains (Hodgson 2002, in Rafiqui 2009: 330).
53
emergence of institutions was understood as an evolutionary process, within
which routines and institutions were elements of selection, while their
evolution was not perceived in reductionist biological terms. (Hodgson 2004,
2007b, 2009)
Nevertheless, the application of Darwinian and evolutionary ideas became
very unpopular in social sciences, and the pragmatist philosophy and the
instinct-habit psychology were replaced by forms of positivism and behavior-
ism (Hodgson 2009). Hodgson (2004, 2009) has further illustrated that the
removal of these three intellectual elements of Veblen’s economics led to a
general theoretical crisis within American institutionalism, where leading
theorists were unable to respond to important questions regarding the theoreti-
cal identity of institutionalism, for instance at the roundtable discussions
published in the American Economic Review (1931/1932). J ohn Commons’
(1934) effort to offer a systematic theoretical framework for institutional
economics was also undermined, while during and after the Second World
War neoclassical paradigms of maximization (under constraint) and formal
modeling became increasingly popular and established in social sciences. As a
consequence institutionalism had become somewhat sidelined with the
increasing popularity of ‘“the neoclassical synthesis” of Walrasian general
equilibrium analysis with a pseudo-Keynesian macroeconomics (Samuelson
1947, 1948). […] However, despite its decline of influence after 1945, the old
institutional economics survived[, …] mainly promoted by leading postwar
figures such as Clarence Ayres, J ohn Kenneth Galbraith, Simon Kuznets,
Gunnar Myrdal, and Karl Polanyi’ (Hodgson 2009: 6). (Hodgson 2004, 2007b,
2009)
4.3 Evolution of new institutional economics
Williamson (1975) introduced the notion of new institutional economics in
1975, with the clear intention of distancing it from the old institutionalism.
Even though the new institutional approach draws on much earlier ideas (see
e.g., Menger 1871; Common 1924, 1934), Williamson sought to avoid links to
any of the theoretical work stemming from the American institutionalism in
his development of a new institutional economic approach. Drawing upon
Williamson’s pioneering work, the so-called new institutional economics have
rapidly became a prominent theoretical approach used to explore existing
legal, social or political institutions by referring to a view of given, individual
preferences and action. Within this body of literature, ‘institutions and institu-
tional change have usually been analyzed as ways of reducing transactions
costs, reducing uncertainty, internalizing externalities, and producing collec-
54
tive benefits from coordinated or cooperative behaviour’ (Veciana and Urbano
2008: 372). Thus, ‘the attempted explanatory movement is from individuals to
institutions, ostensibly taking individuals as primary and given, in an initial
institution-free “state of nature”’ (Hodgson 2007b: 326). This emphasis on
individuals as the main explanatory element has been originally underlined,
for instance, in the early theoretical work of North (1981) on the emergence of
capitalism and Coases’s (1937) and Williamson’s (1975, 1985) transaction
cost analysis of the firm and the game theoretical investigations of institutions
by Schotter (1981) (Rutherford 2000, 2001; Hodgson 2004, 2007b).
However, this emerging research program also rapidly came to be criticized
by many scholars (see e.g., Field 1979, 1984; Hodgson 1988; Mantzavinos
2001; Sened 1997), particularly for largely neglecting the evolutionary nature
of institutions, presuming given individuals behave in the context of governing
rules and norms. Hodgson (2007a) has reviewed some specific examples of
criticism of the developmental new institutional approach summarizing that,
for instance, game theory needs to presume certain rules from the start; thus it
is unable to explain the origin of elemental rules themselves. He has also
critically addressed North’s (1991) assumption of the spontaneous emergence
of private property rights through individual interactions, by emphasizing the
underestimated problems, for instance, those of radical uncertainty and the
possibility of emerging property rights in a complex society without any role
for the government. Moreover, referring to Williamson’s (1975: 20) proposi-
tion ‘in the beginning there were markets’, within which individuals then go
ahead and start economic activities if it involves lower transact costs, Hodgson
(2007b) has critically reminded readers that the market itself is an institution,
consisting of complex and changing rules, norms and social relations. Simi-
larly, from a sociological point of view, Granovetter (1985: 489) has already
argued that Williamson’s ‘state of nature’ lens on markets neglects historical
processes linked to social relations and networks, and so fails to capture ‘the
extent to which concrete personal relations and the obligations inherent in
them discourage malfeasance, quite apart from institutional arrangements.’
4.4 (Synergetic) Developments of old and new institutionalism
MacKinnon et al. (2009) have recently stated that the new institutional
economics may be seen as a reductionist approach, particularly in its early
form, as it reduces individuals and social organizations to a rational calculus
of transaction costs. Hodgson (2002) in turn sees strong roots in the methodo-
55
logical individualism
5
and rational-choice approach. On the contrary, the old
institutional economic approach has frequently been characterized by and
criticized for its (over)emphasis on ‘reconciling the rational with the socially
conditioned aspects of human behaviour’ (Veciana and Urbano 2008: 371),
and particularly for highlighting the role of endogenous individual preferences
(Hodgson 2007b, 2009). Thus, simply put, while the old institutionalism–in its
original form–abandons thehomo economicus by viewing economic behavior
as merely shaped by the social world, the origins of new institutional
economics is rooted in the attempt to extend and modify rational-choice
models, but not in abandoning them (Rutherford 1995).
However, while considering these fundamental differences between old and
new institutional economics, scholars have pointed out that both research
programs share several important concerns. For instance, the emergence of
both streams has been triggered by the limitations of conventional neoclassical
economics, which has neglected context and institutions in its analysis
(Rutherford 1995). Similarly, Nee (2003) has underlined that both the old and
new institutional economic approach argue that the mathematical formalism of
the neoclassical approach has added little to the knowledge of real world
economic behavior. Further, Rutherford (1995, 2001) has suggested that a
central aspect of both the old and new institutionalism is that institutional
contexts influence economic activity, while also acknowledging that institu-
tions change over time and react to certain economic influences. Apart from
these similarities in their original foundations, more recent debates and devel-
opments in institutional economic research have also been dominated by the
question of improving institutional knowledge by bridging (developed) ideas
of old and new institutional economic strands and scholars (Rutherford 1995).
In this context, Hodgson (2009) has emphasized that in general the chang-
ing view of cognition in social sciences in the past two decades has also
gradually affected institutional economic research. He has reminded us, for
instance, that recent research in psychology and elsewhere has increasingly
shifted away from the so-called deliberative thinking paradigm, as referred to
by Maes (1991, as cited in Hodgson 2009). Accordingly, scholars now recog-
nize that individual cognition ‘depends on its social and material environment
and the cues provided by structured interactions with individuals and artefacts.
Human cognitive capacities are thus not reducible to individuals alone: they
also depend upon social interactions and structures’ (Hodgson 2009: 13).
These emerging research programs developed concepts such as ‘situated
5
Generally speaking, ‘methodological individualists propose that social structures, institutions and
other collective phenomena should be explained in terms of the individuals involved’ (Hodgson
2007c: 97). For a critical overview of methodological individualism (vs. collectivism) in economic
research see e.g., Hodgson 2007c.
56
cognition’ and ‘communities of practice’, emphasizing the standpoint that
individual cognition and behavior cannot be separated from their context.
(Hodgson 2009; Cohen and Bacdayan 1994)
Such developments in cognition research have undermined the neoclassical
idea of the given, fully rational individual, and have supported the considera-
tion of context-dependent, situated rationality and agent-structure interdepend-
ence in the new institutional economic research (Hodgson 2004, 2009). North
(1990) has developed his original efficiency conceptions of institutional
change by putting more emphasis on the role of ideological structures, norm-
ruled action, and mental models, and as a result, the views on institutional
economics held by North (‘institutional economics of history’) and
Williamson (transaction costs economics) have also begun to diverge
6
(Richter
2005). Accordingly, North (1990, 1993, 1994) has criticized the rational-
choice model by raising the importance of context in cognition processes and
particularly acknowledging that ‘economics has largely ‘ignored the informal
constraints of conventions and norms of behavior’ (North 1993: 12). In
particular, he has suggested that a ‘common cultural heritage provides a means
of reducing the divergence in the mental models (…) and constitutes the
means for the intergenerational transfer of unifying perceptions. (…) Belief
structures get transformed into societal and economic structures by institu-
tions–both formal rules and informal norms of behavior. The relationship
between mental models and institutions is an intimate one. Mental models are
the internal representations that individual cognitive systems create to interpret
the environment; institutions are the external (…) mechanisms individuals
create to structure and order the environment’ (North 1994: 363, see also in
Hodgson 2009: 14-15). This statement reflects the increasing recognition
amongst scholars that social and institutional influences in individual cogni-
tions and beliefs have brought North and the new institutional economics
closer to the core ideas of the old institutionalists (Groenewegen et al. 1995;
Rutherford 1995; Syll 1992; Vecianca and Urbano 2008, Hodgson 2004;
2007a, b, 2009). While the original idea of individualism of the new institu-
tional economics is challenged, a rehabilitation of the notion of endogenous
preferences, as suggested by the old institutionalists, has begun. In other
words, there is an increasing overlap in the ongoing research areas between
the old and new institutional strands (Dequech 2002; Hodgson 2007a, 2009).
Against this backdrop, Hodgson (2007a, 2007b, 2009) has argued that this
movement brings institutional research back to, or at least closer to, the origins
of institutional economics, while further suggesting that this trend should be
6
See e.g., Rafiqui (2009: 333–334), for a brief summary of several (emerging) differences
between North’s and Williamson’s view.
57
revitalized by emphasizing aspects of cognition and meanings. Drawing upon
his work and reviews (1988; 2007a, b, c, 2009) Hodgson asserts, ‘any form of
rationality in a minimally complex environment relies on cognitive framing,
selection and interpretation to make sense of its information inputs’ (Hodgson
2007a: 331, referring to the work of Hodgson 1988 and North 1994), while the
interpretation rules and means have to be learned in a social context (Polanyi
1967, in Hodgson 2007a). Thus, individual cognition and human reasoning
depend on the social and institutional structure and mechanisms, being placed
in and operating via certain cues, impulses and constraints (Hodgson 2007a,
2009). ‘Among them are institutions that frame our cognitions [and] enable
some behavioral options’ (Hodgson 2007a: 331; 2009). It should also be borne
in mind that notions of endogenous and context-related preferences link to a
broader evolutionary thinking as individual preferences can evolve and change
through their dependency and interaction with broader (reinforced) belief
structures and institutions (Hodgson and Knudsen 2004). As mentioned above,
this evolutionary thinking harks back to the original work of Veblen (1919),
which explored how contexts and constraints form habits, and how these
habits, in turn, serve as a basis for changing beliefs and preferences.
In summary, we can see that the thinking of the leading scholars of the old
and new institutional economics has converged again over the past two
decades
7
, while some scholars even argue that ideas bridging both strands are
needed to develop our institutional understanding of human cognition and
action (Hodgson 2004, 2007a, b, 2009; Rafiqui 2009). In a similar vein, recent
debates stemming from economic sociology (Nee 2003; Swedberg 2003) have
underlined these new developments toward a more contextual interpretation of
economic behavior within new institutional economics. While considering
developments within economic sociological streams, the following sub-section
gives a brief overview of the role of core ideas of sociological institutionalism
(Durkheim 1901a,b; Weber 1904; Parsons and Smelser 1956; Parsons 1960) in
institutional economics, and turns to explore the emergence and thoughts of
the new sociological institutionalism, which has become widely used in
business and organization research (see e.g., Meyer and Rowan 1977;
DiMaggio and Powell 1983; Scott 1995).
7
See e.g., Hodgson (2006, Appendix: ‘Extracts from Correspondence between Douglass C. North
and Geoffrey M. Hodgson) for an exemplary, and also amusing, intellectual discussion between recent
‘old and new’ institutional scholars.
58
4.4.1 Sociological institutionalism and economic sociology
Nee (2003) has illustrated that the new developments presented within institu-
tional economic streams can also be described as a sociological turn in the
new institutional economics. Already, at the end of the nineteenth century,
Durkheim (1901a, 1901b) had formed the Année sociologique, which has
represented sociology as a new discipline devoted on the comparative study of
institutions, while Weber (1904, 1905) similarly introduced the interpretative
lens of institutions through his comparative analysis of culture, economy and
politics. Inspired by the classical work of Durkheim and Weber, as well as of
Pareto and Tönnies, the American sociologist Parsons (1960) and his co-
author Smelser (1956) sought to reinterpret these classical (European) ideas of
institutions into a new structural-functionalist frame for sociology, emphasiz-
ing the idea of choice and strategic decision within institutional constraints.
Similarly, Merton (1948) has developed a functionalist lens on institutions,
where institutional structures are perceived as determining interests, opportu-
nities and strategic behavior. For instance, inspired by Durkheim’s (1901a)
work on society, anomie, and suicide, Merton explored different types of
behaviors and reactions (e.g., conforming vs. deviating behavior) in the
context of established norms and rules in society.
This emerging body of European and, later, American sociological institu-
tionalists has also been influential in the developments of the new institutional
economics. For instance, Nee’s (2003) review emphasized that the institu-
tional conceptions in North’s (1981) work Structure and Change in Economic
History were strongly inspired by the classic thoughts of sociological institu-
tionalism. Moreover, in the early 1990s new institutional economists began to
engage in sociological debates (North 1991; Williamson 2000), such as those
initiated by Granovetter (1985) who criticized the under-socialized view of
economic behavior presented in Williamson’s institutional economics. In this
context, Williamson (1994: 85) came to acknowledge informal influences and
trust relations in transaction cost analysis, also arguing that ‘Transaction cost
economics and embeddedness reasoning are evidently complementary in many
respects.’ Recent developments by game theory economists, such as Greif and
his co-authors (Greif 2006; Greif and Laitin 2004) have also begun to add
sociological variables to their models of economic behavior. Thus, generally
speaking, leading scholars of the new institutional economic stream have been
increasingly addressing sociological aspects of economic behavior (North
1991; 2005; Greif and Laitin 2004; Williamson 2000). This is also evident in
the discussed revitalization of Veblen’s old institutional economics, which has
somewhat taken an economic sociological standpoint by grasping the impact
of social and cultural change on economic aspects. Concluding with the words
59
of Nee (2003), new institutional economists ‘interested in studying social
institutions have found that the more they come to understand the workings of
institutions as endogenous to social processes in society, the more their work
must address questions that lead them to turn to sociology for answers. New
institutional economists apparently agree that advances in understanding
institutions requires integrating sociological variables–shared beliefs, norms,
and social relationships–to understand motivation to follow rules’ (Nee 2003:
21).
During the same period, a new form of sociological institutionalism–often
called organizational institutionalism–has emerged, mainly at the instigation
of the leading American organizational institutionalists, such as J ohn Meyer,
Richard Scott, Walter Powell and Paul DiMaggio (for an overview, see Rowan
2010). Drawing upon the pioneering work by Meyer and Rowan (1977) and
Zucker (1977), organizational institutionalists have increasingly begun to
address and develop the understanding of the diffusion of rules, models and
scripts. Moreover, underlining the relatedness of old and new sociological
institutionalism, Zucker (1977: 741) has concluded the new approaches ‘do
not suggest rejection of the traditional approaches [referring to the work of
Merton, Parson, and Berger and Luckmann, among others] but, rather, serve to
conditionalize them by restricting the set of situations to which they apply.
That is, it is not that these other approaches should be rejected but, rather, that
the class of situations to which they apply should be more precisely specified.’
Inspired by Max Weber (‘bureaucracy’) and Herbert Simon’s ideas (‘bounded
rationality’), DiMaggio and Powell (1983) have further developed the core
ideas of organizational institutionalism, tackling questions of how and why
organizational fields emerge and change, while also constraining individual
behavior under conditions of uncertainty. Here, Nee (2003) has highlighted
that by incorporating the idea of ‘bounded rationality’, DiMaggio and Powell
(1983) have provided a basis to link ideas of new institutional economics, but
also to institutional economic sociology (mainly represented by the leading
scholars Neil Fligstein, Victor Nee and Richard Swedberg), which in general
seeks to explore the relationship between institutions and social networks, and
their influence on economic behavior.
Recently, since the publication of ‘Institutionalism in Organizational
Analysis’, edited by Powell and DiMaggio (1991), a large body of institutional
research has emerged that emphasizes the interactions between institutional
environments and organizations. The research stream, inspired by the early
work of sociologists, such as Selznick (1949) and Parsons (1960), explored
regulative and normative contexts in particular, within which organizations
need to gain legitimacy (see e.g., Scott (2004) for a useful overview). Briefly
summarized by Heimer (1999: 20-21) thus, ‘among the “new institutionalists”
60
in sociology, institutions are conceived primarily as solutions to problems of
legitimacy. By their argument, much of what transpires in organizations
occurs not because it increases efficiency or reduces transaction costs, but
because it confers legitimacy and smooths interactions among organizations.’
More recent organizational research has continued to recognize the cultural-
cognitive elements of institutions, directing more attention to the role of
symbolic aspects, such as cognitive schemas and scripts, which determine
organizational structure and behavior (Scott 1995; 2001; see e.g., Rowan 2010
for a general overview of the emergence of organizational institutionalism).
Against this backdrop, this dissertation argues that these core ideas and
developments of both the old and new institutional economics, and those
emerging from (economic) sociological institutionalism, are important to help
gain a contextualized understanding of the emergence of entrepreneurship.
Thus, this work will seek to combine theoretical insights from the old and new
economic (and sociological) institutionalism in conceptualizing institutions at
the social, regional and society level and their interplay with entrepreneurial
cognitions, intentions and activities. Before it does so, the following sub-
section will briefly summarize some of the classic definitions of institutions,
developed by different institutional theorists; this will serve as a further basis
on which to build the present dissertation’s institutional theoretical
understanding.
4.4.2 Emerging definitions of institutions
As indicated above, the terminstitution has come to be widely used in social
sciences, reflecting the rise in institutional economics and institutional
sociology and the application of institutional approaches in many other
disciplines. However, even though the term has a long history, ‘there is [still]
no unanimity in the definition of this concept’ (Hodgson 2006: 1). In other
words, a huge volume of conceptual definitions of institutions has emerged in
the past, representing ideas of both old and new (economic and sociological)
institutional theorists. Some of the main definitions are presented in the
following.
Unsurprisingly, one of the most prominent definitions of institutions was
developed by Veblen. Reflecting the core institutional thoughts of American
(economic) institutionalism, he defined institutions in 1909 as ‘the settled
habits of thought of the generality of men’ (Veblen 1919: 239). Representing
the original ideas of the German historical school, Schmoller (1900: 150, cited
in Chavance (2008: 5)) viewed the institution ‘a set of habits and rules of
moral, custom and law, which have a common centre or goal, which are
61
consistent with each other and which constitute a system.’ North (1991: 3), as
one of the most prominent new institutional economist, established another
popular definition; describing institutions as ‘the rules of the game in a
society,’ while distinguishing between formal (e.g., law, state policies,
economic rules) as well as informal institutions (e.g., codes of conduct,
organizational cultures and conventions).
Further, Hollingsworth (2000: 601) has defined institutions as ‘basic norms,
rules, conventions, habits and values of a society,’ while Martin (2000:79) has
similarly postulated that institutions are ‘systems of rules, procedures, and
conventions.’ Burns and Scapens (2000: 5-6) viewed an institution as ‘a way
of thought or action of some prevalence and permanence, which is embedded
in the habits of a group or the customs of a people.’ Moreover, Hodgson
(2006) formulated institutions as ‘systems of established and prevalent social
rules that structure social interactions,’ while rules are ‘socially transmitted
and customary normative injunctions or immanently dispositions,’ and
‘[c]onventions are particular instances of institutional rules’ (Hodgson 2006:
18).
Referring to the sociological streams of institutionalism, Durkheim (1901b:
45) has termed institutions ‘all the beliefs and modes of behavior instituted by
the collectivity.’ Hughes (1936: 180) has postulated that ‘the only idea com-
mon to all usages of the term ‘institution’ is that of some sort of establishment
of relative permanence of a distinctly social sort.’ Parson and Smelser (1956,
cited in Nee 2003: 22) have perceived institutions as ‘organized systems of
cultural beliefs, norms and values common to most individuals in a society,
systems giving rise to socially structured interests which organize incentives
for [and constrain the strategic choices of] individuals.’ Similarly, Merton
(1948, cited in Nee 2003: 22) has viewed institutions as ‘structures of oppor-
tunity, shaping the interests and strategic action of individuals.’ Drawing upon
these classics and the work of Berger and Luckmann, among others, the
organizational institutionalists Zucker (1977) and Meyer and Rowan (1977)
have suggested that ‘institutions are socially constructed templates for action,
generated and maintained through ongoing interactions. From this perspective,
actors create institutions through a history of negotiations that lead to “shared
typifications” or generalized expectations and interpretations of behaviour’
(cited in Barley and Tolbert 1997: 96).
Following this view, J epperson (1991: 149) has argued that ‘institutions are
socially constructed, routine-reproduced (ceteris paribus) program or rule
systems,’ while Barley and Tolbert (1997: 96) have defined institutions as
‘shared rules and typifications that identify categories of social actors and their
appropriate activities or relationships [that] bears a strong resemblance to
Giddens’ (1984) notion of “structure” and …Sewell’s (1992) idea of a
62
“schema”.’ Moreover, the organizational sociologist Scott (1995: 33, 2001:
48) has developed a very prominent and widely used concept, viewing institu-
tions as ‘social structures that have attained a high degree of resilience. [They]
are composed of cultural-cognitive, normative, and regulative elements that,
together with associated activities and resources, provide stability and
meaning to social life. Institutions are transmitted by various types of carriers,
including symbolic systems, relational systems, routines, and artifacts.’
Reflecting the approach of the new institutional economic sociology (see e.g.,
Fligstein 1996, 2001; Swedberg 2003), Nee (2003: 23) has defined an
institution ‘as a system of interrelated informal and formal elements–custom,
shared beliefs, conventions, norms, and rules–governing social relationships
within which actors pursue and fix the limits of legitimate interests.’
Drawing upon the overviews presented of the different institutional strands
in social science, and its various ideas and notions of institutions, the disserta-
tion moves on to suggest that these approaches share important core elements
in defining institutions, but that each of the approaches consists of a set of
specific theoretical lenses, which are useful to address institutional elements
across social, spatial and societal contexts for entrepreneurial processes, and
particularly the informal or implicit variants. In doing so, the following section
uses the pre-existing literature on institutionalism to outline a fitting under-
standing and use of institutional theories.
4.5 Building blocks of a multi-layered institutional approach
Reviewing the various institutional theoretical strands and their views of
institutions, several important terms and logics emerge that merit more
detailed exploration, in order to build up a narrow, congruent institutional
theoretical understanding for the present dissertation. Generally speaking, this
research suggests that the emergence of individual entrepreneurial behavior is
somewhat structured (Giddens 1984) in terms of formal or informal (North
1990) or overt or implicit rules (Hodgson 2006), where an institution is a
system of established and prevalent rules (Hodgson 2006; J epperson 1991;
Martin 2000) that enable and constrain individual cognitions, expectations and
behavior (North 1990; 2005; Hodgson 2006; 2007b, 2009). Thus, the
‘existence of rules implies constraints. However, such a constraint can [also]
open up possibilities: it may enable choices and actions that otherwise would
not exist’ (Hodgson 2006: 2).
Viewing institutions as constraints devised by people has often been linked
to the regulative elements of institutional rules, which are usually more
explicit, more formalized and thus more easily subject to strategic planning
63
(Scott 2010). Here, particularly North (1990) and Williamson (1994) have
stressed the need for and role of clear directives, configuration of incentives
and the importance of control for economic activity. However, while the
formal nature of institutions (e.g., property rights, laws, business regulations)
has been widely acknowledged, scholars have increasingly suggested that
formal rules and sanctions can only become explicit or superficial when they
are supported by cultural norms and beliefs (Hodgson 2006; Roland 2004;
Scott 2010). To this end, Sugden (2000) has emphasized how formal or
external sanctions and laws can promote moral legitimacy, and how their
violation can stir social disapproval. Scott (2010: 6) has further underlined that
‘[f]ormal and monetary incentives are tempered, if not superseded, by the
reactions of others to one’s choices as well as internalized commitments.’ This
is in line with Hodgson’s (2006) broad conception of institutions, emphasizing
the informal basis of institutions that structure behavior. This dissertation
suggests that formal institutions and rules are also subject to social value
(Sugden 2000) and ‘social-rule systems’ (Hodgson 2006).
Going further down this road, individuals’ cognitive representations of
rules, and their (shared) beliefs and attitudes accorded to them, play an
important role in the constitution and codification of that rule, which thus
involves normative rules of interpretation, evaluation and action (Searle 2005;
Hodgson 2006). However, while the influence of institutions depends on the
thoughts, evaluations and actions of and interactions between individuals
(Berger and Luckmann 1967; Meyer and Rowan 1977; Scott 2010), they are
not reducible to them, meaning that rules can be ‘considered, acknowledged,
or followed without much thought’ (Hodgson 2006: 3; Weber 1907); thus
potentially increasing the chance of their being taken-for-granted and their
resilience (Scott 1995; Scott 2010; Suchman 1995). J epperson (1991: 147) has
underlined that being prone to being taken-for-granted ‘is distinct from
[normative] evaluation: one may subject a pattern to positive, negative, or no
evaluation, and in each case (differently) take it for granted,’ or as Zucker
(1983: 25) puts it ‘for things to be otherwise is literally unthinkable’.
Similarly, Michael Polanyi (1967, cited in Hodgson 2006) has further argued
that the impact of rules is never fully the subject of conscious deliberation, as
there is always a tacit, unarticulated element of knowledge involved.
Nonetheless, ‘institutional rules are in principle codifiable’ (Hodgson 2006: 4)
and therefore usually subject to normative interpretations and discourse, which
becomes particularly visible when rules are challenged (Hodgson 2006).
This is in line with what is called cognitive turn (DiMaggio and Powell
1991) in (organizational) institutional theory, which draws particular attention
to thecultural-cognitive elements of institutions (see e.g., Meyer and Rowan
1977; Scott 1995; Scott 2010). According to Scott (2010), these elements are
64
socially constructed symbols, and so cultural (in Durkheim’s terms); while
they provide a vital frame for individual perceptions and decisions, and are
therefore cognitive. Linking to Swidler’s (1986) view of culture as tool-kit and
Hofstede’s (1991) notion of the soft-ware of the mind, Scott (2010: 7) has
further argued that these beliefs and assumptions can be ‘explicit and
relatively superficial,’ as well as ‘deeply entrenched assumptions […] of the
way the world is.’ These cultural-cognitive elements in turn relate or even
form the basis of effects and the constitution of normative (and regulative)
rules/pillars; while Scott (2010) reminds us that these rules are able to provide
an institutional framework by themselves.
The normative institutional rules, in this context, reflect the social and
cultural embeddedness of (economic) behavior (for instance, referring to
Granovetter 1985), where individuals are primarily viewed as social actors
who care about their informal relationships with and loyalty to others, which
in turn is likely to have a role in tempering self-interest and utilitarian
concerns in their decision-making process (Scott 2008, 2010; March and
Olsen 1989). Accordingly, individuals are embedded in normative systems
consisting of (implicit and informal) rules and logics of what is perceived as
“appropriate” or “proper” behavior or a way of thinking (Scott 2008).
Following these ideas, institutional scholars, particularly in organizational
research, have developed a conceptual idea of social legitimacy (Aldrich and
Fiol, 1994; DiMaggio and Powell 1983; Meyer and Rowan, 1977; Suchman,
1995; see Bitektine 2011 for an overview), which is widely seen as ‘a gener-
alized perception or assumption that the actions of an entity are desirable,
proper or appropriate’ (Suchman, 1995: 574). Accordingly, ‘nstitutions
guide behavior by defining what is appropriate or expected in various social
and commercial situations’ (Bruton et al. 2010). In summary, institutional
rules can be seen as ‘norms of behavior and social conventions as well as legal
rules, [where individuals] share tacit or explicit knowledge of these rules’
(Hodgson 2006: 3).
This leads to another conceptual aspect of importance to the present
research, namely that of intentionality. Referencing Hans J oas (1996),
Hodgson (2006) has argued that conscious prefiguration and self-reflexive
thinking are the foundation of the conceptual idea of intentionality, while
unintended behaviors lack such conscious processes. Moreover, Hodgson
(2009) has noted that recent research in psychology and elsewhere has
increasingly shifted away from the so-called ‘deliberative thinking paradigm’,
as referred to by Maes (1991, cited in Hodgson 2009). Accordingly, scholars
have recognized that individual cognition ‘depends on its social and material
environment and the cues provided by structured interactions with individuals
and artefacts’ (Hodgson 2009: 13). Building upon these thoughts, and as
65
introduced in Section 2, this dissertation postulates that an individual’s new
venture creation process, with its different initial phases and activities,
represents a form of long-term behavior which may involve unconscious
cognitive processes, but demands a certain degree of self-reflexive, conscious
evaluations of the surrounding environment and individual preferences and
abilities to actually prepare and start a business. In other words, the present
work argues that conscious thoughts, beliefs and desires are the immediate
basis of the formation of entrepreneurial intention (Ajzen 1991), but that these
cognitive elements are social and cultural in origin (Veciana and Urbano
2008), and can therefore be directly and indirectly affected by tacit or explicit
knowledge of the external, institutional environment. Such a view of the
embeddedness of entrepreneurial thoughts, intentions and behavior within the
external, institutional environment implies that institutional structures have
top-down effects on the individual, calling for further philosophical and
ontological clarification. While, generally speaking, institutional perspectives
always address top-down (constraining and enabling) effects to some extent,
this dissertation particularly applies Hodgson’s (2006) view and philosophical
standpoint. This is because the author views it as providing a suitable macro-
lens on the top-down influence of institutions, while allowing room for
conceptualizing interactive and bottom-up effects, addressing the role of the
individual in shaping context. Accordingly, the present research endorses the
view that:
By structuring, constraining, and enabling individual behaviors, institutions
[can] mold the capacities and behavior of [individuals] in fundamental ways: they
have a capacity to change aspirations instead of merely enabling or constraining
them. […] The existence of reconstitutive downward causation does not mean that
institutions directly, entirely, or uniformly determine individual aspirations, merely
that there can be significant downward effects. […] [Moreover,] institutions [do
not] stand separately from the group of individuals involved; institutions depend
for their existence on individuals, their interactions, and particular shared patterns
of thought. Nevertheless, any single individual is born into a pre-existing
institutional world which confronts him or her with its rules and norms. The
institutions that we face reside in the dispositions of other individuals but also
depend on the structured interactions between them, often also involving material
artefacts or instruments. […] Accordingly, institutions are simultaneously both
objective structures “out there” and subjective springs of human agency “in the
human head.” Institutions are in this respect like Klein bottles: the subjective
“inside” is simultaneously the objective “outside.” […] Actor and institutional
structure, although distinct, are thus connected in a circle of mutual interaction and
interdependence. (Hodgson 2006: 7–8)
66
Drawing upon Hodgson’s (2006) lens, this dissertation argues in line with
North (1990) that it is useful to conceptually distinguish between the institu-
tional rules and players, but also to acknowledge their interdependence that
decrees that structure relies on the agent and vice versa (Hodgson 2006).
When referring to an agent or a player, I use the term in the restricted sense of
an individual–the potential entrepreneur–and not to refer to an established
organization. It is not within the scope of this research to engage in the discus-
sion of whether organizations are players or institutions themselves (see, for
instance, Hodgson 2006, Appendix, for a discussion on this subject between
North and Hodgson) although the author acknowledges North’s (1990, 2005)
point that organizations can also be players in society. In fact, as indicated in
Sections 2 and 3, the present research explores the individual venture creation
process embedded within the external (social, spatial and cultural) environ-
ment, based on an integrative institutional perspective. Thus, besides acknowl-
edging the interrelationship between the individual and institutions, it explores
the social, spatial and cultural context from an institutional perspective, adding
to the theoretical basis of the empirical research papers included.
Institutional scholars, from different disciplines, have criticized prior
research, the bulk of which applies institutional theory focused on higher
level, macro-structures, so excluding the interrelated institutional mechanisms
and forces on smaller social and spatial scales (Powell and Colyvas 2008;
Gertler 2010; Nee 2003; Fligstein 1997; Scott 2010; Owen-Smith and Powell
2008; Welter and Smallbone 2011). In this context, particularly organizational
institutionalists (Powell and Colyvas 2008; Scott 1995, 2010), institutional
economic sociologists (Fligstein 1997, 2001; Nee 2003), and economic
geographers (Gertler 2010; Martin 2000; Rafiqui 2009) provide useful
theoretical insights into the multifaceted nature of lower-level institutions, and
also into the role of individuals in shaping their contexts. Similarly, entrepre-
neurship researchers have increasingly emphasized the need to apply institu-
tional theory at the social (Thornton et al. 2011) and local and regional levels
(Welter 2011). This is also in line with Hodgson (2009: 19) who has stated
that the strength of institutional economics, as compared to neoclassical
economics is or should be its (universal) emphasis on ‘scarcity in a relative
and local sense, concerning immediate availability of capacities and resources
for an agent.’
From an economic geography perspective, Rafiqui (2009: 336) has recently
stated that ‘the intent of North’s conceptualization clearly is to capture a
general structure, usually at the national level, that interacts with the activities
of [agents or] organizations.’ That intent limits institutional applications on
different spatial scales. Here, Rafiqui (2009: 341) has particularly underlined
67
‘that institutional solutions are non-homogenous across space; varying
physical environments and historical experiences means that beliefs, institu-
tions and organizations differ between places.’ Similarly, Gertler (2010: 5) has
raised the problematic issues of what he calls ‘methodological nationalism’,
which follows the assumption that national-level institutions and rules super-
sede everything else. Following this argumentation, he has emphasized the
need of approaches that are ‘more sensitive to the documentation and under-
standing of institutional variegation at a number of different spatial scales.’
Further, Hayter (2004) has highlighted that regional and local contexts consist
of unique institutional functions by organizing ‘global-local’ dynamics within
their boundaries, thus further arguing that local institutions reflect institutions
at a higher level for theory. In addition, Regini (1995) emphasized the
emerging ‘local institutionalism’ as a core element to address micro-socio-
institutional regulations, shifting away from solely focusing on macroeco-
nomic regulative elements. Underling the spatiality of institutions, Ostrom
(2005) has described attributes of a local community (or ‘arena’) as the
prevalent norms of behavior, the degree of homogenous preferences and
common understandings about the local structure. He has further theorized
how certain rules-in-use reflect the explicit and implicit rules the “do’s and
don’ts” (Ostrom 2005: 832) in a local community, that constrain choices and
behavior of members of the community. Added to this, Strauss (2008)
applying a human geography lens, has emphasized that individual cognition
and preferences are shaped by the conditions of the real world, such as institu-
tional, economic, demographic and physical features that constitute the
regional environment viewed ‘objectively’.
Moreover, organizational institutionalists have increasingly cited the
importance of multilevel institutional research (Scott 2010) particularly by
adding and exploring micro-foundations of (macro-) institutional theory
(DiMaggio and Powell 1991; Powell and Colyvas 2008). For instance, in 1995
the sociologist Scott (1995: 33) theorized that ‘nstitutions operate at
different levels of jurisdiction, from the world system to localized interper-
sonal relationships’, while recently highlighting the ‘increased recognition of
and research attention given to the ways in which higher-level systems both
affect and are inuenced by micro forces’ (Scott 2010: 7). The recent work of
Powell and Colyvas (2008) has further suggested how ‘institutional research
can benefit from complementary attention to the micro-order and the macro-
level’ (295), arguing that ‘macro-framings or values can be ‘pulled down’ to
the everyday level of practice’ (278). Owen-Smith and Powell (2008) have
provided further useful insights into how institutional forms can emerge from
social networks, and how institutional rules shape the nature and effects of
social networks; even calling for a ‘network-institutional’ approach.
68
Accordingly, they have further underlined the importance of addressing
multiple levels of analysis, to uncover what they call co-evolutionary duality
between social relationships (foundations of networks) and social categories
(foundations of institutions).
From an economic sociology perspective, Nee (2003: 33) has also argued
that interest-driven action and social norms within networks ‘cannot be
understood apart from the institutional framework within which incentives–
including legitimacy–are structured.’ Moreover, Fligstein (1997; 2001) has
highlighted how the exploration of the emergence of ‘local social orders’
contributes to institutional theory. Rooting his work in symbolic interaction-
ism (Becker 1963; Mead 1934; Goffman 1959), he has particularly empha-
sized the important role of individuals –or, what he calls, institutional
entrepreneurs (Fligstein 1997) in constructing and reproducing local institu-
tional orders, while arguing that an individual’s ability to shape social orders
depends on their social skills to motivate others to collaborate. In addition,
other scholars such as Dennis and Martin (2005), have discussed how interac-
tionists explore the development, reinforcement, renegotiation and rejection of
particular norms and labels developed and projected by particular social
groups. For instance, Ford et al. (2008) have argued that social networks can
have the ability to label individuals as ‘deviant’ even when they have not
subverted the shared norms of a social group. Moreover, in line with Fligstein
(1997, 2001), Rose’s (1990) idea of the enterprise of the self suggests that
individuals, in turn, can also reshape their given labels, bringing the norms of
the reference group in line with their own behavior, which illustrates how
norms and labels are not necessarily fixed.
This dissertation suggests that these sociological considerations of the
various interactive mechanisms involved in the relationship between (external
and subjective) institutional contexts and the individual, profoundly add to a
multilevel institutional understanding of entrepreneurship, complementing the
rather macro-institutional economic perspectives (see e.g. Hodgson 2006,
2009). Accordingly, the dissertation’s theoretical lens highlights the usefulness
of multiple streams of institutional theory, to improve our understanding of
contextual influences on new venture creation and entrepreneurial behavior. In
line with Bruton et al. (2010), this allows it to address the role of institutional
settings on entrepreneurship, legitimacy issues and entrepreneurial behavior,
and institutional entrepreneurship, while the presented framework also enables
it to address institutional and external influences on entrepreneurial cognitive
processes. Similarly, as discussed by Welter (2011), using such a multi-
layered theoretical lens is intended to capture top-down and bottom-up effects,
reflecting the institutional embeddedness of the (potential) entrepreneurs on
the one hand, and the important role of (potential) entrepreneurs as
69
institutional change agents on the other. In addition, the dissertation’s
framework can serve as a useful way to capture the relationships between and
multiple effects of social, spatial and the broader institutional contexts, partic-
ularly by theorizing and investigating the informal institutional nature of these
contexts for entrepreneurship. Thus, an extended multi-layered institutional
approach can be seen as a holistic framework, addressing not only institutional
factors that interact with entrepreneurship, but also other contextual factors,
such as economic, educational systems (Veciana and Urbano 2008), social
networks or geographical contexts at different spatial scales.
71
5 SUMMARY OF THE RESEARCH PAPERS
This section provides brief summaries of the four empirical research papers
that form the present dissertation’s research segment. Following a description
of each paper’s empirical research, their aims, theoretical basis and main
insight are briefly outlined. The main contributions of the papers and the
dissertation as a whole are presented in the section ‘Discussions and
Conclusions’ that follows.
5.1 Research methodologies
As summarized in table 2, the empirical work of the dissertation is based on
different sets of data (across different countries) and uses quantitative and
qualitative research methods to analyze the main research questions.
72
Table 2 Research methodologies in the four research papers
Paper 1 Paper 2 Paper 3 Paper 4
Research metho-
dology
Quantitative Quantitative Quantitative Qualitative
Research design Survey Survey Survey Case study
Methods
of data
collection
Secondary survey
data and official
statistics
Self-administered
questionnaire and
official statistics
Self-administered
questionnaire and
official statistics
In-depth, semi-
structured
interviews
Source(s) of data
11,002 individu-
als aged 15 and
over from 27
countries
(‘Eurobarometer
Survey 2009’)
834 Finnish
working-age
individuals
(combined with
regional data
from ‘Statistics
Finland’)
496 Finnish
individual aged
45–64 (combined
with regional data
from ‘Statistics
Finland’)
22 British
entrepreneurs
who started a
business aged
50 and above
Research context
24 European
countries, China,
J apan and the
United States
Finland (Central
Ostrobothnia,
Ostrobothnia
and South
Ostrobothnia)
Finland (Central
Ostrobothnia,
Ostrobothnia and
South
Ostrobothnia)
UK, London
Method(s) of data
analysis
Multilevel
binominal logistic
regression
analysis
Multilevel
regression
analysis
Structural equa-
tion modeling
(Partial least
squares (PLS)
Thematically
open-coded
content analysis
Research papers 1–3 apply quantitative methodology, whereas paper 4
applies qualitative methodology. By combining quantitative and qualitative
studies, the present research particularly responds to Welter’s (2011) recent
work on ‘Contextualizing Entrepreneurship’, which suggests ‘that the gap in
multi-context analysis partly results from the neglect of […] combined
methods, which allow capturing the richness and diversity of the context’.
While the bundle of four research papers (with their individual context focus)
reflects the multilevel lens applied in the dissertation, paper 1 and paper 2 in
particular aim to address the need for more quantitative multilevel empirical
research and techniques (see e.g., Hox 2010) in order to account for the
different levels involved in the analysis of the relationships between context
and individual entrepreneurial behavior (Autio and Acs 2010). Accordingly, a
multilevel empirical approach is taken in these papers to be technically able to
analyze ‘top-down processes’, mainly including the observed downward influ-
ences of regional- and national-level variables on individual-level variables
(Kozlowski and Klein 2000). Addressing the research question in this way, the
research papers reduce the risk of generating interpretations and conclusions
73
harmed by ecological fallacies (Bosma et al. 2009), which can result from the
disaggregation of the included regional-level data down to the individual level.
The analysis in paper 3, which is based on the PLS approach to structural
equation modeling, is limited in this context as multilevel modeling is not
available for PLS. However, using the PLS method enabled the analysis to
incorporate (continuous) latent variables and to improve the interpretations the
complex (indirect) relations (J acoby 1978; Churchill 1979) between the
perceived social norm constructs and the TPB variables. Complementing this
quantitative research, a qualitative research approach is applied in paper 4. In
particular, the research paper follows an interpretative qualitative approach
(Gephart 2004), and undertakes an inductive study through a series of different
case studies (Yin 2009), to provide an in-depth examination into the behavior
of (potential) entrepreneurs, particularly in facing and interacting with social
barriers. As such, the study gains exploratory insight into the ‘meanings and
concepts’ (Gephart 2004: 457) used in the different social settings in which
entrepreneurs create and operate their businesses (J ack 2010; Welter 2011).
5.2 Paper 1
The first paper focuses on the role of social normative contexts within society
on an individual’s new venture creation process. In particular, the study seeks
to conceptualize and analyze the perceived moral legitimacy accorded to
entrepreneurs in society and its influence on an individual’s progress across
different start-up stages. Embedded in institutional perspectives (Hodgson
2009; Scott 1995) and a social legitimacy approach (Suchman 1995), moral
legitimacy is defined as a moral evaluation of the benefits of the entrepre-
neurs’ actions for society as a whole. A multilevel analysis based on data
across 27 countries shows that the perceived moral legitimacy of entrepreneur-
ship positively influences an individual’s likelihood to engage in the firm
formation process, even when controlling for the level of entrepreneurial
activity and economic performance at the country level. In particular, the
results demonstrate that moral legitimacy has a significant impact only in the
early phases of the firm formation process: it increases the probability of an
individual progressing from not even thinking about starting a business to
considering it and thereby to nascent activities. Moral legitimacy, however,
does not influence an individual’s decision on whether to move from prepar-
ing to actually starting and running a business. Thus, the study suggests that
the emergence of entrepreneurial aspirations and nascent entrepreneurial
activity are not independent of the perceived moral norms in society.
74
5.3 Paper 2
The second paper aims to provide new insight into the regional dimension of
the very early phase of new venture creation. In particular, the study seeks to
examine how the ‘objective’ regional environment impacts on entrepreneurial
cognitions and the formation of entrepreneurial intentions. By complementing
the TPB (Ajzen 1991) with a regional perspective on entrepreneurship (Bosma
and Schutjens 2011; Sternberg 2009; Stam 2010), this study shows that
different regional factors moderate the influence of the three TPB cognitions
of attitude, subjective norm and perceived behavioral control on the entrepre-
neurial intent. More specifically, a multilevel analysis based on survey data
and regional statistics across 53 Finnish municipalities finds that higher
household income (growth) and wealth levels in a region strengthen the
positive impact of entrepreneurial attitude on intention. A higher population
density and education level is found to weaken the positive influence of the
perceived entrepreneurial ability and intention to start a business. A higher
public and manufacturing sector employment level is found to weaken the
positive impact of both the perceived entrepreneurial capability and social
support from family and friends. Taken together, these findings imply that the
regional environment can both support and hinder the formation of entrepre-
neurial intentions by shaping the relationships between intentions and their
cognitive antecedents in different ways. This encourages further development
of the theoretical understanding of the formation of entrepreneurial intentions
by examining external regional conditions as moderating variables in the TPB
framework.
5.4 Paper 3
The third paper seeks to uncover the influence of social normative contexts
within a regional community on the formation of entrepreneurial intentions. In
particular, the study illustrates that if an ‘older age’ individual perceives their
local community to socially legitimatize entrepreneurial activity at their age,
such a perception strengthens their intent to go ahead and actually start a
business. Based on a sample of 496 Finish individuals aged 45–64, the study
further shows that this influence is partially mediated by the three theoretical
antecedents of intentions put forward in the TPB: attitude, subjective norm and
perceived behavioral control. This means that the perceived social acceptabil-
ity of entrepreneurship at an older age not only affects entrepreneurial inten-
tions directly, but also indirectly via how entrepreneurship-friendly the indi-
vidual’s attitudes toward work are, how the individual perceives the extent and
75
importance of support from their family and friends, and how the individual
perceives their ability to start and run a business. Accordingly, this paper
suggests that perceived age norms within a regional community shape the
formation of entrepreneurial intentions; arguing that the potential for entrepre-
neurship amongst older individuals is socially and institutionally situated.
5.5 Paper 4
The fourth paper aims to explore the normative role of social networks in new
venture creation and development. Drawing on a micro-sociological lens of
deviance, this study provides new insight into how normative evaluations from
social networks can affect individuals aged 50 and over during the process of
founding a new firm. Based on 22 in-depth interviews in London, UK, this
paper suggests that older entrepreneurs are affected by a range of positive and
negative perceptions of ‘deviance’, and their abilities to negotiate negative
perceptions vary, across and within three different networks: family, friends
and client networks. In line with an interactionist approach to deviance, the
paper demonstrates that social norms are inherently unstable, and may be
negotiated by an older entrepreneur’s actions. Consequently, the findings
contribute to a micro-sociological understanding of how older entrepreneurs
face, react to and potentially change normative perceptions within different
social environments. This further suggests that in order to add to the under-
standing of the institutional embeddedness of entrepreneurship, further
research is needed that considers the micro-foundations of institutional theory
(Powell and Colyvas 2008) and the normative role of social networks
(Fligstein 2001; Owen-Smith and Powell 2008) in entrepreneurial behavior.
77
6 DISCUSSIONS AND CONCLUSIONS
Entrepreneurship research has increasingly highlighted the importance of
developing the understanding of contextual influences on entrepreneurship,
while particularly emphasizing the need for research that adds to the
knowledge of the role of social, spatial and institutional contexts on new
venture creation processes. In a similar vein, scholars have recently called for
the development of a multi-layered approach to entrepreneurial behavior, to
theoretically and empirically capture the multiplicity of contexts and their role
in shaping the emergence of entrepreneurship, while also addressing the role
of (potential) entrepreneurs in changing their contexts. Following on from this,
an increasing body of scholars is suggesting that an institutional perspective
might provide a useful framework with which to theorize and interpret these
complex interactions between various contexts and entrepreneurship, helping
to advance theoretical understandings of the varying effects of different
contexts, at macro- and micro-levels. Against this backdrop, this dissertation
sought to address these recent debates and emerging research gaps by
providing new theoretical and empirical insight into the research question:
What role do social, spatial and institutional contexts play in the
formation of entrepreneurial intentions and the subsequent
venture creation process, and in how potential entrepreneurs are
able to resist and shape their surrounding contexts?
In so doing, the dissertation has introduced a multi-layered institutional
lens, using insights from different streams of institutional theory, to develop a
holistic theoretical base for the empirical research papers that in turn apply
qualitative and quantitative methodologies to analyze specific elements of the
social, spatial and institutional contexts. The present discussion and conclu-
sion section attempts to draw on the main empirical and theoretical insights
and implications of the four individual papers. It also discusses their relation
to each other, and how they add to the dissertation’s main aims (see Section
1.2), identified research gaps (see Section 3.4) and the theoretical framework
(see Section 4.5). More detailed discussions and conclusions of the individual
papers’ insights and their specific contributions and limitations can be found
in the papers themselves (see Part II).
78
6.1 Key empirical findings
This dissertation finds empirical support for the suggestion that a variety of
social, regional and societal contexts influence the process of new venture
creation. It demonstrates that an individual’s initial consideration of becoming
an entrepreneur and the actual decision to start preparing their business (the
entrepreneurial ladder) significantly depends on their perceived moral legiti-
macy of entrepreneurial activity in society (Paper 1). Paper 1 particularly
shows that the more positive the perception held by an individual that entre-
preneurship is legitimized morally in their society, the higher the probability
that they will view entrepreneurship as a potential career path. A positive per-
ception of the societal legitimacy of entrepreneurship is also likely to progress
their movement from the ‘consideration’ and ‘intention’ phases towards
nascent entrepreneurial activity. Once an individual has made the decision to
start preparing their own business, the perceived moral legitimacy no longer
plays a role in shaping the venture creation process. This further emphasizes
that the impact of socio-cultural factors can vary during the different stages of
the firm formation process, which supports the use of the ‘entrepreneurial
ladder’ as an analytical tool to capture different facets of the entrepreneurial
process even in a cross-sectional setting (Van der Zwan et. al. 2010).
Supporting this finding, research paper 3 shows how perceived social norms
within a regional context influence the very early phase of the venture creation
process by shaping entrepreneurial cognitions and intentions. It demonstrates
that an individual’s perceived social acceptance of entrepreneurship within a
regional context directly shapes the intention to start their own business, but
also does so indirectly through influencing their entrepreneurial attitudes,
perceived social acceptance within the immediate social environment, and
perceived entrepreneurial ability (TPB). Accordingly, the dissertation under-
lines that the more positively an individual perceives entrepreneurship as
socially accepted in the broader regional environment the more likely they are
to have positive entrepreneurial attitudes and self-efficacy beliefs, as well as to
perceive that entrepreneurship will be accepted in their close social networks.
These positive relationships between perceived social norms and entrepre-
neurial cognitions in turn enhance the formation of entrepreneurial intentions,
while social norms also directly and positively relate to entrepreneurial
intentions.
Moreover, the current research shows that entrepreneurial cognitions and
the formation of entrepreneurial intentions are also affected by the ‘objective’
regional environment. Research paper 2 demonstrates that an individual’s
entrepreneurial attitude, perceived entrepreneurial ability and, thus, the
formation of entrepreneurial intention (TPB) are significantly and indirectly
79
influenced by ‘external’ regional conditions. In particular, it illustrates that
higher regional levels of income and wealth strengthen the positive effect of
entrepreneurial attitudes on entrepreneurial intentions. A higher regional level
of public sector and manufacturing sector employment is found to weaken the
positive impact of an individual’s perceived social acceptance of entrepreneur-
ship within the immediate social environment on intentions, while these
regional factors together with a higher population density and a higher than
average level of education weaken the influence of an individual’s perceived
ability to successfully run a business on their intent to actually start a business.
Adding to these findings, research paper 1 finds empirical support for the
suggestion that ‘objective’ economic conditions across nations influence the
early phases of the venture creation process, but also more advanced phases. It
shows that the factual positive relationship between entrepreneurial activity
and economic growth in a country increases the probability that an individual
will consider becoming an entrepreneur, decide to start preparing their
business, and commence doing business.
Further, while paper 2 and paper 3 support the large body of TPB studies
that show that an individual’s perceived social acceptance of entrepreneurship
within their immediate social environment (family, friends and work associ-
ates) impacts on their entrepreneurial intentions, research paper 4 demon-
strates that social approvals of entrepreneurship and the related level of social
support do vary within and across different social networks. Paper 4 further
shows that an older individual’s (nascent) entrepreneurial activity is
profoundly influenced by the social judgments of family, friend and client
networks as they can enhance or undermine their entrepreneurial motivations
and self-efficacy as well as their development of a customer base. Moreover,
these normative perceptions often reflect whether social networks are willing
to provide tangible and/or intangible resources and support for the entrepre-
neur to develop their (nascent and young) business. The variations of positive
and negative social perceptions within networks and the reactions of entrepre-
neurs are in turn found to strongly relate to the entrepreneur’s and social
network’s professional background. It is shown that, for instance, serial entre-
preneurs are more able to resist and modify negative perceptions than their
counterparts (novice entrepreneurs), while generally perceiving fewer negative
sanctions in the different social networks within which they are embedded. In
addition, if an entrepreneur’s new venture is in a similar sector to that they
used to work in, they are less likely to face judgments of negative deviance
within their various social networks, as the gap between the established norms
of their current work and pervious work will be narrow.
Generally, the four empirical research papers highlight that perceived
social norms prevalent in the social, local and societal contexts particularly
80
influence the early stages of the venture creation process. However, approval
perceived from close social networks remains important, or may even increase
in importance, in the nascent and early firm phases, reflecting the level of
support and resources (both tangible and intangible) such approval contributes
to new venture creation and development. Moreover, the empirical sections
demonstrate that both the ‘objective’ measures of the environment, such as the
demographic and economic structure of a region or nation, and the subjective
perceptions of the external environment have a significant effect on entrepre-
neurial cognitions and intentions (paper 2, paper 3 and paper 4) and the
subsequent venture creation process (paper 1).
6.2 Theoretical contributions
The dissertation suggests that the theoretical foundations formed relying on
different institutional lenses can help develop a multi-layered institutional
approach to context in new venture creation. By combining different theories
and ideas emerging largely from old and new institutional economics and
(economic) sociological institutionalism, this dissertation argues that is
necessary to apply insights derived from different disciplines to be able to
capture the various contextual, individual and interactive elements influencing
economic activity, from an institutional perspective. In so doing, it adds to the
recent entrepreneurship literature that proposes institutional perspectives, and
the use of insights from different disciplines, as a way forward to develop our
contextualized understanding of entrepreneurial behavior (Bruton et al. 2010;
Thornton 1999; Thornton et al. 2011; Welter 2011; for an overview see
sections 1 and 4.1).
In particular, the present conceptual work contributes to the body of
entrepreneurship research that has suggested that institutional approaches can
be useful to address relevant micro supply-side and macro demand-side
perspectives (Thornton 1999); contextual top-down and bottom-up effects
(Welter 2011; Welter and Smallbone 2011); effects of the relationships
between social and cultural environments (Thornton et al. 2011); the role of
normative contexts and legitimacy (Bruton et al. 2010); contextual influences
on entrepreneurial cognitive processes (Lim et. al 2010; Mitchell et al. 2007)
and intentions (Liñán et al. 2011); as well as the role of individuals in shaping
contexts, often referred to as institutional entrepreneurship (Bruton et al. 2010;
Garud et al. 2007; Welter 2011). These are the various issues raised recently in
entrepreneurship research on the institutional perspective; and it is to these
that the multidisciplinary theoretical framing presented here seeks to add. I
believe it can strengthen the multilayered, institutional understanding of
81
entrepreneurship; particularly by suggesting social normative elements to be
capable of bridging the different levels of contexts.
Building upon these debates, the dissertation illustrates that moral legiti-
macy of entrepreneurship, operationalized as a conceptual source of social
legitimacy (Suchman 1995), is a potential informal institution influencing the
early phases of the formation of a new venture (paper 1). By introducing and
applying a specific legitimacy type of Suchman’s concept in the context of
entrepreneurship, the dissertation contributes the important challenge of
finding ways to conceptualize and measure specific socio-cultural influences
on the emergence of entrepreneurship (Bosma and Schutjens 2011; Schendel
and Hitt 2007; Thornton et al. 2011; Welter and Smallbone 2011). Accord-
ingly, this research also concurs with entrepreneurship researchers who
emphasize that an institutional perspective can give rise to a framework of use
for conceptualizing and interpreting specific relationships between (potential)
entrepreneurs and their socio-cultural environment. Underlining the need for
such developments, entrepreneurship scholars have argued that our knowledge
of cultural influences on new venture creation and entrepreneurship is still in a
very early phase (Bosma and Schutjens 2011; Freytag and Thurik 2007).
In developing an institutional and moral legitimacy lens (in paper 1) as a
means to add to and contextualize new venture creation processes, the present
dissertation further contributes to the debate on the different approaches
applied in studies of socio-cultural influences on entrepreneurship. By
demonstrating how moral legitimacy influences organizational emergence, this
research suggests further theoretical development based on the social legiti-
macy or moral approval approach (Etzioni 1987; Suchman 1995; Zafirowski
1999), to complement the current dominant approaches, such as Hofstede’s
(2001) seminal work (Hayton et al. 2002) and the aggregated psychological
trait approach (Freytag and Thurik 2007). Moreover, a moral legitimacy
approach can provide new insights into ‘pull’ explanations of entrepreneurial
behavior, thus enriching ‘push’ explanations based on recent developments in
what is called the dissatisfaction approach (Noorderhaven et al., 2004). As
such, the social and moral legitimacy approach can add to the knowledge of
how an individual’s entrepreneurial interest and choice is the outcome of an
anticipated social appraisal of being an entrepreneur (the pull element). In
contrast, the dissatisfaction approach can enhance understandings of how
conflicting values between the population and potential entrepreneurs–partic-
ularly in non-entrepreneurial culture–can drive (or push) potential entrepre-
neurs toward actual entrepreneurship (Thurik and Dejardin 2011a,b; Freytag
and Thurik 2007).
The identified effects of moral legitimacy further add to the debates on the
role of a legitimacy approach in understanding the early and nascent phase of
82
new venture creation, as particularly addressed by the work of Tornikoski and
Newbert (2007) on organizational emergence based on a pragmatic legitimacy
approach. Building upon the dissertation’s insights and those from the above
work, it seems that while the perceived moral legitimacy of entrepreneurs in
society only influences initial entrepreneurial thoughts and the decision to take
the first steps to prepare the business, the pragmatic legitimacy (and particu-
larly the exchange with the potential, immediate business audience) plays a
key role in the transition from the nascent entrepreneurship phase to the actual
creation of a new venture. This also aligns with Suchman (1995) who argues
that moral legitimation implies larger socio-cultural rules and norms, whereas
pragmatic legitimation is based on self-regarding utility calculations by the
audience. Thus, this dissertation suggests that the influence of perceived
societal rules, such as that of moral legitimacy, diminish with an individual’s
progress in the venture creation process owing to the increasing importance of
boosting legitimacy in the business environment.
The dissertation further underlines the role of broader social norms in the
very early phase of new venture creation by adding knowledge on the social
normative embeddedness of the TPB in explaining the formation of entrepre-
neurial intentions (paper 3). While the TPB concept considers social approval
from the immediate social environment to be important to understanding the
emergence of intentions, the present work suggests that entrepreneurial cogni-
tions and approval from within the immediate social environment are in turn
affected by social norms at the broader regional and societal level. Accord-
ingly, the dissertation suggests that adding a broader social normative, or in
other words, institutional lens to the TPB, a social psychological theory,
enhances the contextualized knowledge of the formation of entrepreneurial
intentions. This supports the recent development of the TPB concept particu-
larly in the study of Liñán et al. (2011), which argues that social valuations of
entrepreneurship at a regional and societal level add to the appraisals within
the closer social environment included in the TPB.
Moving further beyond these contributions, the dissertation illustrates how
entrepreneurs at an older age seek to gain social approval and legitimacy and
emotional and professional support from their social networks, which might
aid their progress and the development of their nascent business. These
processes are in turn affected by different normative perceptions prevalent in
the various social networks, which can vary between positive and negative
judgments, resulting in greater or reduced support. While Tornikoski and
Newbert (2007) identify the importance of gaining acceptance from the
business audience during the new firm formation process, the dissertation adds
that it is also important to perceive that informal networks, such as family and
friends confer legitimacy too. Moreover, the role of normative judgments in
83
these networks and also in business environments, like (potential) client
networks, should be considered; as that could help us understand what consti-
tutes successful acquisition of tangible and intangible resources and support
mechanisms for an individual working through the nascent entrepreneurship
and early firm phase.
Accordingly, the dissertation also implies that while perceived social rules
and norms at the regional and society level seem to particularly influence the
early phase of new venture formation, social normative contexts within an
entrepreneur’s networks continue to affect the creation of a new venture
beyond the consideration and intention phase. These normative judgments can
determine the level of emotional support and advice provided by the various
social networks to the entrepreneur, while positively and/or negatively influ-
encing entrepreneurial self-efficacy. In the context of client networks, negative
normative judgments can particularly undermine the entrepreneur’s potential
to develop a market. Negative norms on the part of a potential client are also
relatively stable owing to relatively infrequent interactions; therefore there are
fewer opportunities for an entrepreneur to change unfavorable perceptions of
their business. The increased frequency of the interactions with family and
friend networks and the closer emotional ties mean an entrepreneur can
improve the prospects of gaining legitimacy and thus the support needed to
develop their business.
Following on from this, the dissertation uncovers some strategies an
entrepreneur can apply to acquire legitimacy within social and business
networks, and so improve the level of support provided by those groups. Paper
4 identifies four ways an older entrepreneur might manage the positive and
negative normative appraisal of themselves and their business. The four strat-
egies involve active negotiation of social norms within networks, suggesting
that entrepreneurs are able to change and modify negative and unfavorable
perceptions through active interventions over time. Secondly, social norms can
change through passive negotiation, suggesting that social networks can begin
to understand and approve an entrepreneur’s business activities by simply
gathering more information and observing the entrepreneur’s activities.
Subsequently, their unfavorable perception can become more positive without
intervention by the entrepreneur. The entrepreneur may then benefit from
enhanced levels of emotional and professional support. Another strategy
involves network modification, suggesting that entrepreneurs do not directly
or indirectly modify social appraisals of their businesses, but that they rather
move from negative networks to other more positive networks. A fourth way
may be called network avoidance, implying that (potential) entrepreneurs can
find ways to hide or mask certain markers that provoke negative judgments,
such as those based on age, appearance or other characteristics, particularly
84
within client networks. These strategies have been ascribed to a particular age
group of prospective entrepreneurs, however this dissertation suggests that
these ways to manage negative normative influences in immediate social
networks can serve as a new conceptual base to understand strategies and
practices available to prospective and established entrepreneurs at a micro-
institutional level to act as change agents. Developing new insight into
network approaches to the emergent phase of new ventures is particularly
important, for as Newbert and Tornikoski (2012) have suggested, while a
nascent entrepreneur might have a large number of ties with contacts, that
does not necessarily mean that those contacts can or wish to support the
creation of their venture.
It is further argued that the ‘institutional-network’ approach developed by
Owen-Smith (2008) and, more generally, the new conceptualizations of the
micro-foundations of institutional theory by Powell and Colyvas (2008) can be
a fruitful way to develop theoretical understanding of the normative contexts
of entrepreneurs within social and business networks. Drawing upon the
theoretical ideas of Owen-Smith (2008) in the context of entrepreneurship, the
dissertation provides new insight into how entrepreneurs are embedded in
different social relationships (networks), which are in turn affected by various
social categories and norms (institutions). Moreover, the application of an
interactionist approach (Becker 1963) in research paper 4, reveals the
importance of examining the social rules prevalent in an entrepreneur’s
immediate social environment, which are subject to dynamic processes and
change through social interaction and indirect or direct intervention by the
entrepreneur. Adopting the viewpoint of Powell and Colyvas (2008), it is
suggested that developing an institutional understanding of new venture
creation should be complemented by drawing attention to both micro-orders
and broader levels, where social norms and values prevalent in society can be
‘pulled-down to the everyday level of practice’ (Powell and Colyvas 2008).
This is of particular importance as paper 4 shows that social norms are not
stable constructs and that these varying normative perceptions are affected,
while not in themselves reflecting, shared meanings at the society level. It
follows that different groups of entrepreneurs are embedded in different
normative social settings, creating both favorable and/or unfavorable entrepre-
neurial environments on the micro-scale. Thus, while the dissertation argues
that social norms, such as moral legitimacy at the society level, play an
important role in shaping entrepreneurial interests and intentions, it also
suggests that social norms in the immediate social environment have a strong
effect during the nascent and early phases of a business’s development. This
concurs with Welter (2011) who calls for developing understandings of
85
entrepreneurship as part of everyday life to enhance our knowledge of the link
between society and entrepreneurial activity.
Further, the dissertation suggests that the insight into the normative role of
social networks may link to recent developments on the knowledge of the
local aspect of new venture creation. Stam (2007; 2010) in particular provides
a comprehensive set of arguments for why entrepreneurs tend to start and
operate their businesses in their home region. One main reason proposed is the
importance of the entrepreneur’s attachment to and support received from
personal networks which live in their surrounding environment. While this
dissertation concurs with this argumentation, there is evidence that some
networks of friends and family exert a negative influence and that some
(potential) entrepreneurs may leave their home areas before starting their
businesses to avoid such negative sanctions and to seek out important
emotional and professional support elsewhere. Accordingly, this underlines
why entrepreneurs can be subject to a local inertia based on personal motives,
while also potentially adding to the knowledge of why some (potential)
entrepreneurs may decide to leave their home area during the early phases of
venture creation and development.
In a regional context, research paper 2 also implies that ‘objective’ regional
and institutional factors play an important role in the very early phase of
venture creation by influencing individual cognitions and the formation of
entrepreneurial intentions. While the dissertation’s findings are mainly based
on individual perceptions of the external environment, paper 2 emphasizes that
factual structures of a location also indirectly impact on an individual’s
cognitive processes, which in turn stimulate or undermine their entrepreneurial
intentions. This supports the assumptions of Hodgson (2006: 8), suggesting
that the institutional environments are ‘simultaneously both ‘objective’
structures “out there” and subjective springs of human agency “in the human
head”.’ As such, the dissertation also concurs with Sternberg (2009) who
points out that individuals filter signals received from their regional environ-
ments, while it particularly adds new insight to the knowledge of how the
regional environment is influencing cognition processes that set the basis of
the formation of entrepreneurial intentions. Accordingly, it also contributes to
the recent work of Lim et al. (2010) that suggests that ‘objective’ socio-eco-
nomic and institutional factors significantly influence entrepreneurial cogni-
tions relevant to the decision to become an entrepreneur. While Lim et. al.
(2010) call for further research on entrepreneurial cognitions at the country
level, through use of ‘objective’ measures of the external (particularly the
formal) institutional environment, the current study proposes that such factors
need to be considered at the regional and local level too. Regional and local
86
consideration will produce fine-grained understanding of how the external
environment shapes entrepreneurial cognitions.
Moreover, the dissertation demonstrates that Ajzen’s theory of planned
behavior (TPB) can better explain the formation of entrepreneurial intentions
when it is complemented with both ‘objective’ (paper 2) and subjective
measures (paper 3) of the external spatial and institutional environments.
While paper 3 largely supports the main rationale of the TPB in suggesting
that external influences are mediated by three antecedents (attitude, subjective
norm and perceived behavioral control); paper 2 provides substantial and
empirically-supported arguments that external factors can also moderate the
influence of the three entrepreneurial cognitions on intentions. Thus, it might
well be that the subjective measures used in paper 3 are manifested in a more
conscious filtering process and reception of environmental signals, which in
turn more directly influences entrepreneurial attitudes or self-efficacy beliefs,
serving as the basis for the formation of entrepreneurial intentions. On the
other hand, the use of ‘objective’ measures to capture the external environ-
ment in paper 2 may result in more unconscious filtering of external factors.
That filtering suggests a more implicit influence on entrepreneurial cognitive
processes in moderating the relationship between cognitions and intentions. In
addition, one further explanation developed in paper 2 for the external influ-
ence on cognitions is anchored in the assumption that environmental signals
can induce uncertainties or increase the certainty of entrepreneurial beliefs,
which, according to the social-psychologists Cooke and Sheeran (2004), could
strengthen or weaken (in other words, moderate) the impact of the three TPB
antecedents on entrepreneurial intentions. In the spirit of Hodgson (2006), an
individual’s filtering of ‘objective’ environmental elements may also
indirectly involve normative evaluations by an individual, which thus may
further add to the understanding of how external conditions result in
(un)certain entrepreneurial cognitions relevant to the formation of entrepre-
neurial intention.
In summary, the dissertation shows that a variety of contextual elements
influence different phases of new venture creation, while (potential) entrepre-
neurs are also able to resist and change their environment. As such, it argues
that multi-layered frameworks are needed to conceptualize and interpret the
variety of contexts, such as social, spatial and cultural elements, that interact
with entrepreneurship. Based on the conceptual and empirical insights drawn
from this dissertation, I believe that a combination of old and new economic
and sociological institutional theories can offer a way forward that enhances
our understanding of the interdependency between ‘objective’ and subjective
contexts and entrepreneurship. In particular, I suggest that the social normative
institutions and (implicit normative) evaluations attached to the different
87
contexts are core features that might link different contextual influences on
entrepreneurship, and build a multi-layered institutional approach to new
venture creation. I suggest that the development of a multi-layered institu-
tional approach can improve our knowledge of downward and upward
causations between context and entrepreneurship, by acknowledging that
institutions in different contexts constrain and enable entrepreneurial behavior,
while (potential) entrepreneurs can also create and change institutions and
context.
6.3 Practical implications
While each research paper presents its specific implications for policy and
practitioners (Part II), the dissertation concludes that developing environments
that favor entrepreneurship is a far too complex task to be addressed simply by
legislative and regulative intervention. The dissertation argues that when
informal institutions and social normative contexts are explored in greater
depth, we can enhance understandings of environments that enable and/or
constrain the emergence of new ventures. This concurs with policymakers and
enterprise support communities expressing an increasing interest in the
environmental drivers of entrepreneurship (Thornton et al. 2011), while inter-
national organizations, such as the Organization for Economic Co-operation
and Development (OECD) and European Union (EU), specifically raise the
importance of social and cultural indicators (European Commission 2006;
OECD 2000). As such, governments and support agencies need to be aware
that the creation of regulatory environments intended to support entrepreneur-
ship can only be successful when the social norms and cultural embeddedness
of entrepreneurial behavior is considered as well. Supporting this suggestion,
the present work highlights that implications of formal institutional rules are
also subject of normative evaluations (Scott 2010; Hodgson 2006), which in
turn increases the importance of considering normative elements attached to
different spatial contexts when designing initiatives to support business
venturing.
Moreover, the dissertation suggests that policy-makers and practitioners
that seek to support entrepreneurship need to consider the different environ-
ments within which potential entrepreneurs are embedded. Drawing upon the
insight gained into social, regional and societal influences of new venture
creation, for instance regional governments could improve their support for
local entrepreneurship by customizing initiatives that, in addition to local
formal and informal conditions, consider the deeper structural and normative
elements of society (e.g., moral legitimacy) as well as specific characteristics
88
of the potential entrepreneur embedded in unique social networks. As such,
the present findings particularly suggest that in order to enhance the formation
of entrepreneurial interests and intentions, national and local policy and
enterprise support organizations should jointly seek to facilitate a socio-
cultural environment at society and regional levels that increases the social
acceptance of entrepreneurship. This is particularly important, since
establishing new grounds for social legitimacy is very challenging and often
only possible due to pressure applied by a group of established organizations
over a longer period of time (Suchman 1995).
In addition, if the aim is to develop support structures to help entrepreneurs
prepare and operate their business, I suggest an increased focus on the norma-
tive judgments and social barriers within the entrepreneurs’ immediate social
environment would be advisable. It is important to offer individual support for
entrepreneurs to help them to cope with negative social perceptions in, and
lack of support from, their social networks, and also to receive the emotional
support needed. The strategies identified to manage negative social norms
towards enterprising activity at an ‘older age’ may offer more generally a
productive way to increase awareness of how to receive more emotional and
professional support from social networks through changing the normative
views of the entrepreneurs themselves. As such, it is suggested that in order to
enhance understandings of what type of support potential entrepreneurs
require their (social networks’) particular backgrounds and aims need to be
taken into account. Thus, it can be argued that national and regional policy
interventions towards entrepreneurship also need to develop and provide a
case-by-case support which treats each (potential) entrepreneur’s social
backgrounds and networks individually, in order to fundamentally support
entrepreneurial activity through social processes as a whole.
Finally, such initiatives need to be adjusted for the economic, demographic
and industry structures found in specific places, as they are found to affect
individual entrepreneurial beliefs and intentions (see paper 2). However, the
dissertation also emphasizes the complexity in fully understanding whether
certain regional indicators positively or negatively influence the way how
individuals value entrepreneurship (attitude), how they perceive the social
pressure and support within closer social environments (subjective norm) or
how they think that they are able to become a successful entrepreneur
(perceived behavioral control). Accordingly, drawing conclusions for practice
can become even more challenging. Nevertheless, the present research may
imply that, if the aim is to support local entrepreneurial activity, regions with
high levels of public sector and manufacturing employment need to pay
particular attention to the perceived social acceptance of entrepreneurship and
entrepreneurial capabilities amongst local members. In other words, it is
89
advisable to design support initiatives which are able to co-create collective
beliefs amongst local members that are favorable towards entrepreneurship,
even in a public and manufacturing dominant regional environment. This
could enable individuals who perceive entrepreneurship as a valuable career
option (attitude) to feel also confident in starting their own business, while
perceiving less social sanctions when doing so; accordingly, the region could
potentially support regional economic development in addition to the
dominant industry structures. Another possible conclusion links to the role of
densely populated regions together with relatively higher education levels. The
present findings emphasize that in such regions it is of particular importance to
offer appropriate support for potential entrepreneurs which can help them to
build up the confidence in being able to start a successful business in a
competitive landscape. One way to do so might be to assist potential entrepre-
neurs in enhancing their specific understandings of how to benefit from
running a business in dense regions with a large pool of well-educated people,
in order to minimize the fear of competition.
6.4 Limitations and Future Directions
While each research paper discusses its specific limitations, I further
acknowledge that the dissertation’s limitations refer to at least to six interre-
lated themes and offer the following suggestions for improvements that future
research might incorporate.
Context. The dissertation focused on the role of social, spatial and institu-
tional contexts in new venture creation processes, and mainly concentrates on
informal institutional and social normative elements of the different contexts.
While paper 2 provides new insight into the role of regional economic, policy
and industry structures in the formation of entrepreneurial intentions, that does
imply a neglect of the impact of specific business and market systems/clusters
and formal and regulative institutional elements that potentially affect the
emergence of new ventures. In line with Veciana and Urbano (2008), I
recommend future institutional research on entrepreneurship that develops a
more holistic institutional view of contexts for entrepreneurship. It might do
that by also addressing the specific interactions between market, economic and
industry specific elements with emerging entrepreneurial activities. Following
this, scholars could enrich multi-layered institutional thinking by incorporating
thoughts from evolutionary economic geography, particularly as emphasized
in the work of Stam, which concludes that an institutional infrastructure
supportive of entrepreneurship is often the outcome of a critical mass of
90
enterprising activity in a certain industry or a group of closely connected
industries (Stam 2010).
Another context issue that has not been addressed in the dissertation is a
comprehensive analysis of the geographical context in which entrepreneurship
is studied. While the dissertation sought to provide rather holistic insight, both
conceptual and empirical, into social, spatial and institutional embeddedness
of the early phase of new venture creation and development, it was not able to
offer further contextual insight by adjusting the analysis and discussion by
linking to specific characteristics of the areas, such as London, three provinces
in Western Finland, or the countries involved in the cross-country research in
paper 1. Accordingly, in order to add more nuanced geographical interpreta-
tions of the institutional environments of entrepreneurship, future research is
warranted that includes a more comprehensive/detailed place-based analysis
on new venture creation. One potential way to address this issue theoretically
and empirically from an institutional perspective could be to point to the
specific place-based institutions, and the meanings actors attach to the place
within which they are embedded; an approach taken in recent studies (e.g.,
Fink et al. 2011, 2012; González and Healey 2005; J ohnstone and Lionais
2004; Lang and Roessl 2011).
Study samples. In relation to the context limitations, I acknowledge that the
coherence of the overall contribution of the dissertation might be limited due
to the different sample characteristics of the four individual studies. While
paper 1 and 2 address the role of contexts for entrepreneurship across the
working-age population, paper 3 and 4 solely focused on potential entrepre-
neurs at an ‘older’ age (45 years and above). Paper 3 and 4 has emphasized
differences between ‘younger’ and ‘older’ age groups amongst older potential
entrepreneurs; however, future research is needed that investigates the
influence of different contexts– particularly age-related norms, as addressed in
paper 3 and 4–on new venture creation based on samples representing a
broader range of age-groups. This would allow controlling for potential differ-
ences in push and pull motivations across younger and older age groups, while
addressing the stylized fact that an individual’s chronological age can
influence their age perceptions and thus behavioral beliefs (Teuscher 2009).
Emotions. The dissertation’s main theoretical rationale applied at the
individual level is based on the theory of planned behavior (Ajzen 1991), i.e. it
was assumed that particular cognitive processes determine whether an
individual intends to become an entrepreneur or not, while intention is
suggested to be the pre-condition of actual behavior. Such a cognitive
approach clearly neglects affective processes, thus overlooking emotional
elements that might be crucial to understand why an individual wishes to
create a new venture, or not. Further, emotional motives, ties and reactions can
91
be particular important to enhance our knowledge of how (potential) entrepre-
neurs react differently to social and institutional contexts. For instance, the
work of Goss (2005) emphasizes how strong emotional ties with particular
social groups can strengthen the effect of social norms and sanctions within
those groups, thus shaping the way how entrepreneurial intention and action
can emerge. Institutional scholars, particularly in organization and manage-
ment studies, have also begun to stress the role of emotions (Voronov and
Vince, 2012), calling for ‘a better understanding of embedded actors’ lived,
emotional experiences of and responses to institutional structures” (Creed et
al., 2010: 1359). In a similar vein, Scott (2008) has underlined that emotions
can serve as a fruitful way to develop his influential concept of the three
institutional pillars - regulative, normative and cultural-cognitive, for instance
by theorizing and investigating emotions as a fourth pillar or as a potential
moderator of the relationship between institutions and behavior. Subsequently,
further research could clearly enrich the dissertation’s findings by explicitly
addressing the emotional elements that may influence new firm formation
behaviors in different environments.
Entrepreneurship types. The dissertation’s interpretations are further
limited in that it cannot provide insight into how the influence of certain
contexts differs in relation to various types of entrepreneurship, and different
types of ventures individuals intend to create, be that in the short or medium
term. Stam (2010) for instance, has criticized the large body of empirical
research that uses the foundation of a firm or self-employment as indicators of
entrepreneurship. Stam argues that such an approach overlooks the different
forms of entrepreneurship, exemplified by two extremes: ‘the entrepreneur
who is self-employed out of necessity, and the ambitious and technologically
innovative high-growth start-up’ (Stam 2010: 150). This leads him to conclude
that ‘different types of entrepreneurship require different types of explana-
tions’ (Stam 2010: 150), and to call for further entrepreneurship studies that
‘specify the type of entrepreneurship that is of importance for the research
question at hand, so we can match it with the related theoretical framework
and empirical indicators’ (Stam 2010: 151). Supportive of this argumentation,
the recent cross-country study by Stenholm et al. (2013: 1) emphasizes that
different institutional arrangements influence entrepreneurial activity rates and
types differently. For instance, they show that ‘[f]or high-impact entrepreneur-
ship an institutional environment filled with new opportunities created by
knowledge spillovers and the capital necessary for high impact entrepreneur-
ship matter most’. Thus, while the dissertation has addressed different phases
of new venture creation in various contexts (e.g., intention, nascent and early
firm phase), further research is needed that add to this knowledge by
92
theorizing and examining how the identified contextual influences vary
according to different entrepreneurial ambitions and types of entrepreneurship.
This concurs with Kautonen et al. (2011), whose work calls for further
research specifically addressing a common limitation in studies of entrepre-
neurial intentions—the dependent variable simply reflecting the individual’s
intention to create a venture, without taking into account the different types of
entrepreneurship. Accordingly, it is suggested that future entrepreneurial
intention studies (within different contexts) could differentiate, for example,
‘between full-time and part-time entrepreneurship, sole proprietorships and
businesses with employees, opportunity and necessity driven entrepreneurship,
for-profit and social enterprises, and “quasi self-employed” subcontracting
(Kautonen et al. 2011: 597). In addition, the recent study of Bosma et al.
(2009) offers a useful knowledge base and tool which could be used to further
develop nuanced understandings of environmental effects on different types of
early-stage entrepreneurship. For instance, they suggest the value of differen-
tiating between ‘low, modest and high growth-oriented entrepreneurship and
innovation oriented entrepreneurship’ in analyzing the influence of different
regional and national factors on entrepreneurship.
History. In the spirit of Welter (2011), the dissertation has emphasized the
importance of contextualizing new venture creation processes within different
social, spatial and institutional environments. While providing a comprehen-
sive framework and empirical analysis that addresses the different contextual
influences on different phases of venture creation, the dissertation–particularly
empirically–largely neglects the history of contexts and their varying impact
on new venture creations over time, by basing the research solely on cross-
sectional data. Paper 4 adjusts for this limitation to a certain extent, basing the
analysis on individual storytelling (theretrospective lens), while paper 2 and 3
also include regional indicators that capture past developments; however, the
main body of the empirical analysis of this dissertation is cross-sectional and
quantitative, which restricts interpretations of varying contextual influences on
venture creation over time. This becomes also critical for the included studies
applying the theory of planned behavior (Ajzen 1991), as they only examine
the formation of intentions, thus neglecting to test whether intention translates
into action and how external factors shape this relationship. Thus, generally
speaking, this calls for future research that adds to the contextual knowledge
of new venture creation by using longitudinal quantitative and qualitative data,
emphasizing the time horizon of the social, spatial and institutional embed-
dedness of firm formation processes.
Emergence of institutions. Following the discussion regarding the history of
contexts, the dissertation also raises the importance of future institutional
research that focuses on the emergence of entrepreneurship-relevant
93
institutions at the social, regional and society level. While paper 4 provides
preliminary insights into how normative institutional elements are reflected in
social networks and how entrepreneurs are able to change social norms, the
dissertation does not add much on the origins and production of institutions in
different contexts, which could profoundly enhance our contextualized under-
standing of new venture creation in the present (and future). For instance,
J epperson (1991) has posited that the core of institutional theories should be
the focus on how institutions and social rules come into being through interac-
tions, how they remain stable and can be modified; these are issues research
paper 4 addresses in the context of family, friends and client networks.
However, how social normative contexts for entrepreneurship, particularly at
the local, regional or society level (as discussed in articles 1–3) are produced
and change over time remains unknown. As such, I suggest that further
entrepreneurship research is needed that theoretically and empirically
addresses institutionalization as a ‘process and property variable’ (Zucker
1977: 728). This would complement the dissertation’s findings and the large
number of cross-sectional studies that examine (stable forms or measures of)
institutional structures on entrepreneurship variations with particular
knowledge of institutional emergence and change within different spatial
contexts. This could provide essential and additional insight into the question
of how institutions emerge in particular contexts (Scott 2010), and create, and
are created by, different forms of entrepreneurship.
Evolutionary thinking. Continuing the argumentation above, I further
suggest that an institutional perspective could be more explicitly enriched and
combined with an evolutionary economic thinking. For instance, the institu-
tional lens of Hodgson (2006, 2009), used as a broad theoretical basis for
combining different streams of institutional theories, emphasizes the
importance of evolutionary thoughts in institutional research, rooted in the
origins of old (American) institutional economic theory (Veblen’s 1919), in
order to understand how social rules, habits and routines emerge and are
sustained. Thus, in the spirit of Hodgson (2006), a multi-layered institutional
perspective to entrepreneurship could, or rather needs to be, more explicitly
complemented by evolutionary ideas. In this context, Welter (2011: 176) also
proposes that evolutionary thoughts can complement an institutional approach
by adding an ‘individual perspective that takes into account the adaptability
and learning behavior of entrepreneurs, thus drawing attention to the process
dimension of entrepreneurship where individual action impacts context and
contributes to changing a context.’ Here, particularly Stam’s (2007, 2010)
development of an evolutionary economic geography approach could help
develop a more dynamic orientation of institutional understandings of new
venture creation in different spatial contexts. By complementing the proposed
94
multi-layered institutional lens with an evolutionary approach, future institu-
tional research might be more able to explicitly consider that ‘[e]ntrepreneurs
are agents who are conditioned by, and sometimes change or even initiate,
complex adaptive systems [recognizing that these] systems are situated in
particular geographic contexts, and emerge, grow and decline over time’
(Stam 2010: 151). Such integrative research could further improve our
conceptual knowledge of the different contexts and dynamics involved in an
individual’s new venture creation process.
From creating to developing a venture. While this dissertation adds new
insight to the limited contextualized understanding of the pre-venture phase,
we still know very little of how the pre-emergent or early firm phases in
different environments is linked with the prospect of growth. There is
extensive evidence on the central role of high-growth firms for the economy
(Acs 2008), and an increasing number of studies that explore the different
configurations of firm growth (Autio and Acs 2010; Wiklund and Davidsson
2003). However, this body of research has so far neglected the potential
decisive configurations of firms’ growth that have been established and
institutionalized during the nascent entrepreneurship phase. Subsequently,
while we might increasingly know what kind of nascent entrepreneurial
strategies and activities lead to successful firm formation (Newbert and
Tornikoski 2011, 2012), or which elements and configurations are required for
a firm to grow (Wiklund and Shephered 2005), there is limited knowledge of
how nascent entrepreneurs’ strategies applied when establishing their firms in
a particular place can set the foundations and also the boundaries of future
development. Developing such insight can be of particular importance, given
that decisions made by nascent entrepreneurs at the formative stage of a
venture have lasting effects on its operations (Bamford et al. 1999). Here, for
instance, the recent work by Newbert et al. (2012) provides already an
important base for further research on the evolution of decisive network
configurations in the emergence of new ventures, which in turn may influence
firm growth in the future. Accordingly, the dissertation suggests the more
research is needed that develops a contextualized knowledge base of early-
stage and nascent entrepreneurship and its link to future growth. This can
arguably further develop the foundations for academics, (nascent) entrepre-
neurs, enterprise support communities and business angels to evaluate (non-
)successful business operations, in relation to different environments, before a
firm is established.
95
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PART II: RESEARCH PAPERS
127
Paper 1: Kibler, E. (2012). Moral legitimacy of entrepreneurship and
its impact on the firm formation process.
129
Moral Legitimacy of Entrepreneurship and Its Impact on
the Firm Formation Process
1
Abstract
Scholars and policymakers increasingly seek to identify the environmental
drivers of entrepreneurship, but contemporary cross-country studies have
largely neglected the role of socio-cultural norms on entrepreneurial behav-
ior. Based on an institutional economic perspective and a social legitimacy
approach, this study is a first attempt to conceptualize and examine the
influence of the perceived moral legitimacy of entrepreneurship in a society
on an individual’s progress across different stages of the firm formation
process. A multilevel analysis across 27 countries demonstrates that the
moral legitimacy accorded to entrepreneurs has a significant positive impact
in the early firm formation phases. In particular, the findings show that the
higher the degree of moral legitimacy accorded to entrepreneurs, the higher
the probability that an individual will consider becoming an entrepreneur
and actually start preparing their business. Thus, the study suggests that
entrepreneurial decisions and behavior are not independent of the perceived
moral norms in society. Moreover, a policy aiming to increase the potential
of individuals becoming entrepreneurs should facilitate socio-cultural norms
that legitimize entrepreneurial activity as moral and beneficial to society as a
whole.
Keywords: Social norms, moral legitimacy, entrepreneurship, firm formation
1. Introduction
Different nations reveal different pre-nascent, nascent and established
entrepreneurship levels (Bosmaet al., 2009; Bosma and Levie, 2010; Minniti,
2006), whilst research emphasizes a relatively strong relationship between
(nascent) entrepreneurial activity and economic development (e.g., Reynolds,
1994; Wennekers and Thurik, 1999; Wennekers et al., 2005), even if the
relationship is not always straightforward (e.g., Carree et al., 2007).
Subsequently, cross-country analyses have increased the focus on the
environmental drivers of entrepreneurial motivation (e.g., Begley, Tan, and
Schoch, 2005; Hessels, Gelderen, and Thurik, 2008), nascent entrepreneurial
activity (e.g., Suddle, Beugelsdijk, and Wennekers, 2010; Wennekers et al.,
2005) and business start-up activity (e.g., Blanchflower, 2000; Reynolds,
1
This paper represents the original full-length, but slightly revised and re-formatted, version of the
paper published in the Best Paper Proceedings of the Academy of Management 2012,
Doi:10.5465/AMBPP.2012.123.
130
Storey, and Westhead, 1994). While a range of influencing factors, including
economic, institutional or demographic indicators, have been identified
(Blanchflower, 2000), there is only limited (multi-country) research on the
impact of the socio-cultural environments on entrepreneurial behavior
(Freytag and Thurik, 2007; Schendel and Hitt, 2007; Thornton, Ribeiro-
Soriano, and Urbano, 2011).
Prior research argues that national culture and institutions influence
economic activity (e.g., North, 1990; Shane, 1993) and development (e.g.,
Beugelsdijk, 2007; McClelland, 1961; North, 2005). Entrepreneurship
literature also suggests that the national environment with its socio-cultural
norms and values shapes entrepreneurial behavior (e.g., Baumol and Strom,
2007; Freytag and Thurik, 2007; Hayton, George, and Zahra, 2002; Sternberg,
2009) through both the demand and supply side of entrepreneurship (Verheul
et al., 2002). Thorntonet al. (2011) conclude that an institutional perspective
can serve as an appropriate framework to analyze socio-cultural contexts that
influence decisions to found new firms. In this regard, the degree of social and
moral legitimation of entrepreneurship in a society (Etzioni, 1987) has been
discussed as one potential way of capturing such informal institutional settings
for entrepreneurship (Bruton, Ahlstrom, and Li, 2010; Freytag and Thurik,
2007), suggesting that the more entrepreneurship is socially legitimized in a
society the higher the entrepreneurial activity should be (Etzioni, 1987; Shane,
2003; Wilken, 1979). However, existing (cross-country) studies on socio-
cultural values and entrepreneurship have mainly followed Hofstede’s (2001)
seminal work (Hayton, George, and Zahra, 2002) or an aggregated psycho-
logical trait approach (Freytag and Thurik, 2007), thus largely neglecting
conceptualizations of the social and moral legitimacy of entrepreneurship. In
addition, many of the studies on the influence of culture on entrepreneurship
do not consider that ‘entrepreneurship is a process of emergence’ (Sternberg,
2009: 15) as they focus either on entrepreneurial motivation, nascent activity
or business start-up rates as the dependent variables. In summary, little is yet
known about the informal institutional environment, particularly the social and
moral legitimacy of entrepreneurship in society, and the influence of that level
of legitimacy on the individual’s progress through the different stages of the
firm formation process.
Against this backdrop, this study addresses the impact of the moral legiti-
macy of entrepreneurship in a society on an individual’s entrepreneurial
engagement, as operationalized with the concept of the entrepreneurial ladder
(Van der Zwan, Grilo, and Thurik, 2010) and its sequential start-up stages:
‘never considered starting a business’, ‘thinking about starting a business’,
‘taking steps to start a business’, and ‘running a business for less than three
years’. The theoretical foundation is based on an institutional perspective
131
(Scott 1995) on entrepreneurship (Busenitz, Gómez, and Spencer 2000;
Brutonet al., 2010; Thorntonet al., 2011; Veciana and Urbano, 2008; Welter
and Smallbone, 2011), within which ‘legitimacy’ is seen as an informal
institution, a common perception of social acceptance (Scott, 1995; Suchman,
1995). The moral legitimacy accorded to entrepreneurs, in particular, is
operationalized in the spirit of Suchman (1995), and broadly defined ‘as
shared value premises that structure collective assessments of the good and the
bad’ (Deephouse and Suchman, 2008: 53) as they relate to entrepreneurs and
their actions.
This study makes the following contributions to the knowledge. First, it
contributes to the entrepreneurship literature by conceptualizing and analyzing
the moral legitimacy of entrepreneurship and its impact on the individual’s
progress through the different phases of the firm formation process. Second,
the study adds to the important challenge of theorizing and measuring the
influence of socio-cultural contexts on entrepreneurial behavior (Brutone et
al., 2010; Schendel and Hitt 2007; Thornton et al. 2011), also addressing the
need for multilevel research designs (Autio and Acs 2010) and more extensive
and internationally comparable empirical studies (Verheul et al., 2002). Third,
the study provides implications for policy and entrepreneurship practitioners,
offering detailed insights into how levels of moral approval of entrepreneur-
ship either support or undermine an individual’s progress in the firm formation
process.
The paper is organized as follows. The first section describes the theoretical
framework underlying the analysis and derives hypotheses for empirical
examination. The subsequent section introduces the methodological design of
the empirical work. The third section presents the results of the empirical
analysis, while the final section discusses the findings and their implications
for policy and further research
2. Theoretical Framework and Hypotheses
2.1 Institutional Theory and Legitimacy
Institutional (economic and sociological) theories broadly share the assump-
tion that individual behaviour is structured (Giddens 1984) by rules and norms
of the institutional environment (Meyer and Rowan 1977; North 1990; Scott
1995; Hodgson 2006). ‘Institutions’, in this context, often refer to formal rule
sets (e.g., laws, regulatory frameworks) (North 1990) and implicit rules
(Hodgson 2006), where the latter involves less formal shared expectations and
interactions (J epperson 1991) as well as ‘taken-for-granted’ assumptions
132
(Meyer and Rowan 1977; Scott 1995). Following this, institutional scholars
also suggest that institutional rules can enable and constraint behaviours of
individuals, but also depend upon them (Hodgson 2006; North 2005; Scott
2010).
This study particularly follows the theoretical work of Scott (1995: 33),
which views institutions as ‘social structures that have attained a high degree
of resilience. [They] are composed of [three institutional pillars:] cultural-
cognitive, normative, and regulative elements that, together with associated
activities and resources, provide stability and meaning to social life’. Scott’s
concept, briefly summarized by Garud, Hardy, and Maquire (2007: 958),
suggests that ‘the regulative [pillar] guides action through coercion and threat
of formal sanction; the normative […] guides action through norms of
acceptability, morality and ethics; and the cognitive guides action through the
very categories and frames by which actors know and interpret their world’.
Drawing upon these ideas, institutional scholars, especially in organiza-
tional research, strongly emphasized the (bipartite or tripartite) constructs of
social legitimacy (e.g., Aldrich and Fiol, 1994; DiMaggio and Powell, 1983;
Meyer and Rowan, 1977; Suchman, 1995; see Bitektine, 2011 for an
overview), also acknowledging a strong cultural dimension in their analysis of
legitimating processes (Deephouse and Suchman, 2008; Nicholls, 2010).
Social legitimacy, in this context, is widely seen as ‘a generalized perception
or assumption that the actions of an entity are desirable, proper or appropriate’
(Suchman, 1995: 574). Reflecting the work of Scott (1995), Suchman (1995)
suggests three conceptual dimensions of social legitimacy – pragmatic
(‘regulative’), moral (‘normative’) and cognitive legitimacy (‘cognitive’) –,
whereas he refined this framework with two temporal dimensions (episodic
versus continual) and two substantive foci (actions versus essences), resulting
in twelve distinct types of legitimacy (for an overview of the typology, see
Suchman, 1995: 384).
This study addresses moral legitimacy, with a particular focus on one of
Suchman’s (1995) conceptualized sub-types of moral legitimacy, consequen-
tial moral legitimacy (the episodic dimension and action focus of moral
legitimacy) (Deephouse and Suchman, 2008; Suchman, 1995). Generally
speaking, moral legitimacy refers to collective normative approvals and
judgments of good and bad, whereas consequential legitimacy is particularly
concerned with the moral evaluation of the outcomes and benefits of actions
for the whole of society (Bitektine, 2011; Suchman, 1995). The focus on this
specific form of moral legitimacy is reasoned in the theoretical work of
Anderson and Smith (2007) on the moral imperative in entrepreneurship. They
argue that the legitimation of entrepreneurship is the result of a congruent
interplay between entrepreneurial actions, outcomes and social beliefs, while
133
specifying that moral legitimacy is particularly based on normative appraisals
of the social benefits for the public domain. In line with North’s concept,
which intends to frame and measure a general structure at the national level
(Rafiqui, 2009), the moral legitimacy conferred by society is here also under-
stood as an informal institution in a national context. The following section
discusses the potential influence of the moral legitimacy accorded to entrepre-
neurs on the entrepreneurial behavior and firm formation process, and derives
hypotheses for empirical testing.
2.2 An Institutional Approach to Entrepreneurship and the Moral
Legitimacy Accorded to It
A growing number of scholars argue that an institutional approach shows great
promise for analyzing entrepreneurial behavior (e.g., Busenitz et al., 2000;
Brutonet al., 2010; Thorntonet al., 2011; Urbano and Veciana 2008; Welter
2011; Welter and Smallbone, 2008, 2011). The main premise of an institu-
tional perspective on entrepreneurship is that entrepreneurial behavior and
firm formation processes depend on the individual’s relationship with the
‘external’ environment, particularly the institutional environment (Garud et
al., 2007; Veciana and Urbano, 2008; Welter and Smallbone, 2011). Veciana
and Urbano (2008) contend that the process of becoming an entrepreneur is
highly conditioned by institutions, further arguing that human beliefs and
interest in entrepreneurship are social and cultural in origin, and thus mirror
the characteristics of the institutional environment. Thorntonet al. (2011) and
Welter and Smallbone (2011) underline the important role of institutional
contexts for entrepreneurial behavior by suggesting that institutions promote
entrepreneurship, while also constraining it. Baumol and Strom (2007: 236)
briefly summarize enterprising activity ‘as much affected by individual values
as it is by established institutions and social norms’. In other words, ‘it isn’t
just something that entrepreneurs ‘do’, it is also a social phenomenon that
emerges within the context of a broader society’ (Lundström and Stevenson,
2005: 44).
Highlighting the need for future research on the role of institutions in
entrepreneurship culture studies, Beugelsdijk (2007) states that entrepreneurial
activity is determined by the interplay of informal and formal rules of the
game; whereas it should be noted that informal institutions are embedded in
society, and are thus more stable than formal institutions (Welter and
Smallbone, 2011). Welter and Smallbone (2008) further specify that while
formal institutional forces condition the actual level of entrepreneurial oppor-
tunities, it is the informal institutions that shape the collective and individual
perception of entrepreneurship. Shane (2003: 160) concludes that the informal
134
institutional environment co-determines the exploitation of entrepreneurial
opportunities in society by ‘influencing the degree to which entrepreneurial
activity is considered desirable’ and ‘through specific cultural beliefs that
encourage or discourage entrepreneurial activity’.
Scholars have discussed the social acceptance of entrepreneurship as an
informal institution by suggesting that higher levels of acceptance increase the
entrepreneurial activity level in a given society (Etzioni, 1987; Shane, 2003;
Wilken, 1979). In other words, the more entrepreneurship is socially accepted
as an essential part of people’s well-being, the more it is culturally embedded,
and, subsequently, creates an environment with less negative informal
sanctioning mechanisms for entrepreneurial behavior (Welter and Smallbone,
2011). This study addresses the moral legitimacy of entrepreneurship as a
source of social acceptance (or legitimacy) (Suchman, 1995) of entrepreneurs
in society, which, in turn, is part of the broader informal institutional environ-
ment (Bruton et al., 2010; Shane, 2003; Thornton et al., 2011). According to
the theoretical framework above, the moral legitimacy of entrepreneurship is
seen as a normative approval of most members of society of the ‘good and
bad’ of entrepreneurship and the actions of entrepreneurs. More specifically,
the consequential moral legitimacy accorded to entrepreneurs is understood as
a collective normative evaluation of the actions entrepreneurs as being benefi-
cial to the whole society, which, in turn, is argued to influence an individual’s
propensity to engage in the processes required to form a firm. Research indi-
cates that moral norms influence an individual’s decision to perform certain
behavior (Kaiser, 2006; Raats, Shepherd, and Sparks, 1995). Zafirovski (1999)
suggests that moral concerns influence and constrain entrepreneurship, whilst
Anderson and Smith (2007) argue that moral legitimacy shapes individual
enterprising perceptions and practices. Following this rationale, this study
assumes that if the entrepreneurs’ activities in a country are commonly valued
as more beneficial to the whole society, potential entrepreneurs enjoy higher
levels of moral acceptance; subsequently this may augment their motivation to
engage in entrepreneurial activities and to progress the firm formation process.
Hence, it is proposed that: The moral legitimacy of entrepreneurship has a
positive impact on the individual’s progress in the venture creation process
(Hypothesis 1).
An opposing viewpoint might hold that the influence of the moral
legitimacy accorded to entrepreneurs in society varies in the different stages of
forming a firm. Baumol and Strom (2007) suggest that entrepreneurial
incentive structures are particularly guided by social and cultural norms.
Rafiqui (2009) specifies that institutions form motivational structures that
shape the feasibility and profitability of engaging in economic activity, such as
135
starting a business. Freytag and Thurik (2007) argue that cultural elements
influence the individual preference for entrepreneurship, whereas hard
economic factors shape the actual start-up levels. Moreover, Sternberg (2009)
proposes that the national environment with its socio-cultural norms and
values influence individual perceptions and beliefs towards entrepreneurship,
subsequently shaping an individual’s general interest in engaging in entrepre-
neurial activity. Hence, it might well be that the moral legitimacy of entrepre-
neurship in society plays a stronger role in the earlier start-up stages than in
phases in which individuals are just embarking on or already running a
business.
Previous empirical research in this context tells us that perceived environ-
mental conditions across nations exert different effects on various stages of the
firm formation process (Van der Zwan et al. 2009; Van der Zwan, Verheul,
and Thurik 2011). For instance, Van der Zwan et al. (2009) finds that a
country’s risk tolerance towards entrepreneurship has a positive impact on the
fact that people even start thinking about becoming an entrepreneur, while it
has no effect on subsequent business start-up or early firm operation phases.
Further, the study of Begley and Tan (2001) shows that socio-cultural values
shape individual interest in entrepreneurship, and can hinder or support an
individual’s decision to prepare for and start a business. Mueller and Thomas
(2001) illustrate that culture influences an individual’s perceived ability to run
a successful business, whilst Begley et al. (2005) underline that different cul-
tural contexts relate to different levels of start-up feasibility and desirability.
Moreover, Shane (2003) indicates that the interest in engaging in entrepre-
neurial activities is higher when the level of social acceptance of entrepreneur-
ship in a society is high too. On the sub-national scale, Kautonen, Tornikoski,
and Kibler (2011) and Liñánet al. (2011) show that socio-cultural norms that
are favorable to entrepreneurship positively influence the formation of
entrepreneurial intentions, for instance, by shaping an individual’s entrepre-
neurial attitude and the self-esteem required to start (preparing) a business. To
this, Kaiser (2006) adds that moral norms particularly influence peoples’
attitude towards certain behavior, and in turn, shape their intention and initial
decision to perform the behavior.
In addition, a lower effect of moral legitimacy in the later phases of the firm
formation process may be deduced from the findings of Tornikoski and
Newbert (2007). Investigating the transition from a nascent organization to a
new firm based on a legitimacy approach, with a specific focus on ‘exchange
legitimacy’, a conceptual sub-type of ‘pragmatic legitimacy’ (see Suchman,
1995), they conclude that ‘the key to gaining legitimacy seems to be a function
of a nascent organization’s ability to convince resource gatekeepers that it is
operational’ (Tornikoski and Newbert, 2007: 329). Consequently, nascent
136
organizations tend to be more influenced by the perceptions of their immediate
audiences rather than those from their broader socio-cultural environment.
This is due to the importance to them of becoming legitimized in the eyes of
their potential resource gatekeepers (Tornikoski and Newbert, 2007).
In summary, the present research argues that the moral legitimacy accorded
to entrepreneurs in society has a stronger impact in the early stages of the firm
formation process than in the later phases closer to the actual business start-up.
Hence, it is proposed that: The moral legitimacy of entrepreneurship has a
stronger influence on the early stages in the venture creation process
(Hypothesis 2).
3. Data and Variables
This study uses data from the 2009 Flash Eurobarometer Survey on Entrepre-
neurship (European Commission, 2009) for the individual-level variables, and
data from the Eurostat Statistics Database in the period, 2005-2009 (European
Commission, 2011), complemented by statistics from the Global Entrepre-
neurship Monitor (GEM) in the period 2005-2009, for the country-level
covariates. The Eurobarometer data were collected in 2009 based on a
telephone survey. The national sample sizes vary from 500-1017 and are
representative of the population aged 15 and above in each country. Since the
aim of this study is to examine different firm formation stages rather than
long-term business ownership, respondents who had been running a business
for more than three years were excluded from the analysis. Hence, the final
sample for this analysis amounts to 11,002 individuals from 24 European
countries as well as China, J apan and the United States.
Dependent variable. The operationalization of the dependent variable
follows the conception of the entrepreneurial ladder (Van der Zwan et al.,
2010). The entrepreneurial ladder recognizes the firm formation process as a
series of sequentially ordered stages where each stage indicates an increasing
engagement in the start-up process. The level of engagement of the respond-
ents refers to the following question ‘How would you describe your situation?’
Respondents were offered the following four response options: 1) ‘It has never
entered your mind to start up a business’, 2) ‘You are thinking about starting
up a business’, 3) ‘You are currently taking steps to start a new business’, and
4) ‘You have started or taken over a business in the last three years which is
still active today’. The remainder of this article abbreviates these stages as
‘Never thought’, ‘Thinking’, ‘Taking steps’ and ‘Running a young business’.
The ordinal dependent variable in this analysis therefore captures three thresh-
137
olds in the firm formation process: a) fromnever thought to thinking, b) from
thinking to taking steps and c) fromtaking steps to running a young business.
Explanatory variable. The explanatory variablecaptures the perceived level
of the moral legitimacy of entrepreneurship. In the spirit of Kaiser’s (2006)
global measure of perceived moral norms in a broader social context (as
against one’s own moral obligations), this analysis examines the perceived
moral legitimacy with the following global question in the Eurobarometer
survey: ‘Please tell me, do you agree or disagree with [the following
statement:] ‘Entrepreneurs create new products and services and benefit us all’
(on a scale from ‘4’ =strongly agree to ‘1’ =strongly disagree). Because of
non-normality, this variable is treated as an ordered categorical one in this
analysis with ‘strongly disagree’, indicating low moral legitimacy, as the base
category.
Control variables. This analysis includes the respondent’s sex, age, and
income as control variables at the individual-level. Utilizing the same dataset
Van der Zwan, Verheul, and Thurik (forthcoming) found sex and age to be
significant determinants of an individual’s progress through the sequential
stages of the firm formation process. Prior research further underlines that
women are generally less likely to engage in entrepreneurial behavior than
men (e.g., Bosmaet al., 2009), whilst age is seen as among the most relevant
influencing factors of entrepreneurial activity (Parker, 2009). Moreover,
previous research has highlighted that an individual’s income plays a role in
firm formation, even if the effect is not always straight forward. For instance,
while higher income levels increase the supply of resources to capitalize
businesses (Evans and J ovanovic, 1989), it can lead to higher opportunity
costs of becoming an entrepreneur (Amit, Muller, and Cockburn, 1995).
Individuals with lower incomes often tend to be more interested in starting a
business due to the potential to increase income (Mueller, 2006). Sex is
included as a dummy variable with the value 1 assigned to female
respondents. In order to account for the curvilinear effects of age, the model
specification includes both linear and squared terms for age in years. Income is
measured by four response categories referring to the person’s feelings about
their current income, so that they either 1) live comfortably, 2) get by, 3) find
it difficult to manage, or 4) find it very hard to manage. Due to violation of
normality, this ordinal scaled variable was dummy coded with ‘live comforta-
bly’ as the base category.
A country-level control variable captures the ‘objective’ relationship
between entrepreneurial activity and economic development in the past, in
order to further adjust the model so as to uncover the effect of the perceived
moral legitimacy. This variable serves as an indicator of whether new business
formations are ‘objectively’ beneficial to a country’s economic growth, and is
138
developed by correlating two country measures: the average new business
owner growth rate (GEM reports 2005-2009) and the average growth rate of
the real GDP per capita (European Commission, 2011), both in the period
2005–2009. Hence, this variable denotes each country’s correlation coefficient
between these two measures and consists of values between ‘-1’ and ‘+1’.
According to GEM, the new business owner rate is defined as the proportion
of individuals in the country that have started a business and have been
running it for no longer than three years (Bosma and Levie, 2010).
The descriptive statistics of the model variables are displayed in the
appendix.
4. Analysis
The analysis by Van der Zwan et al. (2009) demonstrates that different
covariates have varying effects in different stages of firm formation. Further,
hypothesis 2 requires that this analysis differentiates between various thresh-
olds in the individual firm formation process. Therefore, following Van der
Zwanet. al (2009), this analysis estimates a separate binary regression model
for each of the three thresholds. In so doing, the model examines the impact of
the moral legitimacy of entrepreneurs (explanatory variable) on the odds of
being beyond a certain firm formation stage in relation to being at that stage.
In other words, the respondents who are at a particular stage of firm formation
(e.g. ‘thinking’) are compared with all individuals that reached higher stages
(e.g. ‘taking steps’ and ‘running a young business’). Hence, an individual’s
engagement in the firm formation process is considered as a sequence of
binary transitions. As a result, the original ordinal response variable consisting
of four values is recoded into three binary measures (for an overview of this
procedure see Van der Zwan et al., 2009). Since the response variables are
binary and the data are clustered at the country level, this analysis fits a series
of hierarchical binominal logistic models using the maximum-likelihood
estimator with numerical integration (30 quadrature points) to test the research
hypotheses. The analysis strategy follows the recommendations in Hox (2010)
and estimates each threshold in five steps. The relevant test statistics for each
threshold are summarized in table 1.
139
Table 1Test-statistics for the five model estimations
New venture creation process
Estimation step
Threshold a Threshold b Threshold c
Never thought to think-
ing about it and beyond
Thinking to taking steps
and beyond
Taking steps to running
a young business
(1) Random intercept only
a
750.76*** 163.55*** 40.53***
(2) Individual-level control variables added
a
1181.33*** 145.43*** 80.38***
(3) Explanatory variable added
a
59.86*** 39.80*** 4.35
(4) Random coefficient added
b
5.32*** 4.06*** 2.57**
(5) Country-level covariate added
a
11.94*** 9.41** 5.48**
Notes: *p
In this particular detailed criteria regarding new venture creation in different environments towards a multi layered institutional.
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Ewald Kibler
NEW VENTURE CREATION IN DIFFERENT ENVIRONMENTS:
TOWARDS A MULTI-LAYERED INSTITUTIONAL APPROACH
TO ENTREPRENEURSHIP
Turun kauppakorkeakoulu
Turku School of Economics
ISBN 978-952-249-242-5
Turun kauppakorkeakoulu
Turku School of Economics
Ewald Kibler
Sarja/Series A-11:2012
NEW VENTURE CREATION IN DIFFERENT ENVIRONMENTS:
TOWARDS A MULTI-LAYERED INSTITUTIONAL APPROACH
TO ENTREPRENEURSHIP
Turun kauppakorkeakoulu
Turku School of Economics
Custos: Professor Päivi Oinas
Turku School of Economics
Supervisors: Professor Päivi Oinas
Turku School of Economics
Dr. Teemu Kautonen
Turku School oI Economics
Pre-examiners: Professor Erik Stam
Utrecht University
Professor David Urbano
Autonomous University of Barcelona
Opponents: Professor Erik Stam
Utrecht University
Copyright Ewald Kibler & Turku School of Economics
ISBN 978-952-249-242-5 (nid.) 978-952-249-243-2 (PDF)
ISSN 0357-4652 (nid.) 1459-4870 (PDF)
Publications of Turku School of Economics, Series A
Juvenes Print, Turku 2012
ACKNOWLEDGEMENT
First of all, I would like to express my deep gratitude to my supervisors
Professor Päivi Oinas and Dr. Teemu Kautonen, without whom this doctoral
thesis would certainly not exist. I am particularly thankful to Dr. Kautonen for
introducing me to academic research already during my Master studies, and
for being a great mentor over the past five years, providing me with constant
learning and networking opportunities whilst letting me grow and develop
independently as a scholar. I am especially grateful to Professor Oinas for her
unconditional support throughout the entire Ph.D. process; her support has
been fundamental not only for completing this dissertation, but also for the
further development of my skills and confidence to pursue an academic career.
I feel honored to have had Professor Erik Stam (Utrecht University) and
Professor David Urbano (Autonomous University of Barcelona) as the official
pre-examiners of my thesis. Their rigorous and constructive feedback has been
essential in improving the overall quality of my work. I also wish to particu-
larly express my gratitude to Professor Erik Stam for accepting the invitation
to act as the opponent.
In addition to Dr. Teemu Kautonen, it has been an honor working with my
three co-authors Professor Robert Blackburn, Professor Erno Tornikoski and
Dr. Thomas Wainwright. I have also greatly benefited in my Ph.D. work from
learning and working in different organizational settings over the past few
years, including (in chronological order) the Department of Sociology at the
University of Graz (Austria), the Department of Management at the University
of Vaasa, the Small Business Research Centre at the Kingston University
(UK) and, last but not least, TSE Entre and the Economic Geography Unit at
the Turku School of Economics.
This dissertation would certainly not have come together without the
substantial financial support from the Foundation for Economic Education, the
Ella and Georg Ehrnrooth Foundation and the Turku School of Economics. I
also thank Andrew Mulley and his colleagues (www.acedit.eu) for their
excellent work in copyediting this thesis and Auli Rahkala-Toivonen for
finalizing the layout.
Finally, I would like to express my warmest gratitude to my parents for all
their love, trust and encouragement they have given me throughout my life. I
am also very grateful to my ‘family-in-law’ for their heartfelt support over the
4
past years, and I cannot thank enough my close friends for always keeping me
on track, to appreciate the essential things in life.
Above anyone else, my deepest gratitude belongs to the love of my life,
J ohanna, to whom this dissertation is dedicated. J ohanna has always been my
essential source of energy and happiness and it is her who really knows what
an emotional roller-coaster ride this Ph.D. process has been. I love you.
Ewald Kibler
Helsinki, December 3 2012
TABLE OF CONTENTS
PART I: INTRODUCTORY ESSAY .................................................................. 7
1 INTRODUCTION ...................................................................................... 9
1.1 Background ........................................................................................ 9
1.2 Research objectives and methods...................................................... 10
1.3 Structure ........................................................................................... 13
2 THE EMERGENCE OF NEW VENTURES ............................................ 15
2.1 Towards a process-orientated view of entrepreneurship .................... 15
2.2 The different phases of new venture creation .................................... 16
2.3 Entrepreneurial intentions and the theory of planned behavior .......... 18
2.4 Understanding the emergence of new ventures ................................. 21
3 CONTEXTUALIZATING THE EMERGENCE OF NEW
VENTURES ............................................................................................. 23
3.1 Towards a contextual view of entrepreneurship ................................ 23
3.2 Social context ................................................................................... 25
3.3 Spatial context .................................................................................. 28
3.4 Institutional context .......................................................................... 33
3.5 Contextualizing the emergence of new ventures: challenges for
the present study ............................................................................... 42
4 A MULTI-LAYERED INSTITUTIONAL APPROACH TO NEW
VENTURE CREATION ........................................................................... 49
4.1 Towards a theorizing context for new venture creation ..................... 49
4.1.1 Why adopt an institutional approach to entrepreneurship? ..... 50
4.2 Early traditions in institutional economics ........................................ 51
4.3 Evolution of new institutional economics ......................................... 53
4.4 (Synergetic) Developments of old and new institutionalism ............. 54
4.4.1 Sociological institutionalism and economic sociology ........... 58
4.4.2 Emerging definitions of institutions ....................................... 60
4.5 Building blocks of a multi-layered institutional approach ................. 62
5 SUMMARY OF THE RESEARCH PAPERS ........................................... 71
5.1 Research methodologies ................................................................... 71
5.2 Paper 1 ............................................................................................. 73
5.3 Paper 2 ............................................................................................. 74
6
5.4 Paper 3 ............................................................................................. 74
5.5 Paper 4 ............................................................................................. 75
6 DISCUSSIONS AND CONCLUSIONS ................................................... 77
6.1 Key empirical findings ..................................................................... 78
6.2 Theoretical contributions .................................................................. 80
6.3 Practical implications ....................................................................... 87
6.4 Limitations and Future Directions .................................................... 89
REFERENCES ................................................................................................. 95
PART II: RESEARCH PAPERS ..................................................................... 125
Paper 1: Kibler, E. (2012). Moral legitimacy of entrepreneurship and its
impact on the firm formation process. ............................................ 127
Paper 2: Kibler, E. (2012). The formation of entrepreneurial intentions in
a regional context. Entrepreneurship & Regional Development:
An International Journal, Doi:10.1080/08985626.2012.721008 ..... 153
Paper 3: Kautonen, T., E. Tornikoski, and E. Kibler (2011). Entrepreneur-
ial intentions in the third-age: The impact of perceived age
norms. Small Business Economics, 37(2), 219–234. ....................... 187
Paper 4: Wainwright, T., E. Kibler, T. Kautonen, and R. Blackburn. Who
are you calling old? Negotiating ‘deviance’ of older
entrepreneurs. ................................................................................. 205
LIST OF TABLES
Table 1 Research focus of the four research papers ................................... 12
Table 2 Research methodologies in the four research papers .................... 72
PART I: INTRODUCTORY ESSAY
9
1 INTRODUCTION
1.1 Background
Entrepreneurship has long been recognized as an important source of innova-
tion, job creation and economic development (see e.g., Audretsch et al. 2006;
Baumol 2002; Carree and Thurik 2010; Reynolds 1994), even if these rela-
tionships are not always straightforward (Carree et al. 2007) due to the diverse
forms of entrepreneurial activity and economic contexts (Stam and Van Stel
2011). Subsequently, fostering entrepreneurship has been widely viewed by
policy-makers and academics as a potential vehicle to address social and eco-
nomic challenges in different societies, which in turn has triggered research to
increasingly seek to identify the elements that can explain and promote entre-
preneurial behaviors.
A large body of the previous research on entrepreneurship has sought to
provide useful insights into how personal attributes and economic conditions
shape either the entrepreneur’s behavior or the activity of new firms (Thornton
et al. 2011). This, however, has led to a tendency in entrepreneurship research
to overlook the early phases of the individual venture creation process
(Davidsson and Honig 2003; Newbert and Tornikoski 2011), while underesti-
mating the role of the variety of external environments, which has limited our
knowledge of the influence of spatial, social, and institutional contexts in
particular (Welter 2011) on the pre-emergent phase of entrepreneurship.
Even though the importance of understanding the pre-firm formation phase
on the one hand (Bird 1988; Katz and Gartner 1988; Reynolds and White
1997) and the different contexts for economic behavior on the other (Dicken
1990; Granovetter 1985; Polanyi 1957; Veblen 1919; Weber 1904, 1905) have
long been recognized, academics have only recently emphasized the need for a
more contextualized and multilayered approach to enhance our knowledge of
when, why, and how entrepreneurship evolves in certain environments (Autio
and Wennberg 2010; J ennings et al. 2013; Thornton 1999; Thornton et al.
2011; Welter 2011). This recent call for a more contextualized view of entre-
preneurship has gained even more importance as environments have become
more diversified and interconnected, thus creating further variations in entre-
preneurial activity and economic growth on different spatial scales (Bosma et
al. 2008; Veciana and Urbano 2008). While these variations over time are
closely related to economic development, technological change and the
10
emergence of new markets, scholars have recently argued that entrepreneur-
ship variations across nations and regions seem to be the outcome of socio-
cultural contexts, emphasizing the importance of identifying other environ-
mental conditions than economic and business contexts (Freytag and Thurik
2007; Thurik and Dejardin 2011a; Welter 2011). In other words, it has been
recognized in the recent literature that entrepreneurship needs to be understood
in the various contexts in which it emerges (J ennings et al. 2013; Gartner et al.
2006; Stam 2010; Sternberg 2009; Welter and Smallbone 2011; Zahra 2007).
The challenge remains, however, to conceptualize and empirically examine a
context ‘which cuts across levels of analysis and influences entrepreneurship
directly or indirectly, but which also is influenced by entrepreneurial activi-
ties’ (Welter 2011: 176).
As a consequence, successive research has sought to address the different
contexts of entrepreneurship by shifting to spatial, cultural and institutional
perspectives. An institutional perspective, in particular, has been increasingly
suggested as a fruitful meta-framework with which to develop our under-
standing of the different environmental settings that interact with entrepre-
neurship (Autio and Wennberg 2010; Bruton et al. 2010; Kalantaridis and
Fletcher 2012; Stenholm et al. 2013; Thornton et al. 2011; Veciana and
Urbano 2008; Welter 2011). Moreover, scholars have recently suggested that
an institutional perspective can serve as a useful frame to uncover the various
contexts for entrepreneurial cognitions and the individual decision to found
new firms (Lafuente et al. 2007; Liñán et al. 2011; Lim et al. 2010; Thornton
et. al 2011). At the same time, it assists in better understanding the individ-
ual’s role in changing the contexts for entrepreneurship, such as the social and
institutional environment (Welter 2011; Kalantaridis and Fletcher 2012). This
way of thinking is in line with Veciana and Urbano’s (2008: 373) seminal
work on institutional theory and entrepreneurship, which has emphasized that
‘n the field of entrepreneurship the concern should be how the institutional
context affects […] the emergence of entrepreneurs’ and new venture creation.
Taken together, there is an obvious need for further research that seeks to
address both the conceptual and empirical challenges of contextualizing the
emergence of entrepreneurship. This dissertation argues that developing a
multi-layered institutional understanding of new venture creation can offer a
fruitful way forward.
1.2 Research objectives and methods
This dissertation seeks to contribute to the new debates and challenges in
entrepreneurship research by theorizing and empirically analyzing the
11
influence of social, spatial and institutional environments on entrepreneurial
cognitions and intentions, as well as on the subsequent venture creation
process. Here, it particularly adds to the knowledge of how informal institu-
tions, across different spatial contexts, shape an individual’s entrepreneurial
intent and progress in the business start-up process, which has received very
limited attention in the previous (cross-) regional and country studies on
entrepreneurship. In so doing, it will also contribute to our understanding of
the role of external, institutional environments in entrepreneurial cognition
processes (see Lim et al. 2010; Mitchell et al. 2007), especially the emerging
literature that examines the formation of entrepreneurial intentions in different
regional milieus (Lafuente et al. 2007; Liñán et al. 2011).
In addition, this dissertation provides new insights into how potential entre-
preneurs are affected by their social networks, and how they can resist and
potentially change social norms prevalent in their surrounding environment.
Thus, it also responds to the call for further development of an institutional
approach to entrepreneurship by including an individual perspective that
addresses the recursive (bottom-up effects) relationship between normative
institutions and entrepreneurship (Welter 2011; Welter and Smallbone 2008,
2011). Within this context, the dissertation will particularly draw attention to
the under-researched topic of older individuals who shift from earning a wage
to starting up a business of their own. In studying their creating and negotiat-
ing legitimacy for such a shift at a later stage in their careers the aim is to add
to the knowledge of how potential entrepreneurs at an ‘older’ age interact with
social barriers emerging from enterprising cultures, which tend to ‘praise’
younger entrepreneurs (Ainsworth and Hardy 2008, 2009). This will serve as a
useful basis to offer new thought-provoking ideas to capture informal institu-
tional settings for entrepreneurship, while adding to our understanding of the
influence of norms on potential entrepreneurs as well as their strategic
responses to normative barriers within different environments.
Finally, this dissertation aims to develop a multi-layered institutional under-
standing of the emergence of entrepreneurial intentions and new ventures, by
both theoretically and empirically incorporating the social, spatial and (infor-
mal and formal) institutional influences on the potential entrepreneur (Welter
2011). It seeks to provide new insights into the multi-layered nature of con-
textual influences on new venture creation, and the role of the individual and
the formation individual entrepreneurial cognitions in these processes. Here, it
also responds to the need for multilevel empirical research (Autio and Acs
2010; Bosma and Schutjens 2011), while addressing the important challenges
of capturing the context of entrepreneurship, by using both quantitative and
qualitative methods (Trettin and Welter 2011; Welter 2011). Besides contrib-
uting to these recent scholarly debates and challenges, this dissertation aims to
12
generate practical implications for policy-makers and the enterprise commu-
nity to assist in customizing initiatives to encourage potential entrepreneurs in
different types of environments. In summary, the present dissertation seeks to
generate new knowledge to help tackle the following main research question:
What role do social, spatial and institutional contexts play in the
formation of entrepreneurial intentions and the subsequent
venture creation process, and in how potential entrepreneurs are
able to resist and shape their surrounding contexts?
This dissertation is a cumulative effort comprising of a critical literature
review, substantial theoretical work, and four empirical research papers, each
of which adds nuanced insight to the research aims and main research
question, outlined above. Specifically, paper 1 investigates how the perceived
moral legitimacy of entrepreneurship in society influences an individual’s
progress in the venture creation process, while paper 2 examines how the
regional, institutional environment impacts on entrepreneurial cognitions and
intention. Paper 3 examines how perceived social norms in a regional context
influence the formation of entrepreneurial intentions. Paper 4 particularly
addresses the second part of the main research question by exploring how
social networks’ normative evaluation of entrepreneurship affect individual
entrepreneurial behavior, but also how potential entrepreneurs are able to
resist and change these social norms. A general overview of the research
papers, including the entrepreneurship aspect and the environmental contexts
studied is further given in Table 1, while the specific research gaps addressed
by the four papers will be illustrated in detail in the course of the critical
literature reviews.
Table 1 Research focus of the four research papers
Paper 1 Paper 2 Paper 3 Paper 4
Individual
entrepreneurship
aspect
Progress
across differ-
ent stages of
the venture
creation
process
Entrepreneurial
cognitions and the
formation of
entrepreneurial
intentions
Entrepreneurial
cognitions and the
formation of
entrepreneurial
intentions
Venture
creation
process and
early firm
phase
Contextual
influences
Societal,
informal
institutional
context
Regional, formal
and informal
institutional
context
Regional,
informal
institutional
context
Social,
informal
institutional
context
13
In order to tackle the research aims and question set in this dissertation, the
theoretical rationale of this work is based on the previous literature which
views entrepreneurship as the creation of new firms (Davidsson 2006; Gartner
et al. 1988; 2010), an evolving process determined by the relationship between
the individual and the environment (Stam 2010; Sternberg 2009; Malecki
2009). Embedded in the recent institutional scholarly work on entrepreneur-
ship (Bruton et al. 2010; Veciana and Urbano 2008; Welter and Smallbone
2011), the dissertation develops a multi-layered institutional approach drawing
upon institutional perspectives in economics (Hodgson 2006; 2009; North
1990) and economic geography (Gertler 2010; Martin 2000; Rafiqui 2009) as
well as organizational institutionalism (Powell and Colyvas 2008; Scott 1995,
2010) and institutional economic sociology (Fligstein 2001; Nee 2003;
Swedberg 2003). The institutional perspective is combined with a social
psychological approach to entrepreneurial behavior (Lim et al. 2010; Liñán et
al. 2011; Mitchell et al. 2007). In doing so, the theoretical frame of this
research seeks to incorporate three recently discussed contexts of entrepre-
neurial behavior: the social, spatial, and institutional contexts (Welter 2011),
and how the impact of these contexts on entrepreneurship is reflected in
individual cognitive processes and intentions, but also how individuals can
shape their surrounding contexts. The empirical work of this dissertation
involves both quantitative and qualitative empirical research, based on
multilevel data derived at the individual, regional and national levels. In
particular, the empirical analyses use primary surveys combined with official
regional statistics, in-depth interviews, and a secondary cross-country dataset,
while different quantitative and qualitative techniques are used to analyze and
interpret the data.
1.3 Structure
The remainder of this dissertation is organized as follows. Section 2 reviews
the academic literature that explores the different phases of the new venture
creation process and the formation of entrepreneurial intentions. It then goes
on to briefly summarize the main insights of the previous research, while
outlining the concepts that will be used in this dissertation to capture these
start-up processes at the individual level. The section will conclude with an
exploration of specific research gaps, serving as a basis for the further
exploration in Section 3.
Section 3 examines the academic debates that concern the contextualization
of entrepreneurial behavior, and reviews the main insights of the previous
research that addresses the influence of social, spatial and institutional
14
contexts on new venture creation processes. In light of this research, the
section will conclude with a critical summary of the prior literature, outlining
the specific knowledge gaps which this dissertation seeks to address.
Drawing upon the conceptual ideas and empirical insights presented in
Section 3, Section 4 starts with an introduction of the main arguments amongst
scholars about developing an institutional approach to entrepreneurship. It
then provides a historical overview of the different, emerging institutional
streams and approaches in social and economic sciences, and discusses their
potential synergies applicable to the approach developed in this dissertation.
Finally, this section develops a multi-layered institutional approach, setting the
underlying theoretical basis of the dissertation and the theoretical lens to frame
and interpret the empirical work in the four papers.
Section 6 describes the research methodologies used in the four individual
research papers, and provides short summaries of the paper contributions.
Section 7 critically discusses the main insights of the dissertation and
discusses its theoretical and empirical contributions to our improved contextu-
alized understanding of the formation of entrepreneurial intentions and new
venture creation processes. This section proposes a multi-layered institutional
approach to entrepreneurship. Further, it discusses the practical implications
for policy-makers and the enterprise support community. Finally, it offers a
critical reading of the limitations of the study, and outlines potential directions
for future research.
15
2 THE EMERGENCE OF NEW VENTURES
‘New businesses are not
created by accident’
(Carter et al. 2003: 17)
2.1 Towards a process-orientated view of entrepreneurship
Towards the end of the twentieth century, entrepreneurship scholars increas-
ingly highlighted the process nature of new firm formation, emphasizing the
importance of understanding the initial and pre-emergent phase of entrepre-
neurial behavior and new ventures (Bhave 1994; Bird 1988; Bull and Willard
1993; Carter et al. 1996; Gartner 1985, 1988; Katz 1990; Low and MacMillan
1988; Reynolds and Miller 1992; Reynolds and White 1997; Van de Ven et al.
1989; Venkataraman 1996). Accordingly, academics have steadily recognized
that ‘the creation of an organization is a very complicated and intricate pro-
cess’ (Gartner 1988: 28), and that ‘before there can be entrepreneurship there
must be the potential for entrepreneurship’ (Krueger and Brazeal 1994: 91).
This growing body of research has sought to respond to the over-dominance
of studies on existing entrepreneurs and firms or, in other words, to the lack of
knowledge of how (potential) entrepreneurs and firms emerge (Reynolds and
White 1997). This branch of academic work has also started to critically
address a prior, established research stream (see e.g., McClelland 1961),
which mainly focused on the traits that distinguish entrepreneurs from non-
entrepreneurs in society, for instance by tackling questions on whether
‘entrepreneurs are born or made’ (Lundström and Stevenson 2005: 18). Here,
Gartner (1988) and Katz and Gartner (1993) in the late 1980s, symbolically
raised the need for ‘a reorientation of entrepreneurship research from charac-
teristics of individuals to behaviors in the process of emergence’ (Davidsson
2006: 1). Moreover, inspired by the emphasis laid by other influential scholars
on the process nature of venture creation (Bhave 1994; Van de Ven et al.
1989), a dynamic and process-oriented view of entrepreneurship has begun to
replace an established static view, rooted in the work of Knight (1921), ‘which
sees entrepreneurship as a state which one can adopt or not’ (Van der Zwan et
al. 2010: 2183).
In this context, one major stream of this emerging research has begun to
seek to uncover the factors that influence the very early stage of the
16
entrepreneurial process, that is, an individual’s intention to start up in business
(Bird 1988; Krueger 1993; Shapero and Sokol 1982; Tkachev and Kolveried
1999). Another stream has started to investigate the decisions and activities of
individuals (often called nascent entrepreneurs) who are already actively
preparing their business (Delmar and Davidsson 2000; Reynolds and White
1997), while other scholars have sought to develop frameworks that explore
the different phases of the entire business start-up and early firm process (Katz
1990; Katz and Gartner 1988; Carter et al. 1996). Thus, there is an increasing
body of research that seeks to develop our knowledge of the emergence of
entrepreneurship, by investigating entrepreneurial cognitions (Mitchell et al.
2002a,b; Mitchell et al. 2007), the formation of entrepreneurial intentions
(Kautonen et al. 2013; Liñán and Chen 2009), the nascent entrepreneurship
phase (Müller 2006; Newbert and Tornikoski 2011, 2012; Reynolds et al.
2005) or a combination of different phases of the entrepreneurial process
(Rotefoss and Kolvereid 2005; Van der Zwan et al. 2010).
2.2 The different phases of new venture creation
At this point, many scholars agree that ‘entrepreneurship is a process of
emergence’ (Baron and Shane 2005; Davidsson 2006; Grilo and Thurik 2008;
Reynolds 2007; Sternberg 2009: 15; Stam 2007; Welter 2011), while others
even consider the processes of new venture creation to be the core characteris-
tic of entrepreneurship (Carter et al. 1996; Gartner and Carter 2003; Gartner
2010: 100). Subsequently, many theoretical conceptions and empirical studies
have emerged in the past decades seeking to describe and explore the various
phases involved in the individual process of founding a business, while also
focusing on the continuation of different stages after the business start-up
(Gartner and Carter 2003).
For instance, Wilken (1979) has sought to explain how individuals need to
develop a business idea and concept, and then carefully plan the new business
before actively engaging in the business establishment. Birley (1984) has
suggested that the firm formation process emerges in a sequential order, from
deciding to found a business, creating a bank account, acquiring premises and
resources, handling initial orders, and paying the first taxes through to hiring
workers. Vesper (1990) has stated that the venture creation process consists of
the acquisition of five key elements, while adding that these elements can be
combined in a different order: technical know-how, product or service idea,
personal contacts, physical resources and customer orders.
Katz and Gartner (1988) have proposed four significant properties that
conceptualize the creation of a new venture: intention to found an
17
organization, acquiring resources to form an organization, establishing the
boundaries of the organization, and exchanging resources across these bounda-
ries. Katz (1990) has further argued that individuals need to overcome three
hurdles in the process of becoming self-employed, those being the hurdles of
aspiring, preparing and entering. The aspiring hurdle indicates an individual’s
intent to become self-employed, while the preparing hurdle reflects their
preparations (e.g., scanning the environment and acquiring resources) before
facing the entering hurdle that arises when they actually open the business.
Learned (1992) has suggested a framework that illustrates three sequential
elements that lead to an individual’s decision to start or not to start a business:
propensity to become an entrepreneur, intention to start a business, and
making sense of information acquired during the attempt to develop ideas and
accumulate resources. Rotefoss and Kolvereid (2005) have conceptualized
three milestones of the business creation process (i.e., the aspiring, preparing
and entering milestone) by combining the models developed by Katz (1990)
and Learned (1992). According to their definitions, ‘reaching the aspiring
milestone represents an intention to pursue, or commitment to continue, an
entrepreneurial career; […] reaching the preparing milestone indicates an
attempt to establish a business; and […] the entering milestone implies the
actual start-up of a fledgling new business’ (Rotefoss and Kolvereid 2005:
110).
Moreover, Reynolds and Miller (1992) have sought to trace four different
events that can indicate the ‘gestation markers’ of the emergence of an
operating business: personal commitment (i.e., starting to invest personal time
and resources), financial support (i.e., obtaining external financial support),
sales (i.e., receiving first sales income) and hiring (i.e., employing someone
full- or part-time). Their study has indicated that not all events necessarily
occur in the firm creation process and that the events do not take place in a
particular order, while mainly concluding that ‘[t]he gestation period, from
conception to birth, should be treated separately from the post-birth period’
(Reynolds and Miller 1992: 416). Reynolds (1997) and Reynolds and White
(1997) have continued to propose a specific distinction between the different
stages of the firm formation processes, which includes the conception,
gestation, infancy, adolescence, maturity and decline stages; whereas the
notion of ‘nascent entrepreneurship’ has subsequently become increasingly
pronounced in entrepreneurship research (Reynolds et al. 2005), representing
the gestation and infancy phase. Supporting these developments, the study by
Carter et al. (1996) has uncovered three different profiles of nascent entrepre-
neurs. They have distinguished between those who are very active and actually
open a new business; those who are active but give up when realizing that
their business would not lead to success, and those who are still ‘trying’ to
18
found a business, as they tend not to put ‘enough effort into the start-up
process in order to find out whether they should start the business or give up’
(Carter et al. 1996: 152). These critical processes and outcomes in the nascent
entrepreneurship phase can be further understood by the suggestion that
potential entrepreneurs need–almost constantly–to discover and exploit
entrepreneurial opportunities to successfully found and establish businesses
(Shane and Venkataraman 2000).
Inspired by these prior studies, Grilo and Thurik (2005, 2008: 1114) have
proposed seven levels of an individual’s involvement in the entrepreneurial
process, noting that the levels do not necessarily indicate an increasing degree
of entrepreneurial engagement. Their concept includes two early stages of
entrepreneurial engagement (‘thinking about it’ and ‘taking steps to start a
business’), and levels that indicate if an entrepreneur is running a young or
older business, or has given up or even closed their business. Besides that,
they have defined a level that represents individuals who are not thinking of
becoming an entrepreneur, and thus are not (yet) engaging in the entrepre-
neurial process. Following their work, Van der Zwan et al. (2010) invented the
concept of the entrepreneurial ladder, by incorporating five of the seven entre-
preneurial engagement levels in a sequential order: ‘Never thought about it’,
‘Thinking about it’, ‘Taking Steps’, ‘Young business’ and ‘Old business’. The
idea behind this framework is that entrepreneurship is seen as a process, where
each level captures an increasing degree of engagement in the entrepreneurial
process, while the determinants of entrepreneurship can vary across these
levels (Grilo and Thurik 2008; Van der Zwan et al. 2010: 2184). This disser-
tation will particularly focus on the very early phase of the venture creation
process (see research paper 2 and 3), suggesting that the formation of entre-
preneurial intentions represent the initial phase of the start-up process.
2.3 Entrepreneurial intentions and the theory of planned behavior
‘The study of entrepreneurial intentions opens new arenas to theory-based
research [… as it] directs attention toward the complex relationships among
entrepreneurial ideas and the consequent outcomes of these ideas’ (Bird 1988:
442). This concluding statement by Bird (1988) in her article ‘Implementing
entrepreneurial ideas: The case for intention’ symbolizes the growing interest
from the 1980s onward in intentions when researching the emergence of
entrepreneurial behavior. Bird (1988) together with Katz and Gartner (1988)
were among the first scholars to develop a concept of the nature of entrepre-
neurial intentions. Following their work, mainly starting from the 1990s, the
explanation of entrepreneurial intentions has become an area of research
19
where a large body of entrepreneurship studies using social psychological
theories has emerged
1
(Bird 1992; Kolvereid 1996; Krueger 1993; Krueger et
al. 2000; Gird and Bagraim 2008; Liñán and Chen 2009; Van Gelderen et al.
2008; Kautonen et al. 2013).
In light of this emerging research, scholars have suggested that becoming
an entrepreneur involves a complex cognitive and decision-making process
(Gatewood et al. 1995; Liñán 2008; Mitchell et al. 2002a; 2007), while, as
outlined earlier, the start-up process involves a range of actions, such as saving
money, finding premises and equipment, or innovating and developing a
product or service, among others (Carr and Sequeira 2007; Aldrich and
Martinez 2001). Considering these initial decisions and steps as essential in
the pre-start-up phase of founding a business, many scholars agree that
becoming an entrepreneur is an emerging (Gartner et al. 2010; Sternberg
2009), but also intentional process (Carr and Sequeira 2007; Carter et al. 1996;
Krueger et al. 2000; Lafuente et al. 2007). In this context, Kolvereid (1996)
has already emphasized the intentional nature of entrepreneurial behavior by
suggesting that entrepreneurial intentions, among other things, include a
willingness to make decisions, being independent and creative, and seeking
performance-based remuneration.
Based on this logic, entrepreneurship scholars have increasingly suggested
that since entrepreneurial behavior is intentional, entrepreneurial intentions
can predict subsequent behavior aimed at starting a business (Bird 1988;
Krueger and Carsrud, 1993; Liñán and Chen 2009). Underlying this argumen-
tation, a substantial amount of empirical research from diverse behavioral
domains has demonstrated that intention is a good predictor of subsequent
action. For instance, meta-analyses by Armitage and Conner (2001) and
Sheeran (2002) have reported mean correlations of 0.53 and 0.47 between
intention and behavior, while a recent study by Kautonen et al. (2013) shows
that entrepreneurial intention explains a significant amount of the variance in
subsequent start-up behavior. Accordingly, the present dissertation considers
entrepreneurial intention as a strong predictor of future (nascent) entrepre-
neurial behavior.
Recognizing new firm formation as an intentional act calls for theory-
driven process models of entrepreneurial cognition focusing on intentions and
their perceptual bases (Bird 1988; Katz and Gartner 1988). Building on the
theory of reasoned action (Fishbein and Ajzen 1975), the theory of planned
behavior (TPB) (Ajzen 1988; 1991) has become one of the most widely used
psychological theories when explaining and predicting human behavior
1
See e.g., Krueger (2009) for a detailed, critical overview of the history, developments and recent
challenges of entrepreneurial intention research.
20
(Armitage and Conner 2001). It is also the most common theoretical frame-
work in the study of entrepreneurial intention
2
to this day (Carr and Sequeira
2007; Liñán and Chen 2009; Kautonen et al. 2013; Kolvereid 1996; Krueger
and Carsrud 1993; Krueger 2009; Tkachev and Kolvereid 1999). According to
Thompson’s definition (2009: 676), entrepreneurial intent is ‘a self-acknowl-
edged conviction by a person that they intend to set up a new business venture
and consciously plan to do so at some point in the future’, while Ajzen (1991:
181) defines intentions as ‘indications of how hard individuals are willing to
try, of how much of an effort they are planning to exert, to perform the
behavior’. Subsequently, the stronger an individual’s intention to engage in a
specific behavior, the more likely it should be to translate into their actual
performance or, in other words, intention is the immediate antecedent of
behavior (Ajzen 1991; 2000).
Ajzen’s (1991) TPB framework is here adopted as the basis for under-
standing entrepreneurial cognitions and the formation of entrepreneurial
intentions. Within this framework, entrepreneurial intention is conceptualized
as a function of three cognitive antecedents which, as prior applications of the
TPB show (Kolvereid, 1996; Liñán and Chen, 2009; Van Gelderen et al.,
2008), explain 30–45% of the variance in entrepreneurial intention: attitude,
subjective norm and perceived behavioral control. According to Ajzen (1991),
attitude refers to the degree to which a person makes a favorable or unfavora-
ble evaluation or appraisal of the behavior in question. Subjective norm stands
for an individual’s perceived social acceptance, with their closer social
environment, of performing that behavior. Perceived behavioral control refers
to the degree to which an individual believes they are able to perform the
behavior. Accordingly, Ajzen and Fishbein (2004) suggest that the three
theoretical antecedents should be sufficient to predict intentions. Thus,
generally speaking, the more favorable the attitude and the subjective norm
with respect to the behavior, and the greater the perceived behavioral control,
the stronger is the individual’s intention to perform the behavior (see also
research paper 2 and 3 for the dissertation’s specific theoretical and empirical
application of the TPB model).
2
Even though Ajzen's TPB has gained most popularity among scholars in research on
entrepreneurial intentions (Krueger 2009), Shapero's model of the ‘entrepreneurial event’ (see e.g.,
Shapero 1984; Shapero and Sokol 1982) has to be considered as a further dominant, useful model of
behavioural intentions in entrepreneurship research (Krueger et al. 2000, 2009).
21
2.4 Understanding the emergence of new ventures
Research over the past decades has suggested that becoming an entrepreneur is
an emerging process consisting of complex choices and different activities
depending on the level of engagement in the venture creation process. While
scholars have focused on developing concepts and measurements to capture
the different phases and levels of the entrepreneurial process, they have also
explored the practical decisions and activities involved in founding and
developing a business. This dissertation will draw mainly upon the former
research branch, since the aim is to investigate factors that influence intentions
to engage in and their progress across the different conceptual phases of the
firm formation process; thus it will draw less attention to the variety of
practical start-up activities.
As indicated above, scholars have particularly explored different notions
applied to the very early phase of the emergence of new ventures, such as
aspiration (Katz 1990), intention (Katz and Gartner 1988; Learned 1992),
personal commitment (Reynolds and Miller 1992), the conception (Reynolds
1997) and the initial thought (Grilo and Thurik 2008) of founding a business.
However, referring to the work of Rotefoss and Kolvereid (2005), an individ-
ual’s entrepreneurial intent to start up in business reflects in their aspiration
and commitment to found a venture, while these elements arguably mirror that
an individual considers becoming an entrepreneur as a potential career option.
Furthermore, the notion of conception indirectly refers to the emergence of an
individual’s intention and commitment to found a firm, which, in turn, is a
prerequisite of starting to prepare their business, and entering the nascent en-
trepreneurial phase (Reynolds and Miller 1992; Reynolds 1997). Accordingly,
the formation of an individual’s intention to start a new venture is argued to
relate to or capture the different elements of the initial start-up phase that has
been discussed in the prior literature. Supporting the role of intentions in the
new firm formation process, Gartner et al. (1992: 17) have stated that
‘Emerging organizations are elaborate fictions of proposed possible future
states of existence.’ Krueger (2009) has even suggested that entrepreneurial
intentions may reflect the final phase before actually launching a business,
highlighting the closeness of the genuine form of intent and nascent activity.
Subsequently, this section of the dissertation suggests that, in order to
understand the pre-emergent phase of entrepreneurship, from an individual
perspective, it is important to recognize the process nature of starting up in
business, the different levels of entrepreneurial engagement, and particularly
the entrepreneurial cognitions and intentions that deter the translation into the
nascent entrepreneurial activities respectively starting up in business.
Following this, and from the existing body of entrepreneurship research
22
discussed above, Rotefoss and Kolvereid’s (2005) three-stage-concept
(aspiring, nascent and fledgling entrepreneur) is adopted as a broad basis for
understanding the firm formation process in this study. Additionally, the
concept of the entrepreneurial ladder by Van der Zwan et al. (2010) is used to
complement the three-stage concept particularly with the stage of ‘never
thinking about starting a business’ as well as a more specific differentiation
between the early firm phases (i.e., ‘young’ and ‘old’ business). These two
proposals are combined here to suggest that the relevant stages in the
entrepreneurial processes are as follows: never thinking about starting a
business; intending to become an entrepreneur (aspiring entrepreneur);
preparing a business (nascent entrepreneur); young business (fledgling entre-
preneur); and operating a mature business. Further, as explored above, the
phase of intending to become an entrepreneur is particularly understood in line
with the TPB framework, which emphasizes that entrepreneurial intentions
are determined by three cognitive antecedents (attitude, subjective norm and
perceived behavioral control). Against this backdrop, this dissertation will
now turn to exploring some of the main challenges in contextualizing the new
venture creation processes. In doing so, it examines the existing literature that
discusses and empirically analyzes the different contexts of entrepreneurship,
while particularly drawing attention to studies that explore the role of those
contexts in the formation of entrepreneurial intention and the business start-up
process.
23
3 CONTEXTUALIZATING THE EMERGENCE
OF NEW VENTURES
‘Ventures are not
started in isolation’
(Vesper 1990: 109)
3.1 Towards a contextual view of entrepreneurship
For many years, academics have been illustrating that economic behavior is
facilitated by different social, cultural, economic and geographical contexts
(Amin and Thrift 1994; Dickens 1990; Granovetter 1985; J acobs 1969;
Hodgson 1988, 2004; Lee and Wills 1997; Martin 1994; Massey 1973, 1984;
North 1990; Oinas 1997; Polanyi 1957; Thrift and Olds 1996; Storper 1997;
Veblen 1919; Weber 1904, 1905). In the last two decades there has been also
an increasing recognition that entrepreneurship can be better understood when
considering the context(s) within which it is embedded (Aldrich and Fiol
1994; Aldrich and Zimmer 1986; Drakopoulou-Dodd and Anderson 2007;
Gartner 1995; J ack and Anderson 2002; Steyart and Katz 2004; Stam 2010;
Sternberg 2009; Thornton 1999; Thornton and Flynn 2003; Ucbasaran et al.
2001; Veciana and Urbano 2008; Wennekers and Thurik 1999; Welter 2011;
Zafirowski 1999). Reflecting these rather recent developments in entrepre-
neurship research, Welter’s (2011: 166) recent work has sought to
(re)emphasize the importance of exploring ‘the multiplicity of contexts and
their impact on entrepreneurship […] for understanding when, how, and why
entrepreneurship happens and who becomes involved.’
Such a contextualized lens has become even more important in recent
entrepreneurship research since environments have become more diversified
and interconnected, as a result of globalization processes, thus creating further
spatial variations in entrepreneurial activity (Veciana and Urbano 2008;
Thornton et al. 2011). This has led recent research to increasingly argue that
the–conceptual idea of–‘context’ is a very ‘multiplex phenomenon’ (Welter
2011), which directly or indirectly facilitates entrepreneurship at various levels
of analysis (Thornton 1999; Thornton et al. 2011; Welter 2011), while
acknowledging that context is shaped by entrepreneurial activities themselves
(Welter 2011; Garud et al. 2007; Bruton et al. 2010). Complementary to this
24
view, academics have further emphasized ‘entrepreneurship as a
multidimensional phenomenon spanning different units of observation ranging
from the individual to the firm, region or industry, and even nation’ (Grilo and
Thurik 2008: 1116; see also, Lundström and Stevenson 2005; Wennekers and
Thurik 1999; Davidsson, 2004; Wennekers et al. 2002). Subsequently, there is
a growing body of scholars, from different disciplinary and theoretical strands
that has begun to recognize the multiple nature of both context and entrepre-
neurship, aiming to develop our understanding of the contextual conditions
and boundaries that support, restrict or interact with the different forms and
levels of entrepreneurship (Aldrich and Martinez 2001: Armington and Acs
2002; Fritsch and Schmude 2006; Begley et al. 2005; Blanchflower 2000;
Bosma et al. 2009; Brixy and Grotz 2007; Gartner et al. 2006; Malecki 2009;
Stam 2010; Stam and Van Stel 2011; Sternberg 2009; Tamásy 2006; Thornton
1999; Thornton et al. 2011; Welter 2011; Veciana and Urbano 2008).
While a range of influencing factors has been identified and discussed
(Blanchflower 2000), scholars have pointed out that economic factors and
business contexts have been widely addressed (and perhaps even overempha-
sized) in studies on entrepreneurship, which, in turn, has limited our multilevel
understanding of the social and cultural influences on entrepreneurial behavior
(Autio and Wennberg 2010; Freytag and Thurik 2007; Schendel and Hitt
2007; Thornton et al. 2011; Welter 2011). These developments have appar-
ently come as a surprise to many academics as the idea that individuals
influence and are influenced by their social context is not new (Thornton et al.
2011; Welter 2011), for instance, when remembering the work of Max Weber
(1904, 1905) in the early twentieth century. Here, scholars are reminded that
Weber’s work has already highlighted the validity of holding a multi-layered
lens up to approaching the relationship between culture and economy, by
arguing that the protestant culture has promoted individualism, which in turn
has deterred economic activity and development (Steyaert and Hjorth 2006;
Thornton et al. 2011; Welter 2011).
In this context, Thornton et al. (2011) have emphasized the importance of
combining the social and cultural context to understanding the nature of entre-
preneurial decisions and behavior, while Welter (2011) has offered a similar,
but somewhat broader conceptual approach. Inspired by the work of J ohn
(2006), Whetten (2009) and Hackman (2003), among others, Welter (2011)
has suggested that in order to be able to conceptualize and analyze entrepre-
neurship through a ‘context lens’, it is important to capture the lower and
higher levels of analysis, by particularly at the social, spatial (or geographical),
and institutional (cultural and political) (‘where’ contexts), within which the
(potential) entrepreneur is embedded.
25
Against this backdrop, this dissertation seeks to contribute to these recent
challenges in entrepreneurship research, drawing upon a contextual view of
the emergence of entrepreneurship, where entrepreneurship is ‘taking place in
intertwined social, societal, and geographical contexts, which […] can be
perceived as an asset or a liability by entrepreneurs’ (Welter 2011: 176-177).
In the current research, that statement is taken as being equally applicable to
prospective entrepreneurs. Underlying this argumentation, Low and McMillan
(1988) have already suggested that it is important to capture process and
context, to understand the emergence of entrepreneurship. More recently,
Newbert and Tornikoski (2011) have concluded that nascent entrepreneurs are
embedded in different relational and structural relationships that in turn affect
a nascent organization’s transformation into an operating business. Fuller et al.
(2008) have argued that the core rationale for the emergence of entrepreneur-
ship assumes that it is due to interactions between the individual and the
environment, calling for future research that addresses the different levels of
contextual analyses, applying multilevel theoretical concepts. Supportive of
this call, Bosma and Schutjens’ (2011: 737) recent work has argued ‘that
understanding entrepreneurial behavior and attitudes, and eventually
influencing entrepreneurship in general, calls for different instruments at
different spatial scales in different stages of entrepreneurship’. Drawing upon
such conceptual introductions, this dissertation now proceeds to provide an
extensive review of the entrepreneurship studies that have both explicitly and
implicitly sought to explore the social, spatial, and (formal and informal)
institutional influences on (the emergence of) entrepreneurship.
‘[T]he notion of entrepreneurship […]
in isolation from social process is passé’
(Anderson and Miller 2003)
3.2 Social context
Inspired by the well-established, sociological literature on the intertwined
notions of social capital (J acobs 1962; Coleman 1988), social networks (Burt
1992; Podolny 2001) and social embeddedness (Granovetter 1985;
Stinchombe 1965), many studies have emerged over the past two decades that
seek to understand entrepreneurship as a social phenomenon (Aldrich and
Zimmer 1986; Anderson and J ack 2002; Baron and Markman 2003; De
Carolis and Saparito, 2006; Greve and Salaff 2003; J ack and Anderson 2002;
Katz 1993; Liao and Welsch 2005; Drakopoulou-Dodd and Anderson 2007).
This increasing body of literature has begun to address the limitations of the
26
dominant ‘atomized’ view of entrepreneurs in research, calling for a more
socially embedded, process-based view of entrepreneurial activity
(Drakopoulou-Dodd and Anderson 2007). Welter and Smallbone (2011: 120)
have further underlined that ‘it is necessary […] to incorporate the role of
social context if […] the nature and extent of entrepreneurship […] are to be
understood.’ Thus, even if academics differ in their views on the role of the
individual in the entrepreneurial process (see Section 2), it has been increas-
ingly recognized that the emergence of new firms is embedded in and affected
by social processes (Anderson and Miller 2003; Davidsson and Honig 2003;
Katz and Gartner 1993; Liao and Welsch 2005; Gartner et al. 2010).
Drawing upon these ideas, academics are increasingly exploring and theo-
rizing on the social embeddedness of entrepreneurship. For instance, Alistair
Anderson and his colleagues (J ack and Anderson 2002; Anderson and Miller
2003; Drakopoulou-Dodd and Anderson 2007) have begun to postulate that
‘the formation and development of a firm is related to the business founder’s
social world [i.e., social groups and social ties], and to all of the subjective
configurations associated with this social world’ (Anderson and Miller 2003:
19). Linking to the work of Becker and Gordon (1966), Nelson and Winter
(1982), Pfeffer (1982), among others, Gartner et al. (2010) have also argued
that the process of organization formation is rooted in social interaction where
individuals continuously re-organize resources, routines and structures, to
found their business. Underlining these developments, Anderson and Miller
(2003) have illustrated that social capital is embodied within social networks,
supporting resource-acquisition strategies necessary for operating a business.
Thornton et al. (2011) have outlined that many social network analyses have
emerged that highlight how entrepreneurs access non-internal resources,
which emphasizes that entrepreneurs have the necessary resources available
(i.e., human capital), but that they also need to proactively acquire resources,
such as information and financial capital, through their social contacts
(Aldrich and Zimmer 1986; Casson and Della Guista 2007; Cooper et al.
1995; Hoang and Antoncic 2003; Ribeiro-Soriano and Urbano 2009). This
also links to the literature that has sought to investigate how entrepreneurial
opportunities are recognized and created through social network members (De
Carolis and Saparito 2006; Fletcher 2006), suggesting that social contexts
influence the entrepreneurial process, but that these contexts are also shaped
by individual action (Welter 2011). In other words, entrepreneurs’ ability to
use social capital gained through social networks is essential for new venture
creation (Granovetter 2004; Greve and Salaff 2003; Nahapiet and Ghoshal
1998).
Specifically referring to the pre-emergent phase of entrepreneurship,
Sirmon and Hitt (2003) and Greve and Salaff (2003) have suggested that
27
individuals need to utilize their human capital and interact within the closer
social contexts to obtain resources that are important to prepare their new
business. David and Honig (2003) have shown that bonding social capital
based on strong ties, such as having parents or close friends who are entrepre-
neurs, and the active support from family and friends encourages individuals
to engage in nascent entrepreneurial activities. Their study has further
illustrated that bridging social capital based on weak ties, such as membership
of Chambers of Commerce, enhanced an individual’s general activity level
and progress in the nascent entrepreneurial phase. Applying the widely used
social network concept of Nahapiet and Goshal (1998), Liao’s and Welsch’s
(2005: 358) empirical study has concluded that, ‘[f]or nascent entrepreneurs,
what matters is how to utilize their social ties and interaction (structural
capital) to influence and shape the norms and practices of their networks
(cognitive capital) and in turn to develop trust and trustfulness and access to
various actors’ support (relational capital).’
Tornikoski and Newbert (2007) have further emphasized that it is important
for a nascent entrepreneur to be legitimatized in the eyes of their potential
network members and resource gatekeepers, by convincing them that their
nascent organization is operational. In a later study, these authors added that
while a nascent entrepreneur might have a large number of ties with contacts,
it does not necessarily mean that those contacts have the ability and motivation
to support their venture creation. They have also concluded that once the
nascent entrepreneur has a larger number of contacts that directly support
them with valuable resources, the importance of enlarging the network
diminishes (Newbert and Tornikoski 2012).
Academics have also begun to add family perspectives more explicitly to
social capital and network approaches (Chang et al. 2009). For instance,
Anderson and Miller (2003) have illustrated how the development of an
entrepreneur’s social capital is determined by their family background, while
Aldrich and Cliff (2003) have explored how family networks influence the
emergence and recognition of entrepreneurial opportunities and resources, and
the final decision to go ahead and create a new venture. Greve and Salaff
(2003) have argued that family members act as important resource holders to
potential entrepreneurs who lack access to other social support networks
during the firm formation process, while previous research has pointed out that
this is particularly the case when family members have an entrepreneurial
background (Aldrich and Cliff 2003). However, investigating family
businesses, Anderson et al. (2005) have also shown that family members that
are not directly involved in the (family) business or in other entrepreneurial
activities also offer essential resources to entrepreneurs, such as professional
advice and emotional support. Supporting this argumentation, Chang et al.’s
28
study (2009) has highlighted that the support of family networks (in)directly
influences new venture creation by helping individuals to become better
prepared for entrepreneurial activities and to carry out their ideas to actually
open their new business. Their study has further argued that support from both
family and other social actors facilitates an individual’s entrepreneurial inten-
tions and their subsequent acquisition of resources to prepare the new venture.
These insights are in line with the large number of entrepreneurship studies
that apply Ajzen’s (1991) TPB, where the perceived social support is concep-
tualized as one important determinant of intention. Thus, most of these studies
have empirically demonstrated that an individual’s entrepreneurial intention is
stronger when they perceive positive social support and approval from
networks of family and friends (see e.g., Krueger 1993; Van Gelderen et al.
2008; see also discussion in Section 2.2.). Liñán and Chen (2009) have further
argued that the social expectations of family and friends can indirectly shape
an individual’s entrepreneurial intention by affecting their entrepreneurial
attitude and self-belief in being able to operate a venture. Utilizing the inten-
tion model of Shapero and Sokol (1982), Liñán and Santos (2007) have shown
that individuals’ perceived bonding social capital, as outlined above, influ-
ences their desire to become an entrepreneur, while illustrating that bridging
social capital, in other words the perceived social support in a broader
network context, has an impact on their perception of the feasibility of entre-
preneurial activity. Uniting those ideas, De Caloris et al. (2009) have
suggested that an individual’s social capital and ties with social networks can
influence their entrepreneurial cognitions, such as risk propensity and impres-
sion of being in control in the context of entrepreneurship, and consequently,
their progress in preparing and starting a new venture.
‘[T]he [firm formation] process is
essentially geographically constrained’
(Birley 1985: 112)
3.3 Spatial context
Over the last two decades, the spatial, or geographical, dimension of entrepre-
neurship has become increasingly pronounced (Trettin and Welter 2011) in
light of the emerging body of (inter)national and regional studies that have
found spatial variations in and conditions for new firm creation, (pre-)nascent
entrepreneurial activity and (macro-) economic development (Armington and
Acs 2002; Bosma et al. 2008; Bosma and Levie 2010; Blanchflower 2000;
Reynolds et al. 1994; Stam 2007; Tödtling and Wanzenböck 2003; Wennekers
29
and Thurik 1999; Wennekers et al. 2002). Accordingly, entrepreneurship
scholars have steadily begun to explore the role of spatial contexts in co-
determining the opportunity structure (on the demand side) and the resources,
capabilities and interests (on the supply side) that affect different forms of
entrepreneurship (Blanchflower 2000; Bosma et al. 2009; Malecki 1997, 2009;
Schmude et al. 2008; Stam 2009, 2010; Sternberg 2009; Thurik et al. 2002;
Trettin and Welter 2011).
While the existing literature addresses different spatial influences on
various forms of entrepreneurship, spatial contexts have been analyzed along a
range of different geographical scales. To give a brief overview, a recent
literature review by Trettin and Welter (2011: 28, see Table 3) has summa-
rized the main applied geographical foci and scales as follows: (1) cross-na-
tional comparison (2) research of the national situation (3) nationwide
comparison of larger regions / different types of regions (4) comparison of
sub-regions within one larger region of a nation (5) large city (incl. hinterland)
(6) urban district(s) of a large city or small towns / villages in a peripheral
location. Following that literature analysis, studies on the larger geographical
scales (see 1–3) have dominated previous spatial entrepreneurship research,
while focusing to a large extent on spatial variations in business start-up and
death rates, nascent entrepreneurial activity, individual start-up decisions and
economic influences of entrepreneurship. In contrast, the smaller, but increas-
ing, body of studies at the lower geographical scale (see 4–6) has tended to
explore ‘policies, entrepreneurship promotion and services,’ and ‘networks,
social capital, embeddedness, culture and ethnicity’ (Trettin and Welter 2011:
7–8).
Scholars have argued that, due to the processes of globalization, spatial
contexts at local, regional and (inter)national levels have become more diver-
sified and interconnected, so creating further variations in entrepreneurship
and economic growth (Bosma et al. 2008; Lundström and Stevenson 2005;
Reynolds et al. 2000; Tödtling and Wanzenböck 2003; Veciana and Urbano
2008) as well as challenges for spatially orientated research (Trettin and
Welter 2011). At the same time, scholarly debates have suggested that these
globalization processes have increased the importance of local and regional
markets, limiting the possibility of macroeconomic policy actions in order to
support and regulate the economy (Bosma et al. 2008; Lundström and
Stevenson 2005; Nyström 2009). Moreover, while certain spatial variations of
entrepreneurship can be better explained at national levels, such as areas of tax
legislation, Sternberg (2009: 14) has suggested ‘that in addition to nationally
more or less similar framework conditions, there are also a large number of
other framework conditions that vary between regions of the same country and
which influence the individual decision for and against (entrepreneurship).’
30
Stam (2009: 497) has further underlined that the increasing ‘regional hetero-
geneity in the determinants of entrepreneurship leads to an even higher
heterogeneity in the spatial distribution of entrepreneurship.’ Subsequently,
while entrepreneurship research on larger geographical scales has become
widely established, for instance via the US-Panel Study of Entrepreneurial
Dynamics (PSED) and the GEM national surveys (Trettin and Welter 2011),
the openness of markets and heterogeneity of regions has increasingly forced
the debates to focus on local and regional contexts for entrepreneurship, as the
relevance of national markets has been gradually diminished (Bosma et al.
2008). In other words, scholars now widely acknowledge that the local and
regional dimension (see classification groups 3–6) must be included in entre-
preneurship research (Acs and Stough 2008; Fritsch and Schmude 2006),
particularly when seeking to understand the emerging process of new ventures
(Sternberg 2009; Stam 2010).
Against this backdrop, scholars have steadily turned to discussing different
forms of local and community entrepreneurship (J ohannisson 1990;
Frederking 2004; Haugh 2007; Spilling 2011; Trettin and Welter 2011; Welter
et al. 2008) and to a larger extent to investigate the local and regional condi-
tions (on the demand and supply side (Stam 2010)) that positively or
negatively influence firm creation and exit strategies, nascent entrepreneurship
and economic development (Armington and Acs 2002; Audretsch and
Keilbach 2004; Bosma et al. 2008; Brixy and Grotz 2007; Fritsch and Mueller
2007; Fritsch and Schmude 2006), including support policies, attitudes and
skills of the population, availability of incubators, and demographic and
industry structure (Sternberg 2009; Stam 2010), among others. To give some
specific examples, for instance, Tödtling and Wanzenböck (2003) have shown
that urban and tertiary regions display significantly above-average rates of
company formation and more favorable structural features in their new
businesses, compared to traditionally industrial and rural areas. Here, previous
research suggests that urban areas support company creation by providing
more (accessible) local entrepreneurial opportunities and resources than rural
areas (Armington and Acs 2002; Bosma et al. 2008; Reynolds et al. 1994;
Stam 2009, 2010), while the threshold of starting a business is usually much
lower in the service sector than in the capital-intensive manufacturing sector
(Bates 1995; Brixy and Grotz 2007; Fritsch et al. 2006; Tamásy 2006). At the
same time, scholars have begun to indicate that urban environments can also
undermine entrepreneurial interests and activities due to ‘congesting factors’
(Naudé et al. 2008: 120), such as intense competition, high barriers to entry
and less room for innovation-based differentiation (Bosma et al. 2008; Naudé
et al. 2008).
31
The literature has further suggested the regional supply of well-educated
labor–often associated with agglomerated areas (Tödtling and Wanzenböck
2003)– supports local entrepreneurship (Armington and Acs 2002; Bosma et
al. 2008; Naudé et al. 2008), for instance, due to higher levels of creativity and
innovation (Davelaar and Nijkamp 1997; Ritsilä 1999; Gregerson and J ohnson
1997) and more established social, professional networks (Maillat 1995), thus,
enhancing the recognition and exploitation of entrepreneurial opportunities
(Lundström and Stevenson 2005; Nyström 2005; Reynolds et al. 2004).
Mueller (2006) has further shown that nascent entrepreneurial activity across
German regions is positively related to education, while Naudé et al. (2008)
have demonstrated that firm birth rates in South African regions are higher
when nascent entrepreneurs are better educated than the average person.
Armington and Acs (2002) have illustrated that the presence of universities in
U.S. regions and a higher degree of knowledge transfer to the private sector
encourage higher entrepreneurial activity levels and provide support for firms
to succeed.
Moreover, research has suggested that regions with higher financial wealth
levels can support entrepreneurial processes through an increased spending
capacity (Bergmann 2005), higher demand for products (Bosma et al. 2008;
Reynolds et al. 1994), and a greater supply of resources for business capitali-
zation and lower borrowing costs (Bates 1995; Kangasharju 2000; Naudé et al.
2008; Stam 2010). On the other hand, prior literature has argued that higher
wage levels in a region increase the labor costs for (new) firms (Nyström
2005), and raise the comparative attractiveness of paid employment (Bosma et
al. 2008). Audretsch and Fritsch (1994a,b) have further indicated that a
perception that there are few employment prospects in a region can force
individuals to become entrepreneurs, while other studies have shown that high
unemployment reflects a weak regional economic situation, indicating a
relatively low demand and correspondingly weak prospects of successful
company formation (Bosma et al. 2008; Carree 2002; Reynolds et al. 1994).
Scholars have further suggested that the local government and its policy
actions affect the level of nascent entrepreneurship (Acs and Stough 2008;
Bosma et al. 2008; Keeble and Walker 1994; Lundström and Stevenson 2005;
Reynolds et al. 1994), where, for instance, the dominant political ethos in
regions reflects in different support and spending policies towards entrepre-
neurship (Garofoli 1994; J ohnson and Parker 1996; Reynolds et al. 1994;
Rotefoss and Kolvereid 2005; Kangasharju 2000).
Academics have further discussed how the regional culture reflects an
important indicator in the supply side of entrepreneurship, co-determining the
preference structures for entrepreneurial activity (Bosma and Schutjens 2011;
Stam 2009, 2010; Sternberg 2009). For instance, the presence of entrepre-
32
neurial role models in a regional community has been found to influence the
individual’s perceptions of desirability of entrepreneurship and, thus, their
potential to start up in business (Fornahl 2003; Lafuente et al. 2007; Vaillant
and Lafuente 2007). In this context, previous studies have explored whether
positive entrepreneurial examples and a high number of entrepreneurs within a
regional and socially tight context can foster the local acceptance of entrepre-
neurial activity (Gibson 2004; Lafuente et al. 2007; Lundström and Stevenson
2005; Reynolds et al. 2000). Alongside the number of entrepreneurs, high
density of small enterprises in a region has often been singled out as a factor
that enhances entrepreneurial aspirations (Reynolds 1994; Rotefoss and
Kolvereid 2005) by providing business ideas for potential entrepreneurs as
well as opportunities for them to familiarize themselves with the management
of a small business (Kangasharju 2000; Rotefoss and Kolvereid 2005).
Mueller (2006) has further illustrated that the local entrepreneurial
environment tends to exert particular influence on the early phase of an
individual’s decision process on whether to start a business, while this impact
decreases once an entrepreneurial desire has been established. Here, Liñán et
al. (2011) have recently shown that an individual’s perceived valuation of an
entrepreneur, in a broader societal and closer social context, has an impact on
their entrepreneurial intention level, and that this influence significantly varies
between regions. Vaillant and Lafuente (2007) have also argued that,
especially in European regions, entrepreneurial failure is socially stigmatized,
which increases the perceived obstacles to engaging in entrepreneurial
activities. Other studies have explored whether a higher regional start-up rate
in the past serves as an ongoing conduit for higher entrepreneurial activity, for
example by increasing innovation activity, knowledge spillovers, competition
and firm diversity (Audretsch and Keilbach 2004; Bosma et al. 2008; Fritsch
and Mueller 2007; Ritsilä 1999). Taken together, these empirical examples are
all indications of the need for the inclusion of spatially orientated–both
theoretical and empirical–research when investigating the emergence of
entrepreneurship.
The role of spatial contexts, at the regional and local scale, for new firm
formation processes has become even more pronounced in light of studies that
have underlined the stylized fact (Stam 2009; 2010) that entrepreneurs
establish their businesses near where they live (Cooper and Folta 2000;
Sorensen and Audia 2000; Sorenson 2003; Stam 2007). For instance, Stam’s
(2007, 2009, 2010) work has suggested that most entrepreneurs base their
business in their home region because of personal motives and support from
personal networks (e.g., family, friends, work colleagues) who live in the
surrounding environment. Further, the author has argued that ‘entrepreneurs
[tend to] discover opportunities in markets with which they are familiar, most
33
likely in or near their former working and living environments’ (Stam 2007:
12). Supporting this line of argument, the study of Dahl and Sorenson (2009)
has shown that it is emotionally important for entrepreneurs to locate their
business close to the area where their family and friends live, while Figueiredo
et al. (2002) have emphasized the role of personal relationships by showing
that entrepreneurs tend to accept far higher labor costs to operate their new
business where they live.
Moreover, Malecki (2009) has suggested that most of the (nascent)
entrepreneur’s contacts are in fact local, which, in turn, enables them to
accumulate extensive knowledge about the local industry and to gain competi-
tive advantage in the resident region. Michelacci and Silva (2007) have illus-
trated that entrepreneurs are more likely to stay in the area where they were
born than are dependent workers. Their study has further concluded that local
entrepreneurs are better at exploiting entrepreneurial opportunities in the
region than non-locals, as they are able to use more capital-intensive technolo-
gies and generally to develop more profitable and larger businesses. Besides
that, it has to be noted that entrepreneurs often consider local or home-based
locations because they have limited financial resources (Stam 2007) and/or run
their new business on a part-time basis, delaying their decision to become a
full-time entrepreneur until the new business starts to prosper (Stam 2010).
Subsequently, ‘for nascent entrepreneurs the focal choice is [often] what kind
of firm to start given their location, not so much choosing a location for a
given firm (Stam 2007, 2010: 142). This, in turn, emphasizes the important
role of considering the ‘“environment for entrepreneurship” in a region or
locale [as] a critical part of the entrepreneurial process itself, as well as of the
chances for local economic development’ (Malecki 2009: 176).
‘The process of becoming entrepreneur
is highly conditioned by the formal
and informal institutions’
(Veciana and Urbano 2008: 373)
3.4 Institutional context
While scholars have long been exploring the role of broader cultural,
economic and political contexts for economic activity (Cochran 1960;
Hodgson 1988; Polanyi 1957; North 1990; Veblen 1919; Weber 1904, 1905),
more recent research has begun to explicitly explore the influence of culture
and society and also political and economic systems on entrepreneurship
(Welter 2011). Such research often, whether directly or indirectly, refers to
34
informal institutions (e.g., culture, values, norms, traditions) and/or formal
institutions (e.g., laws, property rights, economic regulations), as were intro-
duced by the work of North (1991). Accordingly, a number of studies have
emerged particularly since the 1990s, that draw attention to the various forms
of entrepreneurship embedded in different institutional environments
(Ahlstrom and Bruton 2002; Aidis et al. 2008; Kalantaridis 2007; Freytag and
Thurik 2007; Lim et al. 2010; Nee 1992; Stephen et al. 2005; Stenholm et al.
2013; Welter and Smallbone 2008, 2011), increasingly suggesting that ‘[t]he
process of becoming (an) entrepreneur is highly conditioned by the formal and
informal institutions’ (Veciana and Urbano 2008).
It has also come to be widely acknowledged that informal institutional
contexts need to be combined in order to understand the influence of each
pillar on entrepreneurial activity as well as the interaction between institutions
and entrepreneurship more generally (Acs and Karlsson 2002; Davidsson et al.
2006; Li and Zahra 2012; Welter and Smallbone 2011). However, while
several theoretical conceptions of (the different forms of) institutions strongly
consider the interactive elements between formal and informal institutions (or
even neglect this simplified, binary distinction (see Section 4, and particular
Hodgson (2006) for a critical overview), the existing empirical research that
tackles relationships between institutions and entrepreneurship is often
characterized by focusing either on formal or on informal structures for
entrepreneurial activity (Welter 2011). To this, Bruton et al.’s (2010) literature
review has underlined that only a small body of the institutional research on
entrepreneurship explicitly engages in institutional theoretical work, apart
from using established classifications of institutional pillars (North 1991; Scott
1995). Accordingly, North’s (1991) binary distinction of formal and informal
institutions is used to structure the following literature review.
Formal institutional context
Scholars have increasingly sought to understand formal institutional structures
for entrepreneurial activity by investigating regulatory frameworks of both a
political and an economic nature. For instance, Smallbone and Welter (2009)
have researched the initial reforms of legal systems in Central and Eastern
European countries showing how changes in formal institutional frameworks
can profoundly determine entrepreneurial activity by permitting private
businesses to exist. These authors have also uncovered different ways in which
the governments of Estonia and Belarus influence the nature and pace of
business development, thus emphasizing the role of institutionalized behaviors
in this emerging process (Smallbone and Welter 2010). In addition, Ireland et
al. (2008: 124) have suggested that in the transition economies of Central and
Eastern Europe ‘social movement activity by groups with different political
35
identities [can] influence the rules that support or constrain entrepreneurship.’
Meanwhile Shane (2003) has argued that political forces, technological change
and business regulations are decisive factors in the existence and number of
new entrepreneurial opportunities.
The recent multi-country research by Stenholm et al. (2013) has suggested
that regulatory frameworks tend to have a stronger effect on entrepreneurial
activity than informal institutions, while Stephen et al.’s (2005) cross-country
study has demonstrated that legal institutions have an impact on the countries’
level of entrepreneurship. In particular, Stephen et al. (2005) have shown that
nations with legal systems akin to the English common law system exhibit
significantly higher entrepreneurial activity rates than countries with any of
the four other legal system types referred to. The implication is that regulatory
frameworks based on English common law tend to offer stronger protection of
property, investor and creditor rights. Acs and Karlsson (2002: 184) have
further emphasized the role of government expenditure and taxation in entre-
preneurship, concluding that ‘it appears as if there is a negative correlation
between entrepreneurship and the total taxes as a share of GDP, the public
spending as a share of GDP, [and] the average corporate tax level.’ Klapper et
al.’s (2009) study, based on the World Bank Group Entrepreneurship Survey
data, has further shown that entrepreneurially-friendly countries tend to have
high business start-up rates matched with a stable political environment,
modern business registration systems, reduced bureaucratic requirements, and
simplified business laws. Nyström (2009) supports this line of argument with a
cross-country study that found that a smaller government sector, well-devel-
oped legal structure and security of property rights, and less strict regulations
of credit, labor and business are positively related to entrepreneurial activity.
Moreover, Grilo and Thurik (2005) have demonstrated that the majority of
the population of the 15 EU member states of the time and the USA perceives
administrative and bureaucratic complexities as a formal start-up barrier,
exerting a negative impact on nascent and actual entrepreneurship levels. Lim
et al.’s (2010) research on formal institutional influences in entrepreneurial
cognitive and decision-making processes has shown that individuals in
countries with less complex regulatory regimes and more property rights
protection generally show higher levels of venture arrangements and willing-
ness scripts. They define venture arrangement scripts as the knowledge indi-
viduals have about the utilization of specic arrangements (e.g., tools,
networks, resources) that are needed to found a new business; while willing-
ness scripts are the knowledge that reflects an individual’s commitment to
become an entrepreneur. To this, the study of Bosma and Schutjens (2011:
737) has added that the identified ‘positive relation between strong entrepre-
neurial attitudes and subsequent entrepreneurial activity is not straightforward.
36
There are national formal institutional […] forces at play, which at the
individual level reinforce or deter the decision to indeed start a business.’
Klapper et al. (2006) have further reported that cost intensive market regu-
lations hinder the formation of new limited liability firms and the growth of
incumbent firms, even when controlling for other formal structures, such as
protection of property rights and labor regulations, particularly in industries
with presumed high entry rates. Furthermore, the study of Spencer and Gómez
(2004), based on data from 23 countries, has suggested that the regulative
institutional environment relates to the success of new ventures by showing
that government policies have a strong effect on the percentage of firms listed
on the stock market. Earlier studies underline these arguments by showing that
the potential of business creation and development can be undermined as a
result of the entrepreneur’s awareness of a broader range of rules and proce-
dural requirements, and obligation to report to many institutions (Dana 1987,
1990; Young and Welsch 1993; Gnyawali and Fogel 1994). For instance,
Dana’s (1990) comparative study of two national environments located on the
same Caribbean island–Saint Martin, under French administration and Saint
Maarten, which is a Dutch territory–has revealed entrepreneurship levels were
higher in Saint Maarten, which supported new ventures by providing low
taxes, essential duties and direct support programs as well as eliminating
exchange controls and complex bureaucratic procedures. On the contrary
entrepreneurial activity faltered in Saint Martin, where entrepreneurs faced
barriers resulting from regulatory restrictions and extensive bureaucracy.
However, Van Stel et al.’s study (2007), across 39 countries, found that
while capital requirement is negatively related to entrepreneurship levels,
administrative burdens, such as time, cost and the number of procedural
requirements, do not relate to birth rates of nascent or young ventures.
Accordingly, they have suggested that formal regulatory efforts by the
governments may not in themselves support entrepreneurship. Similarly,
Begley et al.’s (2005) study, across 13 Anglo-Saxon, East Asian, and South
Asian countries, has demonstrated that government regulatory efforts to
support entrepreneurship can have a reverse effect by decreasing the attraction
of the potential entrepreneur’s start-up. In line with Little’s (1987) work, they
have concluded that the increasing regulatory support by governments of
entrepreneurship, may reflect greater support for larger businesses, thus
indirectly hindering the emergence of small businesses by increasing the
attractiveness of a career in larger companies.
While Aidis et al. (2008) have suggested that in the Russian case, institu-
tional voids have a negative effect on new venture creation, Puffer et al.’s
(2010) study has highlighted that formal institutional voids in Russia and
China can give rise to high risk and uncertainty for entrepreneurs, but that the
37
challenging entrepreneurial environments in transition economies can also
stimulate creative entrepreneurship. Underlining this argumentation,
Kalantaridis (2007) has illustrated that in post-socialist countries entrepreneurs
have developed their own way of dealing with ongoing formal institutional
changes and deficiencies, which, in turn, often spawn institutional change.
This is in line with the early work of Nee (1992), which has explained institu-
tional and market transitions in China by investigating the relationship
between the role of government, enterprises and market regulations. Referring
to the case of service businesses in Ukraine, Welter and Smallbone (2011)
have further argued that ‘y commercially exploiting institutional holes,
these entrepreneurs might trigger change in the formal institutions aimed at
leveling out the institutional deficiencies that created the opportunities.’
Brautigam’s (1997) case analysis on local industrialists in one part of Nigeria
has also uncovered similar patterns in the relationship between holes in formal
institutional practices and entrepreneurship by showing how entrepreneurs
‘have substituted for the absence of a developmental state by themselves
filling in the gaps left by market failures, particularly of information, and of
public goods.’
Lee et al.’s (2010) cross-country research has found a negative relationship
between the risk involved in filling bankruptcy and new firm formation rates,
suggesting that more entrepreneurship-friendly (i.e., there is less time/cost
associated with the bankruptcy procedure) can lower start-up barriers by
encouraging entrepreneurs to risk more and establish more new businesses. Li
and Zahra’s (2012: 106) analysis of venture capital (VC) activity for 68
countries has provided evidence that ‘the formal institutional development has
a positive and significant impact on the level of VC activity, but [that] the
effects of formal institutions further depend on informal cultural constraints
such as uncertainty avoidance and collectivism.’ Accordingly, their study has
concluded that countries with a well-developed formal institutional framework
(mainly referring to European and OECD countries) are able to institute and
enact venture capital programs and policies (e.g., lower taxes and liberal
bankruptcy laws) that essentially support VC activity and, thereby, entrepre-
neurship. At the same time, for countries without a strong formal institutional
framework (mainly referring to emerging and transition economies), it is very
difficult to sustain VC programs and to attract VC investments.
Informal institutional context
Scholars have long emphasized that culture and the informal institutional
environment influence economic activity and development (see e.g.,
McClelland 1961; North 1990; North 2005; Shane 1993), while increasingly
acknowledging that cultural norms and values shape entrepreneurial behavior
38
(see e.g., Ahlstrom and Bruton 2002; Baumol and Strom 2007; Freytag and
Thurik, 2007; Hayton et al. 2002; Sternberg 2009; Thornton et al. 2011)
through both the demand and supply side of entrepreneurship (Verheul et al.
2002). While formal institutional and regulatory contexts have been relatively
well-researched (Welter 2011), empirical research on informal institutions and
culture in the context of entrepreneurship is still in an early phase (Hayton et
al. 2002; Freytag and Thurik 2007). Nevertheless, a range of empirical studies
have emerged, particularly in the past two decades, that provide useful insights
into the cultural and informal institutional contexts for entrepreneurship,
across and within countries.
For instance, Wilken’s (1979) often cited comparative and historical study
of the industrial development of six societies (England, France, Prussia-
Germany, J apan, the USA, and Russia) during the eighteenth and nineteenth
centuries has already explored how the more social legitimacy was accorded
to entrepreneurship in a society the higher the subsequent level of entrepre-
neurship. More recently, Shane (2003) stated that the interest in engaging in
entrepreneurial activities is higher when the level of social acceptance of
entrepreneurship in a society is high too. Further, the study of Begley and Tan
(2001) has found how socio-cultural values shape the individual interest in
entrepreneurship, and can hinder or support an individual’s decision to prepare
for and start a business. For example, they have shown that cultural percep-
tions of the entrepreneur’s social status and shame stemming from a business
failure were better indicators of entrepreneurial motivations in East Asian than
in Anglo-Saxon countries.
Mueller and Thomas (2000) found, in their study based on a student sample
across nine countries, a positive relationship between individualistic cultures
and an internal locus of control orientation, while particularly demonstrating
that internal locus of control, combined with innovativeness, tends to relate to
(Hofstede’s
3
(1998, 2001) operationalization of individualistic, low uncer-
tainty avoidance cultures than collectivistic and high uncertainty avoidance
cultural environments. Mitchell et al.’s (2000) research, across seven Pacific
Rim countries, has found that cultural values shape entrepreneurial cognitions
and their relationship with the actual decision to start a business. In particular,
they have shown that an individual’s perception of their competence to
become an entrepreneur (ability scripts) and their willingness to do so is
altered by Hofstede’s (1998, 2001) individualism and power distance cultural
attributes, ‘suggesting […] cultural permeability in the enactment (doing)
portion of the venture creation script’ (Mitchell et al. 2000: 986). Mitchell et
3
For an overview of Hofstede’s national culture dimensions seehttp://geert-hofstede.com/
dimensions.html.
39
al. (2002b) has further supported these findings by identifying significant
cross-country variations in willingness and ability cognitions among 990
entrepreneurs from 11 countries, while further exploring that a set of cognitive
entrepreneurial archetypes do indeed vary among countries.
Moreover, while the study by Langowitz and Minniti (2007: 356), across 17
countries, has concluded that ‘women tend to perceive themselves and their
business environment in a less favorable light compared to men,’ the recent
research by Shinnar et al. (2012) has particularly emphasized the role of
culture and gender in entrepreneurial cognitions and intentions. The latter
study has demonstrated that–based on a sample of 761 university students–
women in the United States and Belgium perceived lack of competency and
fear of failure a greater barrier than men, while this gender effect did not
appear in China, suggesting that the ‘Chinese culture somehow acts to shape
individual perceptions of these two barriers in a way that eliminates gender
differences’ (Shinnar et al. 2012: 22). Underlining the role of culture and
gender in the formation of entrepreneurial intention, the study by Veciana et
al. (2005) has found that in Catalonia a student’s gender relates to their desire
and intention to create a new firm, while in Puerto Rico a student’s gender
plays no role in these processes. Moreover, Welter and Smallbone (2008),
among others, have explored a number of specific institutional aspects
involved in women’s enterprising activities in transition economies. For
instance, based on case studies in Uzbekistan they have shown that formal
institutional voids, such as tax regulations and access to finance, almost
equally hinder the creation of new businesses for both female and male
entrepreneurs. However, it is the informal institutional environment (in
Uzbekistan) with its cultural norms and behavioral codes that most affects the
nature of female entrepreneurship, ‘a large part of which involve
based or subsistence activities in an attempt to combine family responsibilities
with the need to generate income for the household’ (Welter and Smallbone
2008: 517). Underlining how cultural norms can affect entrepreneurship, a
case study by Takyi-Asiedu (1993) had already illustrated that ‘Entrepreneur-
ial action, in [sub-Saharan Africa] […] has been viewed as being relatively
static, because a religious commitment to tradition has led to the suppression
of flexibility and adaptability to change religious commitments to traditional
values.’
Wennekers et al. (2007) have further examined the role of uncertainty
avoidance culture in an individual’s occupational choice (employment vs. self-
employment), using longitudinal-data across 21 OECD countries for the years
1976, 1990 and 2004. In opposition to the study findings presented above
(e.g., Mueller and Thomas 2000), their research found a positive relationship
between uncertainty avoidance (as defined by Hofstede 1998, 2001) and the
40
prevalence of business ownership, suggesting that a restrictive environment of
large businesses in high uncertainty avoidance countries tends to push
individuals seeking for autonomy towards self-employment. Feyrtag and
Thurik (2007) have further shown that cultural elements (across 25 EU
member states and the USA) particularly influence the individual preference
for entrepreneurship, whereas hard economic factors, such as tax rates and
direct regulatory burden, shape the actual business start-up levels. According
to the study by Stephen et al. (2005), higher levels of entrepreneurship and
business ownership can in turn enhance higher entrepreneurial potential levels
in an economy, emphasizing potential role model effects on entrepreneurial
motivations. Applying Inglehart’s post-materialism index, the study of
Uhlaner and Thurik (2007), based on data from 27 countries, has shown that a
society in which non-materialistic values are dominant tends to have lower
(early-stage and total) entrepreneurial activity levels (according to the GEM
classifications), even when controlling for a set of demographic, economic and
social indicators.
Introducing a measurement of country institutional profile for entrepreneur-
ship, Busenitz et al.’s (2000) research, based on student samples across six
countries (Germany, Italy, Norway, Spain, Sweden, and the USA), has
demonstrated that social normative contexts that approve of entrepreneurship
encourage individuals to start a new venture, whereas formal institutional
environments become essential for established firms to make initial public
offerings and to gain resources and external investors. Supporting this finding,
Spencer and Gómez’s (2004) study, across 23 countries, has shown that
informal institutional contexts (i.e., the society’s attitudes towards entrepre-
neurs) has an effect on self-employment rates, but not on more advanced
forms of entrepreneurship (i.e., new businesses with 20–100 employees and
new companies listed on a country’s stock exchange). In addition, the recent
study by Li and Zahra (2012: 107) has provided new insights into informal
institutional influences on venture capital activity by demonstrating that ‘even
though a strong formal institutional framework stimulates VC [venture capital]
investment, both uncertainty avoidance and collectivism seem to reduce the
sensitivity of VC funding to the incentives provided by formal institutions.’
Thus, in line with North (1990), they have concluded that similar formal
institutional frameworks in different societies (can) lead to different economic
outputs.
Other scholars have explored how popular metaphors, discourses or
narratives are generated, particularly by the media, and promote certain
enterprise beliefs and norms within societies, portraying who business owners
are and how they should be (Ainsworth and Hardy 2009; Anderson and
Warren 2011; Down and Warren 2008; Nicholson and Anderson 2005). For
41
instance, the work and publications of Schmölders (1971, 1973, 1978)
indicated how images and understandings of the entrepreneur can become
institutionalized within different societies (mainly referring to Germany and
other Western countries), through influences from different bodies, such as
trades unionists, intellectuals and educators. More recently, the study by
Nicholsen and Anderson (2005) has provided strong evidence of how media
texts present ideal types of entrepreneurship by portraying the entrepreneur as
heroic, a near mythical figure supporting the economy and society. Based on a
sample of 480 newspaper articles, their study has shown that print media
discourses tend to describe the entrepreneur in heroic terms, akin to masters of
time, as a lovable rogue or as a type of polite rebel, arguing that these created
images shape how people think and learn about the role of the entrepreneur. A
range of other studies of the media discourse back up the findings, emphasiz-
ing a variety of similar metaphors used to portray the entrepreneur, ranging
from warrior and superman to pioneer, thus again underlining the entrepre-
neur’s individual hero status (see e.g., De Koning and Drakopoulou-Dodd
2002; Hyrsky 1998; Koiranen 1995; Pitt 1998). Here, the recent work by
Anderson and Warren (2011: 603) has further concluded that this entrepre-
neurial discourse particularly as (re)enforced by the media ‘presents an assem-
bly of entrepreneurial virtues[ and that] these qualities, characteristics and
actions are valorized as constituents of the enterprise culture to invent and
fashion an entrepreneurial ideal type.’
In this context, previous research has also uncovered how these stereotypi-
cal images and norms reproduce informal institutional structures that can have
(negative) consequences for entrepreneurial groups that do not conform to
those established constructs. In line with the presented quantitative studies on
culture and gender, the case studies of Hamilton and colleagues (Hamilton and
Larty 2009; Hamilton 2006; Hamilton and Smith 2003) among others, have
highlighted how the dominant masculine nature of these institutionalized
discourses and ideal types of the entrepreneur can discriminate against female
entrepreneurs. In particular, Hamilton (2006) has found how established
images of the entrepreneur within society are reproduced within family firms
in ‘the construct/discourse of the “heroic male” owner-manager and the
“invisible women” embedded in the patriarchal/paternal discourses and
practices’ (Hamilton 2006: 267). Moreover, scholars have begun to uncover
informal institutional structures emerging from discourses that praise a
younger enterprising culture, which can create barriers for older individuals
who (intend to) engage in entrepreneurial activities (see e.g., Ainsworth and
Hardy 2008, 2009; Down and Revely 2004; Down and Warren 2008). For
instance, Ainsworth and Hardy (2008, 2009) have stated that entrepreneurship
and age are independent constructs that do not complement each other, and
42
that older entrepreneurs find it difficult to conform to a younger, dominant
enterprising culture. As such, they deviate from popular norms of enterprise,
within discourse, which reflect social reality, where negative stereotypes can
prevent the intentions of nascent entrepreneurs and discriminate against older
(potential) entrepreneurs (Ainsworth and Hardy 2008, 2009).
3.5 Contextualizing the emergence of new ventures: challenges for the
present study
The dissertation will now offer a summary of the main insights drawn from
the literature reviews presented above regarding the social, spatial and institu-
tional contexts, and to discuss the specific research gaps that the current study
and particularly its four research papers aim to address. In the following
Section 4, the author will then introduce and propose a multi-layered institu-
tional framework as a potential way of theorizing the role of different contexts
in economic and particularly entrepreneurial activity.
Social context
The previous research has suggested that the emergence of entrepreneurship
can be better understood when considering an individual’s embeddedness in
their various social contexts. This reasoning is justified, for instance, in the
important role of social capital in gaining access to the tangible and intangible
resources needed for preparing and founding a new venture. Social capital, in
turn, emerges through the active building of strong and weaker relationships
with(in) social networks, whereas networks with entrepreneurial backgrounds
are particular relevant to these processes. The social environment can further
provide important social and emotional support for potential entrepreneurs,
which encourages them to believe themselves able to become an entrepreneur,
and to form the intention to become one, while supporting their willingness to
progress in the nascent entrepreneurship phase. Since potential entrepreneurs
are often faced with limited resources, especially in the very early start-up
phase, close social networks, such as family and friends, play an essential role
in influencing their entrepreneurial motivation and the process involved in
forming a firm. Moreover, nascent entrepreneurs often need to proactively
gain (social) approval and support from their resource gatekeepers, in order to
be able to transform their nascent organization into an operational business.
This is in line with the emerging literature that suggests that potential entre-
preneurs can create entrepreneurial opportunities and capital through actively
forming, engaging with, and developing trust and trustfulness in new or
existing social networks.
43
Even though scholars have increasingly recognized the role of norms in
social networks, the previous research on social networks has merely focused
on the exchange of resources and information, thus limiting our understanding
of the social norms provided by the network actors (Krueger 2000; Autio and
Wennberg 2010). Scholars have also increasingly begun to argue that these
social contexts within which the potential entrepreneur operates are, in turn,
embedded in a broader environment, drawing attention to the relationship
between the social networks and cultural contexts. For instance, Welter (2011)
and Thornton et al. (2011) have recently emphasized the importance of, and
major challenge involved in, exploring social-cultural links; the social norms
and values they create both theoretically and empirically, and how they
influence entrepreneurial aspirations and behaviors. Underlining this view,
Thornton et al. (2011) have further argued that the processes of exploitation of
social capital are normative and cultural in nature, potentially implying social
rules that emerge within networks that can label people winners and losers
(Anderson and J ack 2002) or exclude outsiders (Portes and Landolt 2000).
Linan et al’s (2011) study argued that both norms and values within the closer
social environment and society at large have an impact on the formation of
entrepreneurial intentions. Autio’s and Wennberg’s (2010: 23-24) recent
multilevel study offers a first empirical insight into how ‘norms and attitudes
of entrepreneurship are spread in [social] “reference groups”’, suggesting that
‘the cues of entrepreneurial behavior propagated by external institutions are
modified […] through social interaction’ and networks. In addition, the case
study by Hamilton (2006) has highlighted how institutionalized images of the
typical entrepreneur within society are reproduced within family firms, where
it is generally men who adopt the role of owner-manager.
The above leads to calls for further multilevel research and concepts that
explore the emergence of entrepreneurship in light of the relationship between
social and cultural contexts and, particularly, the related social norms and
sanction mechanisms emerging within the potential entrepreneur’s social
networks. Here, Welter (2011) has also highlighted the need for further studies
and concepts that incorporate the recursive (bottom-up) links in contextualiz-
ing the emergence of entrepreneurship, drawing attention to the ability of
potential entrepreneurs to shape social norms and their social, and institu-
tional, contexts. We still know little of how social norms emerge from the
potential entrepreneur’s social networks; how they are co-determined by the
institutional environment; and how potential entrepreneurs are able to resist
and change prevalent social norms during their business start-up process.
These are the recent debates and emerging research gaps to which this disser-
tation, paper 2 and particularlypaper 4 contributes.
44
Spatial context
Academics are increasingly highlighting the role of spatial contexts in entre-
preneurial activity. Spatial research on larger geographical scales has become
widely established, providing useful insights into national variations of entre-
preneurship levels (e.g., nascent entrepreneurship, start-up activity). That has
spurred scholars to emphasize the regional and local dimension of entrepre-
neurship, in light of studies that have found the national framework, and other,
conditions for (pre-/nascent) entrepreneurship to vary within a country, across
larger and smaller regional units. As noted previously, a number of regional
conditions have been identified, ranging from demographic, social, economic,
to industry features of the region (Sternberg 2009). Moreover, besides the
processes of globalization and the related increasing importance of regional
markets (Bosma et al. 2008), scholars have turned their attention to the
locational inertia of entrepreneurs (Stam 2007). This has added further
impetus to the calls to include the local and regional context in research on
new venture creation. This body of research has indicated that entrepreneurs
usually start new businesses in their area of residence, owing, for instance to
personal motives, personal relationships, established local contacts and
knowledge, and / or financial issues.
However, while spatially orientated research has been growing signifi-
cantly, over the past decade, research on the local and regional nature of the
emerging process of entrepreneurship remains undeveloped. Malecki (2009:
176) has underlined that ‘relatively little research on entrepreneurship has
examined the critical nature of the [potential] entrepreneur’s local context in
which he/she operates’, while Sternberg (2009) has suggested that despite the
increasing recognition of contextual aspects, entrepreneurship research still
largely neglects spatial implications. In line with these arguments, the
literature research by Trettin and Welter (2011) revealed that only a small
body of spatial research is conceptual in nature and pointed out the lack of
studies explicitly addressing socio-spatial contexts. As indicated above, the
emerging process of new ventures is strongly affected by the potential entre-
preneur’s local environment (Stam 2007; 2010), where, for instance, role
models, social networks, and prevalent social sanctioning mechanisms can
influence entrepreneurial intentions (Liñán et al. 2011) and (nascent) entrepre-
neurial activities (Mueller 2006; Bosma et al. 2011). Thus, spatial contexts can
also be understood by reference to the social boundaries of the local commu-
nities, reflecting cognitive and culture-based norms and shared meanings
(Thornton and Flynn 2003). It is a finding that calls for further research
exploring the links between local context and socio-cultural elements, and
their implications for the emergence of new ventures (Anderson 2000; Liñán
et al. 2011; Welter 2011). Moreover, previous research on regional conditions
45
for entrepreneurship has mainly focused either on new firm formation rates or
the nascent entrepreneurship level as the dependent variable. Thus, we know
very little of how regional contexts influence the early pre-action phases of
new venture creation (for exceptions see e.g., Bosma et al. 2009; Bosma and
Schutjens 2011; Liñán et al. 2011). Accordingly, further multilevel research is
needed that seeks to develop our understanding of the role of regional
environments in entrepreneurial cognition processes (Mitchell et al. 2007) and
the formation of entrepreneurial intentions (Liñán et al. 2011), providing new
insights into the pre-conditions of venture creation (see also Section 2). These
are the research gaps in the spatially orientated entrepreneurship research to
which this dissertation and particularly paper 2 andpaper 3 theoretically and
empirically seek to narrow.
Institutional context
Scholars have shown increasing interest in examining the role of formal and
informal institutions–usually at the national level–in the emergence of
entrepreneurship. One such stream of research has demonstrated that formal
institutional frameworks, both political and economic in nature, can influence
entrepreneurial motivations, nascent entrepreneurial activities, new firm
formation rates, firm growth and VC activity. These studies have suggested
that a supportive formal institutional context for these different forms of
entrepreneurship in a country features a stable political environment, well-
developed legal structure, secure property rights, reduced bureaucratic
requirements, less complex and more liberal business regulations, less
regulation of credit and labor and reduced time/cost associated with
bankruptcy procedures. While such well-developed formal institutional
frameworks have usually been found to support entrepreneurship, several
studies have also explored how formal support initiatives and regulatory
efforts by the government can also undermine entrepreneurship. Previous
research has further suggested that formal institutional voids yield high risk
and uncertainty for entrepreneurs and new businesses, but that these
challenging environments (often exemplified in the transition economies of
eastern Europe) can also stimulate innovation and (creative) entrepreneurship.
Scholars have also found that formal institutions in different cultures and
societies can result in different economic outcomes, which leads to the body of
research that has focused primarily on informal institutional contexts.
Several single- and multi-country studies have emerged that provide useful
insights into cultural and informal institutional influences on entrepreneurial
cognitions and motivations as well as nascent entrepreneurship and business
start-up levels. In summary, these studies have suggested that social normative
contexts favoring entrepreneurship (for instance, societies with a larger
46
number of entrepreneurial role models or where entrepreneurs enjoy high
social status or are not frowned upon if their business fails) also enhance
higher entrepreneurial engagement levels. While scholars have further
indicated that individualistic, high uncertainty avoidance, and power distance
cultures tend to positively relate to an individual’s motivation and perceived
ability to run their own business, a few studies have also noted that informal
institutional contexts seem to play a stronger role in the pre-firm formation
phase than for (the development of) established enterprises. The dissertation
particularly draws attention to this research stream, and identifies several
research gaps that need to be addressed to develop our understanding of
cultural and informal institutional contexts for entrepreneurship.
Generally speaking, the existing cross-country research on culture and
entrepreneurship has mainly followed Hofstede’s (2001) seminal work
(Hayton et al. 2002) or an aggregated psychological trait approach (Freytag
and Thurik 2007). A comprehensive review by Hayton et al. (2002) of 21
empirical studies that investigate the association between national cultural
attributes and entrepreneurship has underlined that the lion’s share of these
studies is based on Hofstede’s concepts of national culture and that other
approaches have been neglected or underdeveloped. Stemming from such
research, uncertainty avoidance, among others, has become probably one of
the most prominent cultural indicators used to investigate the relationship
between culture and entrepreneurship, mainly suggesting that the greater the
uncertainty avoidance, the less entrepreneurial a society tends to be. Further-
more, ‘uncertainty avoidance is a cultural trait closely linked to attitudes of
risk and uncertainty and, consequently, to the entrepreneurial propensity
within a country according to the aggregate psychological traits approach,’
which suggests that, ‘for a given country, the more individuals with entrepre-
neurial values there are in a society, the more individuals will display
entrepreneurial behavior’ (Thurik and Dejardin 2011b: 57-58).
Accordingly, previous research has to a large extent focused on cultural
aspects of entrepreneurship from a highly individualistic view of culture, using
aggregated psychological measures to capture cultural differences in entrepre-
neurship. In addition, previous empirical research has tended to examine only
broad cultural values and their relationship with different forms of entrepre-
neurship, neglecting ‘measures of normative institutional environments that
are specific to a particular domain, such as a society’s attitudes about entre-
preneurship, [which] appear to hold greater predictive power’ (Spencer and
Gómez 2004: 7). This is reflected in the current debates on institutions and
entrepreneurship, calling for further research that addresses effects of specific
institutional and cultural contexts on entrepreneurship (Schendel and Hitt
2007: 3) and thereby adds to the literature aimed at contextualizing entrepre-
47
neurship, and particularly at conceptualizing and measuring specific socio-
cultural influences on entrepreneurial behavior (Thornton et al. 2011; Welter
and Smallbone 2011).
Now further research is needed that applies and develops approaches that
enable the capture and measurement (more directly and holistically) of cultural
and societal values towards entrepreneurship. In this regard, the social and
moral legitimation (approach) of entrepreneurship in a society (Etzioni, 1987)
has been discussed as potentially offering a way of capturing such specific
informal institutional settings for entrepreneurship (Freytag and Thurik 2007),
suggesting that the more entrepreneurship is socially legitimized in a society,
the higher the level of entrepreneurial activity should be (Etzioni 1987; Shane
2003; Wilken 1979). However, to date, very little cross-country research exists
that seeks to theorize and empirically uncover the various entrepreneurial
legitimation processes in society and their impact on entrepreneurship.
Moreover, Bruton et al. (2010: 433) have emphasized that ‘unfortunately,
unless larger samples can be identified, the interdependencies between values
and entrepreneurship may remain difficult to discern. Furthermore, [future
research] requires a more cogent conceptualization of anticipated interactions
among culture, institutional context, and behaviors than has been presented to
date’. Taken together, these are the main debates to which this dissertation and
particularlypaper 1 theoretically and empirically contributes.
Moreover, the previous cross-country studies on culture and entrepreneur-
ship have largely chosen as their explanatory variable either entrepreneurial
motivation, nascent activity or business start-up levels. In so doing they
neglect a dynamic perspective on the emergence of new ventures, as discussed
in Section 2. While, for instance, a significant relationship can be found
between certain informal institutional contexts and entrepreneurial intentions,
this does not imply that this impact endures when the individual progresses
from the pre-action phase to nascent entrepreneurship or early firm operation
phase. As a result, the conclusions of such research may not be sufficiently
specific to develop our knowledge of the influence of cultural environments
on entrepreneurial behavior. This dissertation and particularly paper 1 seek to
add to this knowledge gap by analyzing the impact of specific informal
institutional contexts in the different phases of the new venture creation
process, applying the concept introduced in section 2, that of the entrepre-
neurial ladder (Van der Zwan et al. 2010).
Reviewing the previous discussions on the need to research socio-spatial
contexts for entrepreneurship, particularly the recent work of Bosma and
Schutjens (2011) has provided useful insights into how informal institutional
contexts and specific social values at the regional level can play a stronger role
in shaping entrepreneurial attitudes and action than can national institutional
48
environments. Similarly, referring to the discussion on the social contexts for
entrepreneurship, we know that cultural values towards entrepreneurship are
often reflected and modified in the (prospective) entrepreneur’s interaction
with his or her social environment, potentially influencing entrepreneurial
thoughts, intention or actions. Underlining this argumentation are studies that
have emphasized the role of institutionalized discourses and narratives in
society (e.g., those created through the media), which at the same time mirrors
norms and beliefs guiding and affecting social interactions at the micro-level.
Thus, in order to understand the relationship between informal institutional
contexts and new venture creation processes it is important to explore socio-
cultural and institutional effects not only at the society level, but also–and
probably even more importantly–at the regional, local and social level (Bosma
and Schutjens 2011; Stenholm et al. 2013; Thornton et al. 2011; Trettin and
Welter 2011; Welter 2011). These are emerging research gaps, which this
dissertation and particularly papers 2, 3 and 4 seek to narrow by contributing
new insights.
49
4 A MULTI-LAYERED INSTITUTIONAL
APPROACH TO NEW VENTURE CREATION
‘Actor and institutional structure,
although distinct, are […] connected in a circle
of mutual interaction and interdependence’
(Hodgson 2006: 8)
4.1 Towards a theorizing context for new venture creation
As presented in the previous section, scholars have increasingly highlighted
the importance of developing our understanding of the multiplicity of
contextual influences in entrepreneurial processes, and have also demonstrated
an awareness of the challenges that brings. While this dissertation has
explored three potential contexts (social, spatial and institutional) that play a
role in shaping various forms and levels of entrepreneurship, it has also
discussed some of the emerging knowledge gaps in the previous literature,
calling for further theoretical and empirical research. On the one hand, the
literature review indicates that even though the number of studies on
contextual influences on entrepreneurship has significantly increased over the
past two decades, we still know relatively little about specific social, spatial
and institutional influences on entrepreneurial cognitions and intentions and
the process of new venture creation.
On the other hand, it suggests that in order to improve our knowledge of the
contextual embeddedness of (the early phases of) new venture creation, it is
important to continue to uncover the linkages of the different contexts, such as
certain socio-spatial or socio-institutional elements, and their influences on
entrepreneurship. Taken together, this leads to a main challenge for future
research, and that is finding ways to theorize and empirically explore the
context for venture creation, by addressing the multiple nature and levels of
both context and entrepreneurial processes (Bosma and Schutjens 2011;
Thornton et al. 2011; Welter 2011).
This section proposes a theoretical framework to assist in conceptualizing
and interpreting the complex relationships between the different contexts
(Section 3), and their interaction with new venture creation processes (Section
2). This in turn sets the theoretical basis for the empirical work in this
dissertation. Entrepreneurship scholars have suggested that such a theoretical
50
framework should be able to capture both the top-down influence of context
on entrepreneurial behavior and the bottom-up effects produced by potential
entrepreneurs on context. For instance, Welter (2011: 176) has recently argued
that ‘Multi-layered embeddedness concepts that cut across levels of analysis
can assist in theorizing top-down effects, while bottom-up effects can be
theorized through considering individual adaptability, change, and co-
evolutionary processes.’ Moreover, Thornton (1999) has pointed out that
multilevel theories and models are valuable to combine individual- and
environmental-level variables to capture the individual and contextual hetero-
geneity of entrepreneurship. Davidsson and Wiklund (2001) have further
raised the question of multilevel analysis and theory building as one of the
main issues in entrepreneurship research. In this regard, an increasing body of
scholarly work has suggested that an institutional perspective can provide a
foundation for a multi-layered framework for analyzing the different contexts
interacting with entrepreneurial processes (Bruton et al. 2010; Thornton et al.
2011; Welter 2011; Welter and Smallbone 2011), while Veciana and Urbano
(2008: 373) have suggested that the ‘process of becoming [an] entrepreneur
can be explained through the institutional theory.’ Before discussing the
developments of and different strands of institutional theory in greater detail,
the dissertation’s main conceptual arguments for applying an institutional lens
will be outlined below. The arguments are based on the recent discussion in
entrepreneurship research that addresses the advantages and challenges of
applying institutional perspectives.
4.1.1 Why adopt an institutional approach to entrepreneurship?
Generally speaking, an institutional perspective on entrepreneurship acknowl-
edges that entrepreneurial behavior and firm formation processes depend on
the individual’s relationship with the external environment, particularly the
institutional environment (Garud et al. 2007; Thornton et al. 2011; Veciana
and Urbano 2008; Welter and Smallbone 2011). Added to this, an institutional
perspective has the advantage that ‘it does not have restrictive scope
conditions with respect to the rationality of actors, historical time, and level of
analysis. […] This theoretical flexibility provides the ability to link the micro
supply-side and macro demand-side perspectives’ (Thornton 1999: 35,
referring to Scott 1995). In this context, scholars have also noted that institu-
tional perspectives can incorporate both links of macro-institutional (culture)
and micro-institutional mindsets (e.g., organizational or family mindsets)
shaping individual entrepreneurial behavior (Bruton et al. 2010; Wicks 2001).
Similarly, other scholars have argued that an institutional perspective
51
acknowledges the linkage of both social and cultural elements relating to
entrepreneurship, potentially serving as a fruitful framework to explore the
social and cultural influences on entrepreneurial decisions and the new venture
creation process (Thornton et al. 2011; Welter 2011).
Moreover, it has been suggested that an institutional perspective allows
consideration of the embeddedness of entrepreneurial processes not only in
socio-cultural contexts, but also in different spatial contexts including the
socio-spatial, and economic systems (Roxas et al. 2008; Veciana and Urbano
2008; Welter 2011). In this context, institutional theory has been viewed as
providing a useful theoretical means to address many different contexts and
factors, ranging from culture, legal structures, tradition and history of regions
and industries to economic incentives that can influence entrepreneurial
processes. Scholars have also increasingly emphasized that an institutional
perspective can complement socio-psychological approaches to entrepreneur-
ship, to theorize and explore environmental influences on entrepreneurial
cognitions and intentions (Lim et al. 2010; Liñán et al. 2011) and also the
actual venture creation decision (Lim et al. 2010).
Further, modified institutional theories have been suggested to offer an
overarching approach to link the bottom-up and top-down processes in the
emergence of entrepreneurship, by combining multi-layered embeddedness
concepts with theoretical lenses of the individual change agent and co-evolu-
tionary processes (Welter 2011; Welter and Smallbone 2011). Following these
conceptual arguments by entrepreneurship scholars, this dissertation will now
turn to providing a (critical) historical review of the evolution and thoughts of
the old and new institutional economics (Hodgson 2004, 2006, 2007a,b,c,
2009; Rutherford 1995, 2000, 2001), while also exploring the developments of
old and new sociological institutionalism, and their role in institutional
economic research (Nee 2003; Rowan 2010; Scott 2004, 2010).
4.2 Early traditions in institutional economics
The nature and economic role of institutions has long been of interest. Both
the ‘German’ historical school (1840–1930) and the ‘old’ American institu-
tional economics (dominant in the interwar period) held varied theoretical,
philosophical and political viewpoints, but they had already a common interest
in adjusting economic theory to institutional, cultural and historical circum-
stances. While some members of the historical school developed a strong
belief that data collection and analysis is the basis for theory development,
others such as Schmoller (1900) and Sombart (1930) became firm advocates
of the development of a systematic theory, especially after the Austrian
52
school’s or in other words Carl Menger’s attack on the historical school in the
‘Methodenstreit’ in the 1880s. Their theoretical work inspired many other
scholars, such as Max Weber and J ospeh Schumpeter; however, the tradition
of German institutionalists disappeared with the beginning of the Second
World War (Chavance 2008; Rutherford 2000, 2001; Hodgson 2004, 2007b).
The American institutional scholars, inspired by their founder, Thorstein
Veblen (1899, 1919), recall his emphasis on both the central analytical role of
institutions and institutional change as well as the rejection of hedonist
psychology (Rutherford 2001). Accordingly, Veblen’s view has been ‘highly
critical of the underlying economic assumptions regarding individual behavior
and the “homo economicus”’, suggesting that ‘much behavior was governed
by habit and convention’ (Veciana and Urbano 2008: 370). Together with
Veblen, who was instrumental in developing the intellectual foundations,
Mitchell (1927, 1937) and Commons (1924, 1934) have been strongly
involved in the early developments of institutional economics (Rutherford
2001, Hodgson 2007b). In the concepts they developed, markets themselves
have been defined as institutions, and as partly constituted by the state’s
action. Another popular theme in their work referred to the notion of endoge-
nous preferences, which approached individual preferences as not given, but
as being shaped by institutional and cultural conditions. In addition, their
scientific work was strongly empirically driven, with the aim of supporting the
state in dealing with critical economic and societal issues, such as poverty and
business recessions. (Rutherford 2000, 2001; Hodgson 2004, 2009)
The notion of endogenous preferences has been frequently criticized as a
reduction to cultural and structural determinism. However, while some
traditional institutionalists have strongly supported this perspective, these
solely ‘top-down’ logics were not adopted by all institutional scholars
(Hodgson 2004, 2009). Referring to the pioneering theoretical work of Veblen
(1919) and Common (1934), Hodgson (2009: 5) noted that ‘there is both
upward and downward causation; individuals create and change institutions,
just as institutions mold and constrain individuals’, suggesting that ‘[t]he old
institutionalism is not necessarily confined to the cultural and institutional
determinism with which it is sometimes associated.’ Further, the pragmatist
philosophy of Charles Sanders Peirce (1923), among others, as well as the
instinct-habit psychology inspired by William J ames (1890) proved
fundamental to the work of Veblen and Common, while Veblen even called
for an ‘evolutionary science’, following Darwinian principles
4
. Thus, the
4
‘In ‘generalized Darwinism’ the key concepts of variation, selection and continuity are assumed
to apply to all domains including the social, but their meaning and underlying mechanisms may vary
between domains (Hodgson 2002, in Rafiqui 2009: 330).
53
emergence of institutions was understood as an evolutionary process, within
which routines and institutions were elements of selection, while their
evolution was not perceived in reductionist biological terms. (Hodgson 2004,
2007b, 2009)
Nevertheless, the application of Darwinian and evolutionary ideas became
very unpopular in social sciences, and the pragmatist philosophy and the
instinct-habit psychology were replaced by forms of positivism and behavior-
ism (Hodgson 2009). Hodgson (2004, 2009) has further illustrated that the
removal of these three intellectual elements of Veblen’s economics led to a
general theoretical crisis within American institutionalism, where leading
theorists were unable to respond to important questions regarding the theoreti-
cal identity of institutionalism, for instance at the roundtable discussions
published in the American Economic Review (1931/1932). J ohn Commons’
(1934) effort to offer a systematic theoretical framework for institutional
economics was also undermined, while during and after the Second World
War neoclassical paradigms of maximization (under constraint) and formal
modeling became increasingly popular and established in social sciences. As a
consequence institutionalism had become somewhat sidelined with the
increasing popularity of ‘“the neoclassical synthesis” of Walrasian general
equilibrium analysis with a pseudo-Keynesian macroeconomics (Samuelson
1947, 1948). […] However, despite its decline of influence after 1945, the old
institutional economics survived[, …] mainly promoted by leading postwar
figures such as Clarence Ayres, J ohn Kenneth Galbraith, Simon Kuznets,
Gunnar Myrdal, and Karl Polanyi’ (Hodgson 2009: 6). (Hodgson 2004, 2007b,
2009)
4.3 Evolution of new institutional economics
Williamson (1975) introduced the notion of new institutional economics in
1975, with the clear intention of distancing it from the old institutionalism.
Even though the new institutional approach draws on much earlier ideas (see
e.g., Menger 1871; Common 1924, 1934), Williamson sought to avoid links to
any of the theoretical work stemming from the American institutionalism in
his development of a new institutional economic approach. Drawing upon
Williamson’s pioneering work, the so-called new institutional economics have
rapidly became a prominent theoretical approach used to explore existing
legal, social or political institutions by referring to a view of given, individual
preferences and action. Within this body of literature, ‘institutions and institu-
tional change have usually been analyzed as ways of reducing transactions
costs, reducing uncertainty, internalizing externalities, and producing collec-
54
tive benefits from coordinated or cooperative behaviour’ (Veciana and Urbano
2008: 372). Thus, ‘the attempted explanatory movement is from individuals to
institutions, ostensibly taking individuals as primary and given, in an initial
institution-free “state of nature”’ (Hodgson 2007b: 326). This emphasis on
individuals as the main explanatory element has been originally underlined,
for instance, in the early theoretical work of North (1981) on the emergence of
capitalism and Coases’s (1937) and Williamson’s (1975, 1985) transaction
cost analysis of the firm and the game theoretical investigations of institutions
by Schotter (1981) (Rutherford 2000, 2001; Hodgson 2004, 2007b).
However, this emerging research program also rapidly came to be criticized
by many scholars (see e.g., Field 1979, 1984; Hodgson 1988; Mantzavinos
2001; Sened 1997), particularly for largely neglecting the evolutionary nature
of institutions, presuming given individuals behave in the context of governing
rules and norms. Hodgson (2007a) has reviewed some specific examples of
criticism of the developmental new institutional approach summarizing that,
for instance, game theory needs to presume certain rules from the start; thus it
is unable to explain the origin of elemental rules themselves. He has also
critically addressed North’s (1991) assumption of the spontaneous emergence
of private property rights through individual interactions, by emphasizing the
underestimated problems, for instance, those of radical uncertainty and the
possibility of emerging property rights in a complex society without any role
for the government. Moreover, referring to Williamson’s (1975: 20) proposi-
tion ‘in the beginning there were markets’, within which individuals then go
ahead and start economic activities if it involves lower transact costs, Hodgson
(2007b) has critically reminded readers that the market itself is an institution,
consisting of complex and changing rules, norms and social relations. Simi-
larly, from a sociological point of view, Granovetter (1985: 489) has already
argued that Williamson’s ‘state of nature’ lens on markets neglects historical
processes linked to social relations and networks, and so fails to capture ‘the
extent to which concrete personal relations and the obligations inherent in
them discourage malfeasance, quite apart from institutional arrangements.’
4.4 (Synergetic) Developments of old and new institutionalism
MacKinnon et al. (2009) have recently stated that the new institutional
economics may be seen as a reductionist approach, particularly in its early
form, as it reduces individuals and social organizations to a rational calculus
of transaction costs. Hodgson (2002) in turn sees strong roots in the methodo-
55
logical individualism
5
and rational-choice approach. On the contrary, the old
institutional economic approach has frequently been characterized by and
criticized for its (over)emphasis on ‘reconciling the rational with the socially
conditioned aspects of human behaviour’ (Veciana and Urbano 2008: 371),
and particularly for highlighting the role of endogenous individual preferences
(Hodgson 2007b, 2009). Thus, simply put, while the old institutionalism–in its
original form–abandons thehomo economicus by viewing economic behavior
as merely shaped by the social world, the origins of new institutional
economics is rooted in the attempt to extend and modify rational-choice
models, but not in abandoning them (Rutherford 1995).
However, while considering these fundamental differences between old and
new institutional economics, scholars have pointed out that both research
programs share several important concerns. For instance, the emergence of
both streams has been triggered by the limitations of conventional neoclassical
economics, which has neglected context and institutions in its analysis
(Rutherford 1995). Similarly, Nee (2003) has underlined that both the old and
new institutional economic approach argue that the mathematical formalism of
the neoclassical approach has added little to the knowledge of real world
economic behavior. Further, Rutherford (1995, 2001) has suggested that a
central aspect of both the old and new institutionalism is that institutional
contexts influence economic activity, while also acknowledging that institu-
tions change over time and react to certain economic influences. Apart from
these similarities in their original foundations, more recent debates and devel-
opments in institutional economic research have also been dominated by the
question of improving institutional knowledge by bridging (developed) ideas
of old and new institutional economic strands and scholars (Rutherford 1995).
In this context, Hodgson (2009) has emphasized that in general the chang-
ing view of cognition in social sciences in the past two decades has also
gradually affected institutional economic research. He has reminded us, for
instance, that recent research in psychology and elsewhere has increasingly
shifted away from the so-called deliberative thinking paradigm, as referred to
by Maes (1991, as cited in Hodgson 2009). Accordingly, scholars now recog-
nize that individual cognition ‘depends on its social and material environment
and the cues provided by structured interactions with individuals and artefacts.
Human cognitive capacities are thus not reducible to individuals alone: they
also depend upon social interactions and structures’ (Hodgson 2009: 13).
These emerging research programs developed concepts such as ‘situated
5
Generally speaking, ‘methodological individualists propose that social structures, institutions and
other collective phenomena should be explained in terms of the individuals involved’ (Hodgson
2007c: 97). For a critical overview of methodological individualism (vs. collectivism) in economic
research see e.g., Hodgson 2007c.
56
cognition’ and ‘communities of practice’, emphasizing the standpoint that
individual cognition and behavior cannot be separated from their context.
(Hodgson 2009; Cohen and Bacdayan 1994)
Such developments in cognition research have undermined the neoclassical
idea of the given, fully rational individual, and have supported the considera-
tion of context-dependent, situated rationality and agent-structure interdepend-
ence in the new institutional economic research (Hodgson 2004, 2009). North
(1990) has developed his original efficiency conceptions of institutional
change by putting more emphasis on the role of ideological structures, norm-
ruled action, and mental models, and as a result, the views on institutional
economics held by North (‘institutional economics of history’) and
Williamson (transaction costs economics) have also begun to diverge
6
(Richter
2005). Accordingly, North (1990, 1993, 1994) has criticized the rational-
choice model by raising the importance of context in cognition processes and
particularly acknowledging that ‘economics has largely ‘ignored the informal
constraints of conventions and norms of behavior’ (North 1993: 12). In
particular, he has suggested that a ‘common cultural heritage provides a means
of reducing the divergence in the mental models (…) and constitutes the
means for the intergenerational transfer of unifying perceptions. (…) Belief
structures get transformed into societal and economic structures by institu-
tions–both formal rules and informal norms of behavior. The relationship
between mental models and institutions is an intimate one. Mental models are
the internal representations that individual cognitive systems create to interpret
the environment; institutions are the external (…) mechanisms individuals
create to structure and order the environment’ (North 1994: 363, see also in
Hodgson 2009: 14-15). This statement reflects the increasing recognition
amongst scholars that social and institutional influences in individual cogni-
tions and beliefs have brought North and the new institutional economics
closer to the core ideas of the old institutionalists (Groenewegen et al. 1995;
Rutherford 1995; Syll 1992; Vecianca and Urbano 2008, Hodgson 2004;
2007a, b, 2009). While the original idea of individualism of the new institu-
tional economics is challenged, a rehabilitation of the notion of endogenous
preferences, as suggested by the old institutionalists, has begun. In other
words, there is an increasing overlap in the ongoing research areas between
the old and new institutional strands (Dequech 2002; Hodgson 2007a, 2009).
Against this backdrop, Hodgson (2007a, 2007b, 2009) has argued that this
movement brings institutional research back to, or at least closer to, the origins
of institutional economics, while further suggesting that this trend should be
6
See e.g., Rafiqui (2009: 333–334), for a brief summary of several (emerging) differences
between North’s and Williamson’s view.
57
revitalized by emphasizing aspects of cognition and meanings. Drawing upon
his work and reviews (1988; 2007a, b, c, 2009) Hodgson asserts, ‘any form of
rationality in a minimally complex environment relies on cognitive framing,
selection and interpretation to make sense of its information inputs’ (Hodgson
2007a: 331, referring to the work of Hodgson 1988 and North 1994), while the
interpretation rules and means have to be learned in a social context (Polanyi
1967, in Hodgson 2007a). Thus, individual cognition and human reasoning
depend on the social and institutional structure and mechanisms, being placed
in and operating via certain cues, impulses and constraints (Hodgson 2007a,
2009). ‘Among them are institutions that frame our cognitions [and] enable
some behavioral options’ (Hodgson 2007a: 331; 2009). It should also be borne
in mind that notions of endogenous and context-related preferences link to a
broader evolutionary thinking as individual preferences can evolve and change
through their dependency and interaction with broader (reinforced) belief
structures and institutions (Hodgson and Knudsen 2004). As mentioned above,
this evolutionary thinking harks back to the original work of Veblen (1919),
which explored how contexts and constraints form habits, and how these
habits, in turn, serve as a basis for changing beliefs and preferences.
In summary, we can see that the thinking of the leading scholars of the old
and new institutional economics has converged again over the past two
decades
7
, while some scholars even argue that ideas bridging both strands are
needed to develop our institutional understanding of human cognition and
action (Hodgson 2004, 2007a, b, 2009; Rafiqui 2009). In a similar vein, recent
debates stemming from economic sociology (Nee 2003; Swedberg 2003) have
underlined these new developments toward a more contextual interpretation of
economic behavior within new institutional economics. While considering
developments within economic sociological streams, the following sub-section
gives a brief overview of the role of core ideas of sociological institutionalism
(Durkheim 1901a,b; Weber 1904; Parsons and Smelser 1956; Parsons 1960) in
institutional economics, and turns to explore the emergence and thoughts of
the new sociological institutionalism, which has become widely used in
business and organization research (see e.g., Meyer and Rowan 1977;
DiMaggio and Powell 1983; Scott 1995).
7
See e.g., Hodgson (2006, Appendix: ‘Extracts from Correspondence between Douglass C. North
and Geoffrey M. Hodgson) for an exemplary, and also amusing, intellectual discussion between recent
‘old and new’ institutional scholars.
58
4.4.1 Sociological institutionalism and economic sociology
Nee (2003) has illustrated that the new developments presented within institu-
tional economic streams can also be described as a sociological turn in the
new institutional economics. Already, at the end of the nineteenth century,
Durkheim (1901a, 1901b) had formed the Année sociologique, which has
represented sociology as a new discipline devoted on the comparative study of
institutions, while Weber (1904, 1905) similarly introduced the interpretative
lens of institutions through his comparative analysis of culture, economy and
politics. Inspired by the classical work of Durkheim and Weber, as well as of
Pareto and Tönnies, the American sociologist Parsons (1960) and his co-
author Smelser (1956) sought to reinterpret these classical (European) ideas of
institutions into a new structural-functionalist frame for sociology, emphasiz-
ing the idea of choice and strategic decision within institutional constraints.
Similarly, Merton (1948) has developed a functionalist lens on institutions,
where institutional structures are perceived as determining interests, opportu-
nities and strategic behavior. For instance, inspired by Durkheim’s (1901a)
work on society, anomie, and suicide, Merton explored different types of
behaviors and reactions (e.g., conforming vs. deviating behavior) in the
context of established norms and rules in society.
This emerging body of European and, later, American sociological institu-
tionalists has also been influential in the developments of the new institutional
economics. For instance, Nee’s (2003) review emphasized that the institu-
tional conceptions in North’s (1981) work Structure and Change in Economic
History were strongly inspired by the classic thoughts of sociological institu-
tionalism. Moreover, in the early 1990s new institutional economists began to
engage in sociological debates (North 1991; Williamson 2000), such as those
initiated by Granovetter (1985) who criticized the under-socialized view of
economic behavior presented in Williamson’s institutional economics. In this
context, Williamson (1994: 85) came to acknowledge informal influences and
trust relations in transaction cost analysis, also arguing that ‘Transaction cost
economics and embeddedness reasoning are evidently complementary in many
respects.’ Recent developments by game theory economists, such as Greif and
his co-authors (Greif 2006; Greif and Laitin 2004) have also begun to add
sociological variables to their models of economic behavior. Thus, generally
speaking, leading scholars of the new institutional economic stream have been
increasingly addressing sociological aspects of economic behavior (North
1991; 2005; Greif and Laitin 2004; Williamson 2000). This is also evident in
the discussed revitalization of Veblen’s old institutional economics, which has
somewhat taken an economic sociological standpoint by grasping the impact
of social and cultural change on economic aspects. Concluding with the words
59
of Nee (2003), new institutional economists ‘interested in studying social
institutions have found that the more they come to understand the workings of
institutions as endogenous to social processes in society, the more their work
must address questions that lead them to turn to sociology for answers. New
institutional economists apparently agree that advances in understanding
institutions requires integrating sociological variables–shared beliefs, norms,
and social relationships–to understand motivation to follow rules’ (Nee 2003:
21).
During the same period, a new form of sociological institutionalism–often
called organizational institutionalism–has emerged, mainly at the instigation
of the leading American organizational institutionalists, such as J ohn Meyer,
Richard Scott, Walter Powell and Paul DiMaggio (for an overview, see Rowan
2010). Drawing upon the pioneering work by Meyer and Rowan (1977) and
Zucker (1977), organizational institutionalists have increasingly begun to
address and develop the understanding of the diffusion of rules, models and
scripts. Moreover, underlining the relatedness of old and new sociological
institutionalism, Zucker (1977: 741) has concluded the new approaches ‘do
not suggest rejection of the traditional approaches [referring to the work of
Merton, Parson, and Berger and Luckmann, among others] but, rather, serve to
conditionalize them by restricting the set of situations to which they apply.
That is, it is not that these other approaches should be rejected but, rather, that
the class of situations to which they apply should be more precisely specified.’
Inspired by Max Weber (‘bureaucracy’) and Herbert Simon’s ideas (‘bounded
rationality’), DiMaggio and Powell (1983) have further developed the core
ideas of organizational institutionalism, tackling questions of how and why
organizational fields emerge and change, while also constraining individual
behavior under conditions of uncertainty. Here, Nee (2003) has highlighted
that by incorporating the idea of ‘bounded rationality’, DiMaggio and Powell
(1983) have provided a basis to link ideas of new institutional economics, but
also to institutional economic sociology (mainly represented by the leading
scholars Neil Fligstein, Victor Nee and Richard Swedberg), which in general
seeks to explore the relationship between institutions and social networks, and
their influence on economic behavior.
Recently, since the publication of ‘Institutionalism in Organizational
Analysis’, edited by Powell and DiMaggio (1991), a large body of institutional
research has emerged that emphasizes the interactions between institutional
environments and organizations. The research stream, inspired by the early
work of sociologists, such as Selznick (1949) and Parsons (1960), explored
regulative and normative contexts in particular, within which organizations
need to gain legitimacy (see e.g., Scott (2004) for a useful overview). Briefly
summarized by Heimer (1999: 20-21) thus, ‘among the “new institutionalists”
60
in sociology, institutions are conceived primarily as solutions to problems of
legitimacy. By their argument, much of what transpires in organizations
occurs not because it increases efficiency or reduces transaction costs, but
because it confers legitimacy and smooths interactions among organizations.’
More recent organizational research has continued to recognize the cultural-
cognitive elements of institutions, directing more attention to the role of
symbolic aspects, such as cognitive schemas and scripts, which determine
organizational structure and behavior (Scott 1995; 2001; see e.g., Rowan 2010
for a general overview of the emergence of organizational institutionalism).
Against this backdrop, this dissertation argues that these core ideas and
developments of both the old and new institutional economics, and those
emerging from (economic) sociological institutionalism, are important to help
gain a contextualized understanding of the emergence of entrepreneurship.
Thus, this work will seek to combine theoretical insights from the old and new
economic (and sociological) institutionalism in conceptualizing institutions at
the social, regional and society level and their interplay with entrepreneurial
cognitions, intentions and activities. Before it does so, the following sub-
section will briefly summarize some of the classic definitions of institutions,
developed by different institutional theorists; this will serve as a further basis
on which to build the present dissertation’s institutional theoretical
understanding.
4.4.2 Emerging definitions of institutions
As indicated above, the terminstitution has come to be widely used in social
sciences, reflecting the rise in institutional economics and institutional
sociology and the application of institutional approaches in many other
disciplines. However, even though the term has a long history, ‘there is [still]
no unanimity in the definition of this concept’ (Hodgson 2006: 1). In other
words, a huge volume of conceptual definitions of institutions has emerged in
the past, representing ideas of both old and new (economic and sociological)
institutional theorists. Some of the main definitions are presented in the
following.
Unsurprisingly, one of the most prominent definitions of institutions was
developed by Veblen. Reflecting the core institutional thoughts of American
(economic) institutionalism, he defined institutions in 1909 as ‘the settled
habits of thought of the generality of men’ (Veblen 1919: 239). Representing
the original ideas of the German historical school, Schmoller (1900: 150, cited
in Chavance (2008: 5)) viewed the institution ‘a set of habits and rules of
moral, custom and law, which have a common centre or goal, which are
61
consistent with each other and which constitute a system.’ North (1991: 3), as
one of the most prominent new institutional economist, established another
popular definition; describing institutions as ‘the rules of the game in a
society,’ while distinguishing between formal (e.g., law, state policies,
economic rules) as well as informal institutions (e.g., codes of conduct,
organizational cultures and conventions).
Further, Hollingsworth (2000: 601) has defined institutions as ‘basic norms,
rules, conventions, habits and values of a society,’ while Martin (2000:79) has
similarly postulated that institutions are ‘systems of rules, procedures, and
conventions.’ Burns and Scapens (2000: 5-6) viewed an institution as ‘a way
of thought or action of some prevalence and permanence, which is embedded
in the habits of a group or the customs of a people.’ Moreover, Hodgson
(2006) formulated institutions as ‘systems of established and prevalent social
rules that structure social interactions,’ while rules are ‘socially transmitted
and customary normative injunctions or immanently dispositions,’ and
‘[c]onventions are particular instances of institutional rules’ (Hodgson 2006:
18).
Referring to the sociological streams of institutionalism, Durkheim (1901b:
45) has termed institutions ‘all the beliefs and modes of behavior instituted by
the collectivity.’ Hughes (1936: 180) has postulated that ‘the only idea com-
mon to all usages of the term ‘institution’ is that of some sort of establishment
of relative permanence of a distinctly social sort.’ Parson and Smelser (1956,
cited in Nee 2003: 22) have perceived institutions as ‘organized systems of
cultural beliefs, norms and values common to most individuals in a society,
systems giving rise to socially structured interests which organize incentives
for [and constrain the strategic choices of] individuals.’ Similarly, Merton
(1948, cited in Nee 2003: 22) has viewed institutions as ‘structures of oppor-
tunity, shaping the interests and strategic action of individuals.’ Drawing upon
these classics and the work of Berger and Luckmann, among others, the
organizational institutionalists Zucker (1977) and Meyer and Rowan (1977)
have suggested that ‘institutions are socially constructed templates for action,
generated and maintained through ongoing interactions. From this perspective,
actors create institutions through a history of negotiations that lead to “shared
typifications” or generalized expectations and interpretations of behaviour’
(cited in Barley and Tolbert 1997: 96).
Following this view, J epperson (1991: 149) has argued that ‘institutions are
socially constructed, routine-reproduced (ceteris paribus) program or rule
systems,’ while Barley and Tolbert (1997: 96) have defined institutions as
‘shared rules and typifications that identify categories of social actors and their
appropriate activities or relationships [that] bears a strong resemblance to
Giddens’ (1984) notion of “structure” and …Sewell’s (1992) idea of a
62
“schema”.’ Moreover, the organizational sociologist Scott (1995: 33, 2001:
48) has developed a very prominent and widely used concept, viewing institu-
tions as ‘social structures that have attained a high degree of resilience. [They]
are composed of cultural-cognitive, normative, and regulative elements that,
together with associated activities and resources, provide stability and
meaning to social life. Institutions are transmitted by various types of carriers,
including symbolic systems, relational systems, routines, and artifacts.’
Reflecting the approach of the new institutional economic sociology (see e.g.,
Fligstein 1996, 2001; Swedberg 2003), Nee (2003: 23) has defined an
institution ‘as a system of interrelated informal and formal elements–custom,
shared beliefs, conventions, norms, and rules–governing social relationships
within which actors pursue and fix the limits of legitimate interests.’
Drawing upon the overviews presented of the different institutional strands
in social science, and its various ideas and notions of institutions, the disserta-
tion moves on to suggest that these approaches share important core elements
in defining institutions, but that each of the approaches consists of a set of
specific theoretical lenses, which are useful to address institutional elements
across social, spatial and societal contexts for entrepreneurial processes, and
particularly the informal or implicit variants. In doing so, the following section
uses the pre-existing literature on institutionalism to outline a fitting under-
standing and use of institutional theories.
4.5 Building blocks of a multi-layered institutional approach
Reviewing the various institutional theoretical strands and their views of
institutions, several important terms and logics emerge that merit more
detailed exploration, in order to build up a narrow, congruent institutional
theoretical understanding for the present dissertation. Generally speaking, this
research suggests that the emergence of individual entrepreneurial behavior is
somewhat structured (Giddens 1984) in terms of formal or informal (North
1990) or overt or implicit rules (Hodgson 2006), where an institution is a
system of established and prevalent rules (Hodgson 2006; J epperson 1991;
Martin 2000) that enable and constrain individual cognitions, expectations and
behavior (North 1990; 2005; Hodgson 2006; 2007b, 2009). Thus, the
‘existence of rules implies constraints. However, such a constraint can [also]
open up possibilities: it may enable choices and actions that otherwise would
not exist’ (Hodgson 2006: 2).
Viewing institutions as constraints devised by people has often been linked
to the regulative elements of institutional rules, which are usually more
explicit, more formalized and thus more easily subject to strategic planning
63
(Scott 2010). Here, particularly North (1990) and Williamson (1994) have
stressed the need for and role of clear directives, configuration of incentives
and the importance of control for economic activity. However, while the
formal nature of institutions (e.g., property rights, laws, business regulations)
has been widely acknowledged, scholars have increasingly suggested that
formal rules and sanctions can only become explicit or superficial when they
are supported by cultural norms and beliefs (Hodgson 2006; Roland 2004;
Scott 2010). To this end, Sugden (2000) has emphasized how formal or
external sanctions and laws can promote moral legitimacy, and how their
violation can stir social disapproval. Scott (2010: 6) has further underlined that
‘[f]ormal and monetary incentives are tempered, if not superseded, by the
reactions of others to one’s choices as well as internalized commitments.’ This
is in line with Hodgson’s (2006) broad conception of institutions, emphasizing
the informal basis of institutions that structure behavior. This dissertation
suggests that formal institutions and rules are also subject to social value
(Sugden 2000) and ‘social-rule systems’ (Hodgson 2006).
Going further down this road, individuals’ cognitive representations of
rules, and their (shared) beliefs and attitudes accorded to them, play an
important role in the constitution and codification of that rule, which thus
involves normative rules of interpretation, evaluation and action (Searle 2005;
Hodgson 2006). However, while the influence of institutions depends on the
thoughts, evaluations and actions of and interactions between individuals
(Berger and Luckmann 1967; Meyer and Rowan 1977; Scott 2010), they are
not reducible to them, meaning that rules can be ‘considered, acknowledged,
or followed without much thought’ (Hodgson 2006: 3; Weber 1907); thus
potentially increasing the chance of their being taken-for-granted and their
resilience (Scott 1995; Scott 2010; Suchman 1995). J epperson (1991: 147) has
underlined that being prone to being taken-for-granted ‘is distinct from
[normative] evaluation: one may subject a pattern to positive, negative, or no
evaluation, and in each case (differently) take it for granted,’ or as Zucker
(1983: 25) puts it ‘for things to be otherwise is literally unthinkable’.
Similarly, Michael Polanyi (1967, cited in Hodgson 2006) has further argued
that the impact of rules is never fully the subject of conscious deliberation, as
there is always a tacit, unarticulated element of knowledge involved.
Nonetheless, ‘institutional rules are in principle codifiable’ (Hodgson 2006: 4)
and therefore usually subject to normative interpretations and discourse, which
becomes particularly visible when rules are challenged (Hodgson 2006).
This is in line with what is called cognitive turn (DiMaggio and Powell
1991) in (organizational) institutional theory, which draws particular attention
to thecultural-cognitive elements of institutions (see e.g., Meyer and Rowan
1977; Scott 1995; Scott 2010). According to Scott (2010), these elements are
64
socially constructed symbols, and so cultural (in Durkheim’s terms); while
they provide a vital frame for individual perceptions and decisions, and are
therefore cognitive. Linking to Swidler’s (1986) view of culture as tool-kit and
Hofstede’s (1991) notion of the soft-ware of the mind, Scott (2010: 7) has
further argued that these beliefs and assumptions can be ‘explicit and
relatively superficial,’ as well as ‘deeply entrenched assumptions […] of the
way the world is.’ These cultural-cognitive elements in turn relate or even
form the basis of effects and the constitution of normative (and regulative)
rules/pillars; while Scott (2010) reminds us that these rules are able to provide
an institutional framework by themselves.
The normative institutional rules, in this context, reflect the social and
cultural embeddedness of (economic) behavior (for instance, referring to
Granovetter 1985), where individuals are primarily viewed as social actors
who care about their informal relationships with and loyalty to others, which
in turn is likely to have a role in tempering self-interest and utilitarian
concerns in their decision-making process (Scott 2008, 2010; March and
Olsen 1989). Accordingly, individuals are embedded in normative systems
consisting of (implicit and informal) rules and logics of what is perceived as
“appropriate” or “proper” behavior or a way of thinking (Scott 2008).
Following these ideas, institutional scholars, particularly in organizational
research, have developed a conceptual idea of social legitimacy (Aldrich and
Fiol, 1994; DiMaggio and Powell 1983; Meyer and Rowan, 1977; Suchman,
1995; see Bitektine 2011 for an overview), which is widely seen as ‘a gener-
alized perception or assumption that the actions of an entity are desirable,
proper or appropriate’ (Suchman, 1995: 574). Accordingly, ‘nstitutions
guide behavior by defining what is appropriate or expected in various social
and commercial situations’ (Bruton et al. 2010). In summary, institutional
rules can be seen as ‘norms of behavior and social conventions as well as legal
rules, [where individuals] share tacit or explicit knowledge of these rules’
(Hodgson 2006: 3).
This leads to another conceptual aspect of importance to the present
research, namely that of intentionality. Referencing Hans J oas (1996),
Hodgson (2006) has argued that conscious prefiguration and self-reflexive
thinking are the foundation of the conceptual idea of intentionality, while
unintended behaviors lack such conscious processes. Moreover, Hodgson
(2009) has noted that recent research in psychology and elsewhere has
increasingly shifted away from the so-called ‘deliberative thinking paradigm’,
as referred to by Maes (1991, cited in Hodgson 2009). Accordingly, scholars
have recognized that individual cognition ‘depends on its social and material
environment and the cues provided by structured interactions with individuals
and artefacts’ (Hodgson 2009: 13). Building upon these thoughts, and as
65
introduced in Section 2, this dissertation postulates that an individual’s new
venture creation process, with its different initial phases and activities,
represents a form of long-term behavior which may involve unconscious
cognitive processes, but demands a certain degree of self-reflexive, conscious
evaluations of the surrounding environment and individual preferences and
abilities to actually prepare and start a business. In other words, the present
work argues that conscious thoughts, beliefs and desires are the immediate
basis of the formation of entrepreneurial intention (Ajzen 1991), but that these
cognitive elements are social and cultural in origin (Veciana and Urbano
2008), and can therefore be directly and indirectly affected by tacit or explicit
knowledge of the external, institutional environment. Such a view of the
embeddedness of entrepreneurial thoughts, intentions and behavior within the
external, institutional environment implies that institutional structures have
top-down effects on the individual, calling for further philosophical and
ontological clarification. While, generally speaking, institutional perspectives
always address top-down (constraining and enabling) effects to some extent,
this dissertation particularly applies Hodgson’s (2006) view and philosophical
standpoint. This is because the author views it as providing a suitable macro-
lens on the top-down influence of institutions, while allowing room for
conceptualizing interactive and bottom-up effects, addressing the role of the
individual in shaping context. Accordingly, the present research endorses the
view that:
By structuring, constraining, and enabling individual behaviors, institutions
[can] mold the capacities and behavior of [individuals] in fundamental ways: they
have a capacity to change aspirations instead of merely enabling or constraining
them. […] The existence of reconstitutive downward causation does not mean that
institutions directly, entirely, or uniformly determine individual aspirations, merely
that there can be significant downward effects. […] [Moreover,] institutions [do
not] stand separately from the group of individuals involved; institutions depend
for their existence on individuals, their interactions, and particular shared patterns
of thought. Nevertheless, any single individual is born into a pre-existing
institutional world which confronts him or her with its rules and norms. The
institutions that we face reside in the dispositions of other individuals but also
depend on the structured interactions between them, often also involving material
artefacts or instruments. […] Accordingly, institutions are simultaneously both
objective structures “out there” and subjective springs of human agency “in the
human head.” Institutions are in this respect like Klein bottles: the subjective
“inside” is simultaneously the objective “outside.” […] Actor and institutional
structure, although distinct, are thus connected in a circle of mutual interaction and
interdependence. (Hodgson 2006: 7–8)
66
Drawing upon Hodgson’s (2006) lens, this dissertation argues in line with
North (1990) that it is useful to conceptually distinguish between the institu-
tional rules and players, but also to acknowledge their interdependence that
decrees that structure relies on the agent and vice versa (Hodgson 2006).
When referring to an agent or a player, I use the term in the restricted sense of
an individual–the potential entrepreneur–and not to refer to an established
organization. It is not within the scope of this research to engage in the discus-
sion of whether organizations are players or institutions themselves (see, for
instance, Hodgson 2006, Appendix, for a discussion on this subject between
North and Hodgson) although the author acknowledges North’s (1990, 2005)
point that organizations can also be players in society. In fact, as indicated in
Sections 2 and 3, the present research explores the individual venture creation
process embedded within the external (social, spatial and cultural) environ-
ment, based on an integrative institutional perspective. Thus, besides acknowl-
edging the interrelationship between the individual and institutions, it explores
the social, spatial and cultural context from an institutional perspective, adding
to the theoretical basis of the empirical research papers included.
Institutional scholars, from different disciplines, have criticized prior
research, the bulk of which applies institutional theory focused on higher
level, macro-structures, so excluding the interrelated institutional mechanisms
and forces on smaller social and spatial scales (Powell and Colyvas 2008;
Gertler 2010; Nee 2003; Fligstein 1997; Scott 2010; Owen-Smith and Powell
2008; Welter and Smallbone 2011). In this context, particularly organizational
institutionalists (Powell and Colyvas 2008; Scott 1995, 2010), institutional
economic sociologists (Fligstein 1997, 2001; Nee 2003), and economic
geographers (Gertler 2010; Martin 2000; Rafiqui 2009) provide useful
theoretical insights into the multifaceted nature of lower-level institutions, and
also into the role of individuals in shaping their contexts. Similarly, entrepre-
neurship researchers have increasingly emphasized the need to apply institu-
tional theory at the social (Thornton et al. 2011) and local and regional levels
(Welter 2011). This is also in line with Hodgson (2009: 19) who has stated
that the strength of institutional economics, as compared to neoclassical
economics is or should be its (universal) emphasis on ‘scarcity in a relative
and local sense, concerning immediate availability of capacities and resources
for an agent.’
From an economic geography perspective, Rafiqui (2009: 336) has recently
stated that ‘the intent of North’s conceptualization clearly is to capture a
general structure, usually at the national level, that interacts with the activities
of [agents or] organizations.’ That intent limits institutional applications on
different spatial scales. Here, Rafiqui (2009: 341) has particularly underlined
67
‘that institutional solutions are non-homogenous across space; varying
physical environments and historical experiences means that beliefs, institu-
tions and organizations differ between places.’ Similarly, Gertler (2010: 5) has
raised the problematic issues of what he calls ‘methodological nationalism’,
which follows the assumption that national-level institutions and rules super-
sede everything else. Following this argumentation, he has emphasized the
need of approaches that are ‘more sensitive to the documentation and under-
standing of institutional variegation at a number of different spatial scales.’
Further, Hayter (2004) has highlighted that regional and local contexts consist
of unique institutional functions by organizing ‘global-local’ dynamics within
their boundaries, thus further arguing that local institutions reflect institutions
at a higher level for theory. In addition, Regini (1995) emphasized the
emerging ‘local institutionalism’ as a core element to address micro-socio-
institutional regulations, shifting away from solely focusing on macroeco-
nomic regulative elements. Underling the spatiality of institutions, Ostrom
(2005) has described attributes of a local community (or ‘arena’) as the
prevalent norms of behavior, the degree of homogenous preferences and
common understandings about the local structure. He has further theorized
how certain rules-in-use reflect the explicit and implicit rules the “do’s and
don’ts” (Ostrom 2005: 832) in a local community, that constrain choices and
behavior of members of the community. Added to this, Strauss (2008)
applying a human geography lens, has emphasized that individual cognition
and preferences are shaped by the conditions of the real world, such as institu-
tional, economic, demographic and physical features that constitute the
regional environment viewed ‘objectively’.
Moreover, organizational institutionalists have increasingly cited the
importance of multilevel institutional research (Scott 2010) particularly by
adding and exploring micro-foundations of (macro-) institutional theory
(DiMaggio and Powell 1991; Powell and Colyvas 2008). For instance, in 1995
the sociologist Scott (1995: 33) theorized that ‘nstitutions operate at
different levels of jurisdiction, from the world system to localized interper-
sonal relationships’, while recently highlighting the ‘increased recognition of
and research attention given to the ways in which higher-level systems both
affect and are inuenced by micro forces’ (Scott 2010: 7). The recent work of
Powell and Colyvas (2008) has further suggested how ‘institutional research
can benefit from complementary attention to the micro-order and the macro-
level’ (295), arguing that ‘macro-framings or values can be ‘pulled down’ to
the everyday level of practice’ (278). Owen-Smith and Powell (2008) have
provided further useful insights into how institutional forms can emerge from
social networks, and how institutional rules shape the nature and effects of
social networks; even calling for a ‘network-institutional’ approach.
68
Accordingly, they have further underlined the importance of addressing
multiple levels of analysis, to uncover what they call co-evolutionary duality
between social relationships (foundations of networks) and social categories
(foundations of institutions).
From an economic sociology perspective, Nee (2003: 33) has also argued
that interest-driven action and social norms within networks ‘cannot be
understood apart from the institutional framework within which incentives–
including legitimacy–are structured.’ Moreover, Fligstein (1997; 2001) has
highlighted how the exploration of the emergence of ‘local social orders’
contributes to institutional theory. Rooting his work in symbolic interaction-
ism (Becker 1963; Mead 1934; Goffman 1959), he has particularly empha-
sized the important role of individuals –or, what he calls, institutional
entrepreneurs (Fligstein 1997) in constructing and reproducing local institu-
tional orders, while arguing that an individual’s ability to shape social orders
depends on their social skills to motivate others to collaborate. In addition,
other scholars such as Dennis and Martin (2005), have discussed how interac-
tionists explore the development, reinforcement, renegotiation and rejection of
particular norms and labels developed and projected by particular social
groups. For instance, Ford et al. (2008) have argued that social networks can
have the ability to label individuals as ‘deviant’ even when they have not
subverted the shared norms of a social group. Moreover, in line with Fligstein
(1997, 2001), Rose’s (1990) idea of the enterprise of the self suggests that
individuals, in turn, can also reshape their given labels, bringing the norms of
the reference group in line with their own behavior, which illustrates how
norms and labels are not necessarily fixed.
This dissertation suggests that these sociological considerations of the
various interactive mechanisms involved in the relationship between (external
and subjective) institutional contexts and the individual, profoundly add to a
multilevel institutional understanding of entrepreneurship, complementing the
rather macro-institutional economic perspectives (see e.g. Hodgson 2006,
2009). Accordingly, the dissertation’s theoretical lens highlights the usefulness
of multiple streams of institutional theory, to improve our understanding of
contextual influences on new venture creation and entrepreneurial behavior. In
line with Bruton et al. (2010), this allows it to address the role of institutional
settings on entrepreneurship, legitimacy issues and entrepreneurial behavior,
and institutional entrepreneurship, while the presented framework also enables
it to address institutional and external influences on entrepreneurial cognitive
processes. Similarly, as discussed by Welter (2011), using such a multi-
layered theoretical lens is intended to capture top-down and bottom-up effects,
reflecting the institutional embeddedness of the (potential) entrepreneurs on
the one hand, and the important role of (potential) entrepreneurs as
69
institutional change agents on the other. In addition, the dissertation’s
framework can serve as a useful way to capture the relationships between and
multiple effects of social, spatial and the broader institutional contexts, partic-
ularly by theorizing and investigating the informal institutional nature of these
contexts for entrepreneurship. Thus, an extended multi-layered institutional
approach can be seen as a holistic framework, addressing not only institutional
factors that interact with entrepreneurship, but also other contextual factors,
such as economic, educational systems (Veciana and Urbano 2008), social
networks or geographical contexts at different spatial scales.
71
5 SUMMARY OF THE RESEARCH PAPERS
This section provides brief summaries of the four empirical research papers
that form the present dissertation’s research segment. Following a description
of each paper’s empirical research, their aims, theoretical basis and main
insight are briefly outlined. The main contributions of the papers and the
dissertation as a whole are presented in the section ‘Discussions and
Conclusions’ that follows.
5.1 Research methodologies
As summarized in table 2, the empirical work of the dissertation is based on
different sets of data (across different countries) and uses quantitative and
qualitative research methods to analyze the main research questions.
72
Table 2 Research methodologies in the four research papers
Paper 1 Paper 2 Paper 3 Paper 4
Research metho-
dology
Quantitative Quantitative Quantitative Qualitative
Research design Survey Survey Survey Case study
Methods
of data
collection
Secondary survey
data and official
statistics
Self-administered
questionnaire and
official statistics
Self-administered
questionnaire and
official statistics
In-depth, semi-
structured
interviews
Source(s) of data
11,002 individu-
als aged 15 and
over from 27
countries
(‘Eurobarometer
Survey 2009’)
834 Finnish
working-age
individuals
(combined with
regional data
from ‘Statistics
Finland’)
496 Finnish
individual aged
45–64 (combined
with regional data
from ‘Statistics
Finland’)
22 British
entrepreneurs
who started a
business aged
50 and above
Research context
24 European
countries, China,
J apan and the
United States
Finland (Central
Ostrobothnia,
Ostrobothnia
and South
Ostrobothnia)
Finland (Central
Ostrobothnia,
Ostrobothnia and
South
Ostrobothnia)
UK, London
Method(s) of data
analysis
Multilevel
binominal logistic
regression
analysis
Multilevel
regression
analysis
Structural equa-
tion modeling
(Partial least
squares (PLS)
Thematically
open-coded
content analysis
Research papers 1–3 apply quantitative methodology, whereas paper 4
applies qualitative methodology. By combining quantitative and qualitative
studies, the present research particularly responds to Welter’s (2011) recent
work on ‘Contextualizing Entrepreneurship’, which suggests ‘that the gap in
multi-context analysis partly results from the neglect of […] combined
methods, which allow capturing the richness and diversity of the context’.
While the bundle of four research papers (with their individual context focus)
reflects the multilevel lens applied in the dissertation, paper 1 and paper 2 in
particular aim to address the need for more quantitative multilevel empirical
research and techniques (see e.g., Hox 2010) in order to account for the
different levels involved in the analysis of the relationships between context
and individual entrepreneurial behavior (Autio and Acs 2010). Accordingly, a
multilevel empirical approach is taken in these papers to be technically able to
analyze ‘top-down processes’, mainly including the observed downward influ-
ences of regional- and national-level variables on individual-level variables
(Kozlowski and Klein 2000). Addressing the research question in this way, the
research papers reduce the risk of generating interpretations and conclusions
73
harmed by ecological fallacies (Bosma et al. 2009), which can result from the
disaggregation of the included regional-level data down to the individual level.
The analysis in paper 3, which is based on the PLS approach to structural
equation modeling, is limited in this context as multilevel modeling is not
available for PLS. However, using the PLS method enabled the analysis to
incorporate (continuous) latent variables and to improve the interpretations the
complex (indirect) relations (J acoby 1978; Churchill 1979) between the
perceived social norm constructs and the TPB variables. Complementing this
quantitative research, a qualitative research approach is applied in paper 4. In
particular, the research paper follows an interpretative qualitative approach
(Gephart 2004), and undertakes an inductive study through a series of different
case studies (Yin 2009), to provide an in-depth examination into the behavior
of (potential) entrepreneurs, particularly in facing and interacting with social
barriers. As such, the study gains exploratory insight into the ‘meanings and
concepts’ (Gephart 2004: 457) used in the different social settings in which
entrepreneurs create and operate their businesses (J ack 2010; Welter 2011).
5.2 Paper 1
The first paper focuses on the role of social normative contexts within society
on an individual’s new venture creation process. In particular, the study seeks
to conceptualize and analyze the perceived moral legitimacy accorded to
entrepreneurs in society and its influence on an individual’s progress across
different start-up stages. Embedded in institutional perspectives (Hodgson
2009; Scott 1995) and a social legitimacy approach (Suchman 1995), moral
legitimacy is defined as a moral evaluation of the benefits of the entrepre-
neurs’ actions for society as a whole. A multilevel analysis based on data
across 27 countries shows that the perceived moral legitimacy of entrepreneur-
ship positively influences an individual’s likelihood to engage in the firm
formation process, even when controlling for the level of entrepreneurial
activity and economic performance at the country level. In particular, the
results demonstrate that moral legitimacy has a significant impact only in the
early phases of the firm formation process: it increases the probability of an
individual progressing from not even thinking about starting a business to
considering it and thereby to nascent activities. Moral legitimacy, however,
does not influence an individual’s decision on whether to move from prepar-
ing to actually starting and running a business. Thus, the study suggests that
the emergence of entrepreneurial aspirations and nascent entrepreneurial
activity are not independent of the perceived moral norms in society.
74
5.3 Paper 2
The second paper aims to provide new insight into the regional dimension of
the very early phase of new venture creation. In particular, the study seeks to
examine how the ‘objective’ regional environment impacts on entrepreneurial
cognitions and the formation of entrepreneurial intentions. By complementing
the TPB (Ajzen 1991) with a regional perspective on entrepreneurship (Bosma
and Schutjens 2011; Sternberg 2009; Stam 2010), this study shows that
different regional factors moderate the influence of the three TPB cognitions
of attitude, subjective norm and perceived behavioral control on the entrepre-
neurial intent. More specifically, a multilevel analysis based on survey data
and regional statistics across 53 Finnish municipalities finds that higher
household income (growth) and wealth levels in a region strengthen the
positive impact of entrepreneurial attitude on intention. A higher population
density and education level is found to weaken the positive influence of the
perceived entrepreneurial ability and intention to start a business. A higher
public and manufacturing sector employment level is found to weaken the
positive impact of both the perceived entrepreneurial capability and social
support from family and friends. Taken together, these findings imply that the
regional environment can both support and hinder the formation of entrepre-
neurial intentions by shaping the relationships between intentions and their
cognitive antecedents in different ways. This encourages further development
of the theoretical understanding of the formation of entrepreneurial intentions
by examining external regional conditions as moderating variables in the TPB
framework.
5.4 Paper 3
The third paper seeks to uncover the influence of social normative contexts
within a regional community on the formation of entrepreneurial intentions. In
particular, the study illustrates that if an ‘older age’ individual perceives their
local community to socially legitimatize entrepreneurial activity at their age,
such a perception strengthens their intent to go ahead and actually start a
business. Based on a sample of 496 Finish individuals aged 45–64, the study
further shows that this influence is partially mediated by the three theoretical
antecedents of intentions put forward in the TPB: attitude, subjective norm and
perceived behavioral control. This means that the perceived social acceptabil-
ity of entrepreneurship at an older age not only affects entrepreneurial inten-
tions directly, but also indirectly via how entrepreneurship-friendly the indi-
vidual’s attitudes toward work are, how the individual perceives the extent and
75
importance of support from their family and friends, and how the individual
perceives their ability to start and run a business. Accordingly, this paper
suggests that perceived age norms within a regional community shape the
formation of entrepreneurial intentions; arguing that the potential for entrepre-
neurship amongst older individuals is socially and institutionally situated.
5.5 Paper 4
The fourth paper aims to explore the normative role of social networks in new
venture creation and development. Drawing on a micro-sociological lens of
deviance, this study provides new insight into how normative evaluations from
social networks can affect individuals aged 50 and over during the process of
founding a new firm. Based on 22 in-depth interviews in London, UK, this
paper suggests that older entrepreneurs are affected by a range of positive and
negative perceptions of ‘deviance’, and their abilities to negotiate negative
perceptions vary, across and within three different networks: family, friends
and client networks. In line with an interactionist approach to deviance, the
paper demonstrates that social norms are inherently unstable, and may be
negotiated by an older entrepreneur’s actions. Consequently, the findings
contribute to a micro-sociological understanding of how older entrepreneurs
face, react to and potentially change normative perceptions within different
social environments. This further suggests that in order to add to the under-
standing of the institutional embeddedness of entrepreneurship, further
research is needed that considers the micro-foundations of institutional theory
(Powell and Colyvas 2008) and the normative role of social networks
(Fligstein 2001; Owen-Smith and Powell 2008) in entrepreneurial behavior.
77
6 DISCUSSIONS AND CONCLUSIONS
Entrepreneurship research has increasingly highlighted the importance of
developing the understanding of contextual influences on entrepreneurship,
while particularly emphasizing the need for research that adds to the
knowledge of the role of social, spatial and institutional contexts on new
venture creation processes. In a similar vein, scholars have recently called for
the development of a multi-layered approach to entrepreneurial behavior, to
theoretically and empirically capture the multiplicity of contexts and their role
in shaping the emergence of entrepreneurship, while also addressing the role
of (potential) entrepreneurs in changing their contexts. Following on from this,
an increasing body of scholars is suggesting that an institutional perspective
might provide a useful framework with which to theorize and interpret these
complex interactions between various contexts and entrepreneurship, helping
to advance theoretical understandings of the varying effects of different
contexts, at macro- and micro-levels. Against this backdrop, this dissertation
sought to address these recent debates and emerging research gaps by
providing new theoretical and empirical insight into the research question:
What role do social, spatial and institutional contexts play in the
formation of entrepreneurial intentions and the subsequent
venture creation process, and in how potential entrepreneurs are
able to resist and shape their surrounding contexts?
In so doing, the dissertation has introduced a multi-layered institutional
lens, using insights from different streams of institutional theory, to develop a
holistic theoretical base for the empirical research papers that in turn apply
qualitative and quantitative methodologies to analyze specific elements of the
social, spatial and institutional contexts. The present discussion and conclu-
sion section attempts to draw on the main empirical and theoretical insights
and implications of the four individual papers. It also discusses their relation
to each other, and how they add to the dissertation’s main aims (see Section
1.2), identified research gaps (see Section 3.4) and the theoretical framework
(see Section 4.5). More detailed discussions and conclusions of the individual
papers’ insights and their specific contributions and limitations can be found
in the papers themselves (see Part II).
78
6.1 Key empirical findings
This dissertation finds empirical support for the suggestion that a variety of
social, regional and societal contexts influence the process of new venture
creation. It demonstrates that an individual’s initial consideration of becoming
an entrepreneur and the actual decision to start preparing their business (the
entrepreneurial ladder) significantly depends on their perceived moral legiti-
macy of entrepreneurial activity in society (Paper 1). Paper 1 particularly
shows that the more positive the perception held by an individual that entre-
preneurship is legitimized morally in their society, the higher the probability
that they will view entrepreneurship as a potential career path. A positive per-
ception of the societal legitimacy of entrepreneurship is also likely to progress
their movement from the ‘consideration’ and ‘intention’ phases towards
nascent entrepreneurial activity. Once an individual has made the decision to
start preparing their own business, the perceived moral legitimacy no longer
plays a role in shaping the venture creation process. This further emphasizes
that the impact of socio-cultural factors can vary during the different stages of
the firm formation process, which supports the use of the ‘entrepreneurial
ladder’ as an analytical tool to capture different facets of the entrepreneurial
process even in a cross-sectional setting (Van der Zwan et. al. 2010).
Supporting this finding, research paper 3 shows how perceived social norms
within a regional context influence the very early phase of the venture creation
process by shaping entrepreneurial cognitions and intentions. It demonstrates
that an individual’s perceived social acceptance of entrepreneurship within a
regional context directly shapes the intention to start their own business, but
also does so indirectly through influencing their entrepreneurial attitudes,
perceived social acceptance within the immediate social environment, and
perceived entrepreneurial ability (TPB). Accordingly, the dissertation under-
lines that the more positively an individual perceives entrepreneurship as
socially accepted in the broader regional environment the more likely they are
to have positive entrepreneurial attitudes and self-efficacy beliefs, as well as to
perceive that entrepreneurship will be accepted in their close social networks.
These positive relationships between perceived social norms and entrepre-
neurial cognitions in turn enhance the formation of entrepreneurial intentions,
while social norms also directly and positively relate to entrepreneurial
intentions.
Moreover, the current research shows that entrepreneurial cognitions and
the formation of entrepreneurial intentions are also affected by the ‘objective’
regional environment. Research paper 2 demonstrates that an individual’s
entrepreneurial attitude, perceived entrepreneurial ability and, thus, the
formation of entrepreneurial intention (TPB) are significantly and indirectly
79
influenced by ‘external’ regional conditions. In particular, it illustrates that
higher regional levels of income and wealth strengthen the positive effect of
entrepreneurial attitudes on entrepreneurial intentions. A higher regional level
of public sector and manufacturing sector employment is found to weaken the
positive impact of an individual’s perceived social acceptance of entrepreneur-
ship within the immediate social environment on intentions, while these
regional factors together with a higher population density and a higher than
average level of education weaken the influence of an individual’s perceived
ability to successfully run a business on their intent to actually start a business.
Adding to these findings, research paper 1 finds empirical support for the
suggestion that ‘objective’ economic conditions across nations influence the
early phases of the venture creation process, but also more advanced phases. It
shows that the factual positive relationship between entrepreneurial activity
and economic growth in a country increases the probability that an individual
will consider becoming an entrepreneur, decide to start preparing their
business, and commence doing business.
Further, while paper 2 and paper 3 support the large body of TPB studies
that show that an individual’s perceived social acceptance of entrepreneurship
within their immediate social environment (family, friends and work associ-
ates) impacts on their entrepreneurial intentions, research paper 4 demon-
strates that social approvals of entrepreneurship and the related level of social
support do vary within and across different social networks. Paper 4 further
shows that an older individual’s (nascent) entrepreneurial activity is
profoundly influenced by the social judgments of family, friend and client
networks as they can enhance or undermine their entrepreneurial motivations
and self-efficacy as well as their development of a customer base. Moreover,
these normative perceptions often reflect whether social networks are willing
to provide tangible and/or intangible resources and support for the entrepre-
neur to develop their (nascent and young) business. The variations of positive
and negative social perceptions within networks and the reactions of entrepre-
neurs are in turn found to strongly relate to the entrepreneur’s and social
network’s professional background. It is shown that, for instance, serial entre-
preneurs are more able to resist and modify negative perceptions than their
counterparts (novice entrepreneurs), while generally perceiving fewer negative
sanctions in the different social networks within which they are embedded. In
addition, if an entrepreneur’s new venture is in a similar sector to that they
used to work in, they are less likely to face judgments of negative deviance
within their various social networks, as the gap between the established norms
of their current work and pervious work will be narrow.
Generally, the four empirical research papers highlight that perceived
social norms prevalent in the social, local and societal contexts particularly
80
influence the early stages of the venture creation process. However, approval
perceived from close social networks remains important, or may even increase
in importance, in the nascent and early firm phases, reflecting the level of
support and resources (both tangible and intangible) such approval contributes
to new venture creation and development. Moreover, the empirical sections
demonstrate that both the ‘objective’ measures of the environment, such as the
demographic and economic structure of a region or nation, and the subjective
perceptions of the external environment have a significant effect on entrepre-
neurial cognitions and intentions (paper 2, paper 3 and paper 4) and the
subsequent venture creation process (paper 1).
6.2 Theoretical contributions
The dissertation suggests that the theoretical foundations formed relying on
different institutional lenses can help develop a multi-layered institutional
approach to context in new venture creation. By combining different theories
and ideas emerging largely from old and new institutional economics and
(economic) sociological institutionalism, this dissertation argues that is
necessary to apply insights derived from different disciplines to be able to
capture the various contextual, individual and interactive elements influencing
economic activity, from an institutional perspective. In so doing, it adds to the
recent entrepreneurship literature that proposes institutional perspectives, and
the use of insights from different disciplines, as a way forward to develop our
contextualized understanding of entrepreneurial behavior (Bruton et al. 2010;
Thornton 1999; Thornton et al. 2011; Welter 2011; for an overview see
sections 1 and 4.1).
In particular, the present conceptual work contributes to the body of
entrepreneurship research that has suggested that institutional approaches can
be useful to address relevant micro supply-side and macro demand-side
perspectives (Thornton 1999); contextual top-down and bottom-up effects
(Welter 2011; Welter and Smallbone 2011); effects of the relationships
between social and cultural environments (Thornton et al. 2011); the role of
normative contexts and legitimacy (Bruton et al. 2010); contextual influences
on entrepreneurial cognitive processes (Lim et. al 2010; Mitchell et al. 2007)
and intentions (Liñán et al. 2011); as well as the role of individuals in shaping
contexts, often referred to as institutional entrepreneurship (Bruton et al. 2010;
Garud et al. 2007; Welter 2011). These are the various issues raised recently in
entrepreneurship research on the institutional perspective; and it is to these
that the multidisciplinary theoretical framing presented here seeks to add. I
believe it can strengthen the multilayered, institutional understanding of
81
entrepreneurship; particularly by suggesting social normative elements to be
capable of bridging the different levels of contexts.
Building upon these debates, the dissertation illustrates that moral legiti-
macy of entrepreneurship, operationalized as a conceptual source of social
legitimacy (Suchman 1995), is a potential informal institution influencing the
early phases of the formation of a new venture (paper 1). By introducing and
applying a specific legitimacy type of Suchman’s concept in the context of
entrepreneurship, the dissertation contributes the important challenge of
finding ways to conceptualize and measure specific socio-cultural influences
on the emergence of entrepreneurship (Bosma and Schutjens 2011; Schendel
and Hitt 2007; Thornton et al. 2011; Welter and Smallbone 2011). Accord-
ingly, this research also concurs with entrepreneurship researchers who
emphasize that an institutional perspective can give rise to a framework of use
for conceptualizing and interpreting specific relationships between (potential)
entrepreneurs and their socio-cultural environment. Underlining the need for
such developments, entrepreneurship scholars have argued that our knowledge
of cultural influences on new venture creation and entrepreneurship is still in a
very early phase (Bosma and Schutjens 2011; Freytag and Thurik 2007).
In developing an institutional and moral legitimacy lens (in paper 1) as a
means to add to and contextualize new venture creation processes, the present
dissertation further contributes to the debate on the different approaches
applied in studies of socio-cultural influences on entrepreneurship. By
demonstrating how moral legitimacy influences organizational emergence, this
research suggests further theoretical development based on the social legiti-
macy or moral approval approach (Etzioni 1987; Suchman 1995; Zafirowski
1999), to complement the current dominant approaches, such as Hofstede’s
(2001) seminal work (Hayton et al. 2002) and the aggregated psychological
trait approach (Freytag and Thurik 2007). Moreover, a moral legitimacy
approach can provide new insights into ‘pull’ explanations of entrepreneurial
behavior, thus enriching ‘push’ explanations based on recent developments in
what is called the dissatisfaction approach (Noorderhaven et al., 2004). As
such, the social and moral legitimacy approach can add to the knowledge of
how an individual’s entrepreneurial interest and choice is the outcome of an
anticipated social appraisal of being an entrepreneur (the pull element). In
contrast, the dissatisfaction approach can enhance understandings of how
conflicting values between the population and potential entrepreneurs–partic-
ularly in non-entrepreneurial culture–can drive (or push) potential entrepre-
neurs toward actual entrepreneurship (Thurik and Dejardin 2011a,b; Freytag
and Thurik 2007).
The identified effects of moral legitimacy further add to the debates on the
role of a legitimacy approach in understanding the early and nascent phase of
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new venture creation, as particularly addressed by the work of Tornikoski and
Newbert (2007) on organizational emergence based on a pragmatic legitimacy
approach. Building upon the dissertation’s insights and those from the above
work, it seems that while the perceived moral legitimacy of entrepreneurs in
society only influences initial entrepreneurial thoughts and the decision to take
the first steps to prepare the business, the pragmatic legitimacy (and particu-
larly the exchange with the potential, immediate business audience) plays a
key role in the transition from the nascent entrepreneurship phase to the actual
creation of a new venture. This also aligns with Suchman (1995) who argues
that moral legitimation implies larger socio-cultural rules and norms, whereas
pragmatic legitimation is based on self-regarding utility calculations by the
audience. Thus, this dissertation suggests that the influence of perceived
societal rules, such as that of moral legitimacy, diminish with an individual’s
progress in the venture creation process owing to the increasing importance of
boosting legitimacy in the business environment.
The dissertation further underlines the role of broader social norms in the
very early phase of new venture creation by adding knowledge on the social
normative embeddedness of the TPB in explaining the formation of entrepre-
neurial intentions (paper 3). While the TPB concept considers social approval
from the immediate social environment to be important to understanding the
emergence of intentions, the present work suggests that entrepreneurial cogni-
tions and approval from within the immediate social environment are in turn
affected by social norms at the broader regional and societal level. Accord-
ingly, the dissertation suggests that adding a broader social normative, or in
other words, institutional lens to the TPB, a social psychological theory,
enhances the contextualized knowledge of the formation of entrepreneurial
intentions. This supports the recent development of the TPB concept particu-
larly in the study of Liñán et al. (2011), which argues that social valuations of
entrepreneurship at a regional and societal level add to the appraisals within
the closer social environment included in the TPB.
Moving further beyond these contributions, the dissertation illustrates how
entrepreneurs at an older age seek to gain social approval and legitimacy and
emotional and professional support from their social networks, which might
aid their progress and the development of their nascent business. These
processes are in turn affected by different normative perceptions prevalent in
the various social networks, which can vary between positive and negative
judgments, resulting in greater or reduced support. While Tornikoski and
Newbert (2007) identify the importance of gaining acceptance from the
business audience during the new firm formation process, the dissertation adds
that it is also important to perceive that informal networks, such as family and
friends confer legitimacy too. Moreover, the role of normative judgments in
83
these networks and also in business environments, like (potential) client
networks, should be considered; as that could help us understand what consti-
tutes successful acquisition of tangible and intangible resources and support
mechanisms for an individual working through the nascent entrepreneurship
and early firm phase.
Accordingly, the dissertation also implies that while perceived social rules
and norms at the regional and society level seem to particularly influence the
early phase of new venture formation, social normative contexts within an
entrepreneur’s networks continue to affect the creation of a new venture
beyond the consideration and intention phase. These normative judgments can
determine the level of emotional support and advice provided by the various
social networks to the entrepreneur, while positively and/or negatively influ-
encing entrepreneurial self-efficacy. In the context of client networks, negative
normative judgments can particularly undermine the entrepreneur’s potential
to develop a market. Negative norms on the part of a potential client are also
relatively stable owing to relatively infrequent interactions; therefore there are
fewer opportunities for an entrepreneur to change unfavorable perceptions of
their business. The increased frequency of the interactions with family and
friend networks and the closer emotional ties mean an entrepreneur can
improve the prospects of gaining legitimacy and thus the support needed to
develop their business.
Following on from this, the dissertation uncovers some strategies an
entrepreneur can apply to acquire legitimacy within social and business
networks, and so improve the level of support provided by those groups. Paper
4 identifies four ways an older entrepreneur might manage the positive and
negative normative appraisal of themselves and their business. The four strat-
egies involve active negotiation of social norms within networks, suggesting
that entrepreneurs are able to change and modify negative and unfavorable
perceptions through active interventions over time. Secondly, social norms can
change through passive negotiation, suggesting that social networks can begin
to understand and approve an entrepreneur’s business activities by simply
gathering more information and observing the entrepreneur’s activities.
Subsequently, their unfavorable perception can become more positive without
intervention by the entrepreneur. The entrepreneur may then benefit from
enhanced levels of emotional and professional support. Another strategy
involves network modification, suggesting that entrepreneurs do not directly
or indirectly modify social appraisals of their businesses, but that they rather
move from negative networks to other more positive networks. A fourth way
may be called network avoidance, implying that (potential) entrepreneurs can
find ways to hide or mask certain markers that provoke negative judgments,
such as those based on age, appearance or other characteristics, particularly
84
within client networks. These strategies have been ascribed to a particular age
group of prospective entrepreneurs, however this dissertation suggests that
these ways to manage negative normative influences in immediate social
networks can serve as a new conceptual base to understand strategies and
practices available to prospective and established entrepreneurs at a micro-
institutional level to act as change agents. Developing new insight into
network approaches to the emergent phase of new ventures is particularly
important, for as Newbert and Tornikoski (2012) have suggested, while a
nascent entrepreneur might have a large number of ties with contacts, that
does not necessarily mean that those contacts can or wish to support the
creation of their venture.
It is further argued that the ‘institutional-network’ approach developed by
Owen-Smith (2008) and, more generally, the new conceptualizations of the
micro-foundations of institutional theory by Powell and Colyvas (2008) can be
a fruitful way to develop theoretical understanding of the normative contexts
of entrepreneurs within social and business networks. Drawing upon the
theoretical ideas of Owen-Smith (2008) in the context of entrepreneurship, the
dissertation provides new insight into how entrepreneurs are embedded in
different social relationships (networks), which are in turn affected by various
social categories and norms (institutions). Moreover, the application of an
interactionist approach (Becker 1963) in research paper 4, reveals the
importance of examining the social rules prevalent in an entrepreneur’s
immediate social environment, which are subject to dynamic processes and
change through social interaction and indirect or direct intervention by the
entrepreneur. Adopting the viewpoint of Powell and Colyvas (2008), it is
suggested that developing an institutional understanding of new venture
creation should be complemented by drawing attention to both micro-orders
and broader levels, where social norms and values prevalent in society can be
‘pulled-down to the everyday level of practice’ (Powell and Colyvas 2008).
This is of particular importance as paper 4 shows that social norms are not
stable constructs and that these varying normative perceptions are affected,
while not in themselves reflecting, shared meanings at the society level. It
follows that different groups of entrepreneurs are embedded in different
normative social settings, creating both favorable and/or unfavorable entrepre-
neurial environments on the micro-scale. Thus, while the dissertation argues
that social norms, such as moral legitimacy at the society level, play an
important role in shaping entrepreneurial interests and intentions, it also
suggests that social norms in the immediate social environment have a strong
effect during the nascent and early phases of a business’s development. This
concurs with Welter (2011) who calls for developing understandings of
85
entrepreneurship as part of everyday life to enhance our knowledge of the link
between society and entrepreneurial activity.
Further, the dissertation suggests that the insight into the normative role of
social networks may link to recent developments on the knowledge of the
local aspect of new venture creation. Stam (2007; 2010) in particular provides
a comprehensive set of arguments for why entrepreneurs tend to start and
operate their businesses in their home region. One main reason proposed is the
importance of the entrepreneur’s attachment to and support received from
personal networks which live in their surrounding environment. While this
dissertation concurs with this argumentation, there is evidence that some
networks of friends and family exert a negative influence and that some
(potential) entrepreneurs may leave their home areas before starting their
businesses to avoid such negative sanctions and to seek out important
emotional and professional support elsewhere. Accordingly, this underlines
why entrepreneurs can be subject to a local inertia based on personal motives,
while also potentially adding to the knowledge of why some (potential)
entrepreneurs may decide to leave their home area during the early phases of
venture creation and development.
In a regional context, research paper 2 also implies that ‘objective’ regional
and institutional factors play an important role in the very early phase of
venture creation by influencing individual cognitions and the formation of
entrepreneurial intentions. While the dissertation’s findings are mainly based
on individual perceptions of the external environment, paper 2 emphasizes that
factual structures of a location also indirectly impact on an individual’s
cognitive processes, which in turn stimulate or undermine their entrepreneurial
intentions. This supports the assumptions of Hodgson (2006: 8), suggesting
that the institutional environments are ‘simultaneously both ‘objective’
structures “out there” and subjective springs of human agency “in the human
head”.’ As such, the dissertation also concurs with Sternberg (2009) who
points out that individuals filter signals received from their regional environ-
ments, while it particularly adds new insight to the knowledge of how the
regional environment is influencing cognition processes that set the basis of
the formation of entrepreneurial intentions. Accordingly, it also contributes to
the recent work of Lim et al. (2010) that suggests that ‘objective’ socio-eco-
nomic and institutional factors significantly influence entrepreneurial cogni-
tions relevant to the decision to become an entrepreneur. While Lim et. al.
(2010) call for further research on entrepreneurial cognitions at the country
level, through use of ‘objective’ measures of the external (particularly the
formal) institutional environment, the current study proposes that such factors
need to be considered at the regional and local level too. Regional and local
86
consideration will produce fine-grained understanding of how the external
environment shapes entrepreneurial cognitions.
Moreover, the dissertation demonstrates that Ajzen’s theory of planned
behavior (TPB) can better explain the formation of entrepreneurial intentions
when it is complemented with both ‘objective’ (paper 2) and subjective
measures (paper 3) of the external spatial and institutional environments.
While paper 3 largely supports the main rationale of the TPB in suggesting
that external influences are mediated by three antecedents (attitude, subjective
norm and perceived behavioral control); paper 2 provides substantial and
empirically-supported arguments that external factors can also moderate the
influence of the three entrepreneurial cognitions on intentions. Thus, it might
well be that the subjective measures used in paper 3 are manifested in a more
conscious filtering process and reception of environmental signals, which in
turn more directly influences entrepreneurial attitudes or self-efficacy beliefs,
serving as the basis for the formation of entrepreneurial intentions. On the
other hand, the use of ‘objective’ measures to capture the external environ-
ment in paper 2 may result in more unconscious filtering of external factors.
That filtering suggests a more implicit influence on entrepreneurial cognitive
processes in moderating the relationship between cognitions and intentions. In
addition, one further explanation developed in paper 2 for the external influ-
ence on cognitions is anchored in the assumption that environmental signals
can induce uncertainties or increase the certainty of entrepreneurial beliefs,
which, according to the social-psychologists Cooke and Sheeran (2004), could
strengthen or weaken (in other words, moderate) the impact of the three TPB
antecedents on entrepreneurial intentions. In the spirit of Hodgson (2006), an
individual’s filtering of ‘objective’ environmental elements may also
indirectly involve normative evaluations by an individual, which thus may
further add to the understanding of how external conditions result in
(un)certain entrepreneurial cognitions relevant to the formation of entrepre-
neurial intention.
In summary, the dissertation shows that a variety of contextual elements
influence different phases of new venture creation, while (potential) entrepre-
neurs are also able to resist and change their environment. As such, it argues
that multi-layered frameworks are needed to conceptualize and interpret the
variety of contexts, such as social, spatial and cultural elements, that interact
with entrepreneurship. Based on the conceptual and empirical insights drawn
from this dissertation, I believe that a combination of old and new economic
and sociological institutional theories can offer a way forward that enhances
our understanding of the interdependency between ‘objective’ and subjective
contexts and entrepreneurship. In particular, I suggest that the social normative
institutions and (implicit normative) evaluations attached to the different
87
contexts are core features that might link different contextual influences on
entrepreneurship, and build a multi-layered institutional approach to new
venture creation. I suggest that the development of a multi-layered institu-
tional approach can improve our knowledge of downward and upward
causations between context and entrepreneurship, by acknowledging that
institutions in different contexts constrain and enable entrepreneurial behavior,
while (potential) entrepreneurs can also create and change institutions and
context.
6.3 Practical implications
While each research paper presents its specific implications for policy and
practitioners (Part II), the dissertation concludes that developing environments
that favor entrepreneurship is a far too complex task to be addressed simply by
legislative and regulative intervention. The dissertation argues that when
informal institutions and social normative contexts are explored in greater
depth, we can enhance understandings of environments that enable and/or
constrain the emergence of new ventures. This concurs with policymakers and
enterprise support communities expressing an increasing interest in the
environmental drivers of entrepreneurship (Thornton et al. 2011), while inter-
national organizations, such as the Organization for Economic Co-operation
and Development (OECD) and European Union (EU), specifically raise the
importance of social and cultural indicators (European Commission 2006;
OECD 2000). As such, governments and support agencies need to be aware
that the creation of regulatory environments intended to support entrepreneur-
ship can only be successful when the social norms and cultural embeddedness
of entrepreneurial behavior is considered as well. Supporting this suggestion,
the present work highlights that implications of formal institutional rules are
also subject of normative evaluations (Scott 2010; Hodgson 2006), which in
turn increases the importance of considering normative elements attached to
different spatial contexts when designing initiatives to support business
venturing.
Moreover, the dissertation suggests that policy-makers and practitioners
that seek to support entrepreneurship need to consider the different environ-
ments within which potential entrepreneurs are embedded. Drawing upon the
insight gained into social, regional and societal influences of new venture
creation, for instance regional governments could improve their support for
local entrepreneurship by customizing initiatives that, in addition to local
formal and informal conditions, consider the deeper structural and normative
elements of society (e.g., moral legitimacy) as well as specific characteristics
88
of the potential entrepreneur embedded in unique social networks. As such,
the present findings particularly suggest that in order to enhance the formation
of entrepreneurial interests and intentions, national and local policy and
enterprise support organizations should jointly seek to facilitate a socio-
cultural environment at society and regional levels that increases the social
acceptance of entrepreneurship. This is particularly important, since
establishing new grounds for social legitimacy is very challenging and often
only possible due to pressure applied by a group of established organizations
over a longer period of time (Suchman 1995).
In addition, if the aim is to develop support structures to help entrepreneurs
prepare and operate their business, I suggest an increased focus on the norma-
tive judgments and social barriers within the entrepreneurs’ immediate social
environment would be advisable. It is important to offer individual support for
entrepreneurs to help them to cope with negative social perceptions in, and
lack of support from, their social networks, and also to receive the emotional
support needed. The strategies identified to manage negative social norms
towards enterprising activity at an ‘older age’ may offer more generally a
productive way to increase awareness of how to receive more emotional and
professional support from social networks through changing the normative
views of the entrepreneurs themselves. As such, it is suggested that in order to
enhance understandings of what type of support potential entrepreneurs
require their (social networks’) particular backgrounds and aims need to be
taken into account. Thus, it can be argued that national and regional policy
interventions towards entrepreneurship also need to develop and provide a
case-by-case support which treats each (potential) entrepreneur’s social
backgrounds and networks individually, in order to fundamentally support
entrepreneurial activity through social processes as a whole.
Finally, such initiatives need to be adjusted for the economic, demographic
and industry structures found in specific places, as they are found to affect
individual entrepreneurial beliefs and intentions (see paper 2). However, the
dissertation also emphasizes the complexity in fully understanding whether
certain regional indicators positively or negatively influence the way how
individuals value entrepreneurship (attitude), how they perceive the social
pressure and support within closer social environments (subjective norm) or
how they think that they are able to become a successful entrepreneur
(perceived behavioral control). Accordingly, drawing conclusions for practice
can become even more challenging. Nevertheless, the present research may
imply that, if the aim is to support local entrepreneurial activity, regions with
high levels of public sector and manufacturing employment need to pay
particular attention to the perceived social acceptance of entrepreneurship and
entrepreneurial capabilities amongst local members. In other words, it is
89
advisable to design support initiatives which are able to co-create collective
beliefs amongst local members that are favorable towards entrepreneurship,
even in a public and manufacturing dominant regional environment. This
could enable individuals who perceive entrepreneurship as a valuable career
option (attitude) to feel also confident in starting their own business, while
perceiving less social sanctions when doing so; accordingly, the region could
potentially support regional economic development in addition to the
dominant industry structures. Another possible conclusion links to the role of
densely populated regions together with relatively higher education levels. The
present findings emphasize that in such regions it is of particular importance to
offer appropriate support for potential entrepreneurs which can help them to
build up the confidence in being able to start a successful business in a
competitive landscape. One way to do so might be to assist potential entrepre-
neurs in enhancing their specific understandings of how to benefit from
running a business in dense regions with a large pool of well-educated people,
in order to minimize the fear of competition.
6.4 Limitations and Future Directions
While each research paper discusses its specific limitations, I further
acknowledge that the dissertation’s limitations refer to at least to six interre-
lated themes and offer the following suggestions for improvements that future
research might incorporate.
Context. The dissertation focused on the role of social, spatial and institu-
tional contexts in new venture creation processes, and mainly concentrates on
informal institutional and social normative elements of the different contexts.
While paper 2 provides new insight into the role of regional economic, policy
and industry structures in the formation of entrepreneurial intentions, that does
imply a neglect of the impact of specific business and market systems/clusters
and formal and regulative institutional elements that potentially affect the
emergence of new ventures. In line with Veciana and Urbano (2008), I
recommend future institutional research on entrepreneurship that develops a
more holistic institutional view of contexts for entrepreneurship. It might do
that by also addressing the specific interactions between market, economic and
industry specific elements with emerging entrepreneurial activities. Following
this, scholars could enrich multi-layered institutional thinking by incorporating
thoughts from evolutionary economic geography, particularly as emphasized
in the work of Stam, which concludes that an institutional infrastructure
supportive of entrepreneurship is often the outcome of a critical mass of
90
enterprising activity in a certain industry or a group of closely connected
industries (Stam 2010).
Another context issue that has not been addressed in the dissertation is a
comprehensive analysis of the geographical context in which entrepreneurship
is studied. While the dissertation sought to provide rather holistic insight, both
conceptual and empirical, into social, spatial and institutional embeddedness
of the early phase of new venture creation and development, it was not able to
offer further contextual insight by adjusting the analysis and discussion by
linking to specific characteristics of the areas, such as London, three provinces
in Western Finland, or the countries involved in the cross-country research in
paper 1. Accordingly, in order to add more nuanced geographical interpreta-
tions of the institutional environments of entrepreneurship, future research is
warranted that includes a more comprehensive/detailed place-based analysis
on new venture creation. One potential way to address this issue theoretically
and empirically from an institutional perspective could be to point to the
specific place-based institutions, and the meanings actors attach to the place
within which they are embedded; an approach taken in recent studies (e.g.,
Fink et al. 2011, 2012; González and Healey 2005; J ohnstone and Lionais
2004; Lang and Roessl 2011).
Study samples. In relation to the context limitations, I acknowledge that the
coherence of the overall contribution of the dissertation might be limited due
to the different sample characteristics of the four individual studies. While
paper 1 and 2 address the role of contexts for entrepreneurship across the
working-age population, paper 3 and 4 solely focused on potential entrepre-
neurs at an ‘older’ age (45 years and above). Paper 3 and 4 has emphasized
differences between ‘younger’ and ‘older’ age groups amongst older potential
entrepreneurs; however, future research is needed that investigates the
influence of different contexts– particularly age-related norms, as addressed in
paper 3 and 4–on new venture creation based on samples representing a
broader range of age-groups. This would allow controlling for potential differ-
ences in push and pull motivations across younger and older age groups, while
addressing the stylized fact that an individual’s chronological age can
influence their age perceptions and thus behavioral beliefs (Teuscher 2009).
Emotions. The dissertation’s main theoretical rationale applied at the
individual level is based on the theory of planned behavior (Ajzen 1991), i.e. it
was assumed that particular cognitive processes determine whether an
individual intends to become an entrepreneur or not, while intention is
suggested to be the pre-condition of actual behavior. Such a cognitive
approach clearly neglects affective processes, thus overlooking emotional
elements that might be crucial to understand why an individual wishes to
create a new venture, or not. Further, emotional motives, ties and reactions can
91
be particular important to enhance our knowledge of how (potential) entrepre-
neurs react differently to social and institutional contexts. For instance, the
work of Goss (2005) emphasizes how strong emotional ties with particular
social groups can strengthen the effect of social norms and sanctions within
those groups, thus shaping the way how entrepreneurial intention and action
can emerge. Institutional scholars, particularly in organization and manage-
ment studies, have also begun to stress the role of emotions (Voronov and
Vince, 2012), calling for ‘a better understanding of embedded actors’ lived,
emotional experiences of and responses to institutional structures” (Creed et
al., 2010: 1359). In a similar vein, Scott (2008) has underlined that emotions
can serve as a fruitful way to develop his influential concept of the three
institutional pillars - regulative, normative and cultural-cognitive, for instance
by theorizing and investigating emotions as a fourth pillar or as a potential
moderator of the relationship between institutions and behavior. Subsequently,
further research could clearly enrich the dissertation’s findings by explicitly
addressing the emotional elements that may influence new firm formation
behaviors in different environments.
Entrepreneurship types. The dissertation’s interpretations are further
limited in that it cannot provide insight into how the influence of certain
contexts differs in relation to various types of entrepreneurship, and different
types of ventures individuals intend to create, be that in the short or medium
term. Stam (2010) for instance, has criticized the large body of empirical
research that uses the foundation of a firm or self-employment as indicators of
entrepreneurship. Stam argues that such an approach overlooks the different
forms of entrepreneurship, exemplified by two extremes: ‘the entrepreneur
who is self-employed out of necessity, and the ambitious and technologically
innovative high-growth start-up’ (Stam 2010: 150). This leads him to conclude
that ‘different types of entrepreneurship require different types of explana-
tions’ (Stam 2010: 150), and to call for further entrepreneurship studies that
‘specify the type of entrepreneurship that is of importance for the research
question at hand, so we can match it with the related theoretical framework
and empirical indicators’ (Stam 2010: 151). Supportive of this argumentation,
the recent cross-country study by Stenholm et al. (2013: 1) emphasizes that
different institutional arrangements influence entrepreneurial activity rates and
types differently. For instance, they show that ‘[f]or high-impact entrepreneur-
ship an institutional environment filled with new opportunities created by
knowledge spillovers and the capital necessary for high impact entrepreneur-
ship matter most’. Thus, while the dissertation has addressed different phases
of new venture creation in various contexts (e.g., intention, nascent and early
firm phase), further research is needed that add to this knowledge by
92
theorizing and examining how the identified contextual influences vary
according to different entrepreneurial ambitions and types of entrepreneurship.
This concurs with Kautonen et al. (2011), whose work calls for further
research specifically addressing a common limitation in studies of entrepre-
neurial intentions—the dependent variable simply reflecting the individual’s
intention to create a venture, without taking into account the different types of
entrepreneurship. Accordingly, it is suggested that future entrepreneurial
intention studies (within different contexts) could differentiate, for example,
‘between full-time and part-time entrepreneurship, sole proprietorships and
businesses with employees, opportunity and necessity driven entrepreneurship,
for-profit and social enterprises, and “quasi self-employed” subcontracting
(Kautonen et al. 2011: 597). In addition, the recent study of Bosma et al.
(2009) offers a useful knowledge base and tool which could be used to further
develop nuanced understandings of environmental effects on different types of
early-stage entrepreneurship. For instance, they suggest the value of differen-
tiating between ‘low, modest and high growth-oriented entrepreneurship and
innovation oriented entrepreneurship’ in analyzing the influence of different
regional and national factors on entrepreneurship.
History. In the spirit of Welter (2011), the dissertation has emphasized the
importance of contextualizing new venture creation processes within different
social, spatial and institutional environments. While providing a comprehen-
sive framework and empirical analysis that addresses the different contextual
influences on different phases of venture creation, the dissertation–particularly
empirically–largely neglects the history of contexts and their varying impact
on new venture creations over time, by basing the research solely on cross-
sectional data. Paper 4 adjusts for this limitation to a certain extent, basing the
analysis on individual storytelling (theretrospective lens), while paper 2 and 3
also include regional indicators that capture past developments; however, the
main body of the empirical analysis of this dissertation is cross-sectional and
quantitative, which restricts interpretations of varying contextual influences on
venture creation over time. This becomes also critical for the included studies
applying the theory of planned behavior (Ajzen 1991), as they only examine
the formation of intentions, thus neglecting to test whether intention translates
into action and how external factors shape this relationship. Thus, generally
speaking, this calls for future research that adds to the contextual knowledge
of new venture creation by using longitudinal quantitative and qualitative data,
emphasizing the time horizon of the social, spatial and institutional embed-
dedness of firm formation processes.
Emergence of institutions. Following the discussion regarding the history of
contexts, the dissertation also raises the importance of future institutional
research that focuses on the emergence of entrepreneurship-relevant
93
institutions at the social, regional and society level. While paper 4 provides
preliminary insights into how normative institutional elements are reflected in
social networks and how entrepreneurs are able to change social norms, the
dissertation does not add much on the origins and production of institutions in
different contexts, which could profoundly enhance our contextualized under-
standing of new venture creation in the present (and future). For instance,
J epperson (1991) has posited that the core of institutional theories should be
the focus on how institutions and social rules come into being through interac-
tions, how they remain stable and can be modified; these are issues research
paper 4 addresses in the context of family, friends and client networks.
However, how social normative contexts for entrepreneurship, particularly at
the local, regional or society level (as discussed in articles 1–3) are produced
and change over time remains unknown. As such, I suggest that further
entrepreneurship research is needed that theoretically and empirically
addresses institutionalization as a ‘process and property variable’ (Zucker
1977: 728). This would complement the dissertation’s findings and the large
number of cross-sectional studies that examine (stable forms or measures of)
institutional structures on entrepreneurship variations with particular
knowledge of institutional emergence and change within different spatial
contexts. This could provide essential and additional insight into the question
of how institutions emerge in particular contexts (Scott 2010), and create, and
are created by, different forms of entrepreneurship.
Evolutionary thinking. Continuing the argumentation above, I further
suggest that an institutional perspective could be more explicitly enriched and
combined with an evolutionary economic thinking. For instance, the institu-
tional lens of Hodgson (2006, 2009), used as a broad theoretical basis for
combining different streams of institutional theories, emphasizes the
importance of evolutionary thoughts in institutional research, rooted in the
origins of old (American) institutional economic theory (Veblen’s 1919), in
order to understand how social rules, habits and routines emerge and are
sustained. Thus, in the spirit of Hodgson (2006), a multi-layered institutional
perspective to entrepreneurship could, or rather needs to be, more explicitly
complemented by evolutionary ideas. In this context, Welter (2011: 176) also
proposes that evolutionary thoughts can complement an institutional approach
by adding an ‘individual perspective that takes into account the adaptability
and learning behavior of entrepreneurs, thus drawing attention to the process
dimension of entrepreneurship where individual action impacts context and
contributes to changing a context.’ Here, particularly Stam’s (2007, 2010)
development of an evolutionary economic geography approach could help
develop a more dynamic orientation of institutional understandings of new
venture creation in different spatial contexts. By complementing the proposed
94
multi-layered institutional lens with an evolutionary approach, future institu-
tional research might be more able to explicitly consider that ‘[e]ntrepreneurs
are agents who are conditioned by, and sometimes change or even initiate,
complex adaptive systems [recognizing that these] systems are situated in
particular geographic contexts, and emerge, grow and decline over time’
(Stam 2010: 151). Such integrative research could further improve our
conceptual knowledge of the different contexts and dynamics involved in an
individual’s new venture creation process.
From creating to developing a venture. While this dissertation adds new
insight to the limited contextualized understanding of the pre-venture phase,
we still know very little of how the pre-emergent or early firm phases in
different environments is linked with the prospect of growth. There is
extensive evidence on the central role of high-growth firms for the economy
(Acs 2008), and an increasing number of studies that explore the different
configurations of firm growth (Autio and Acs 2010; Wiklund and Davidsson
2003). However, this body of research has so far neglected the potential
decisive configurations of firms’ growth that have been established and
institutionalized during the nascent entrepreneurship phase. Subsequently,
while we might increasingly know what kind of nascent entrepreneurial
strategies and activities lead to successful firm formation (Newbert and
Tornikoski 2011, 2012), or which elements and configurations are required for
a firm to grow (Wiklund and Shephered 2005), there is limited knowledge of
how nascent entrepreneurs’ strategies applied when establishing their firms in
a particular place can set the foundations and also the boundaries of future
development. Developing such insight can be of particular importance, given
that decisions made by nascent entrepreneurs at the formative stage of a
venture have lasting effects on its operations (Bamford et al. 1999). Here, for
instance, the recent work by Newbert et al. (2012) provides already an
important base for further research on the evolution of decisive network
configurations in the emergence of new ventures, which in turn may influence
firm growth in the future. Accordingly, the dissertation suggests the more
research is needed that develops a contextualized knowledge base of early-
stage and nascent entrepreneurship and its link to future growth. This can
arguably further develop the foundations for academics, (nascent) entrepre-
neurs, enterprise support communities and business angels to evaluate (non-
)successful business operations, in relation to different environments, before a
firm is established.
95
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PART II: RESEARCH PAPERS
127
Paper 1: Kibler, E. (2012). Moral legitimacy of entrepreneurship and
its impact on the firm formation process.
129
Moral Legitimacy of Entrepreneurship and Its Impact on
the Firm Formation Process
1
Abstract
Scholars and policymakers increasingly seek to identify the environmental
drivers of entrepreneurship, but contemporary cross-country studies have
largely neglected the role of socio-cultural norms on entrepreneurial behav-
ior. Based on an institutional economic perspective and a social legitimacy
approach, this study is a first attempt to conceptualize and examine the
influence of the perceived moral legitimacy of entrepreneurship in a society
on an individual’s progress across different stages of the firm formation
process. A multilevel analysis across 27 countries demonstrates that the
moral legitimacy accorded to entrepreneurs has a significant positive impact
in the early firm formation phases. In particular, the findings show that the
higher the degree of moral legitimacy accorded to entrepreneurs, the higher
the probability that an individual will consider becoming an entrepreneur
and actually start preparing their business. Thus, the study suggests that
entrepreneurial decisions and behavior are not independent of the perceived
moral norms in society. Moreover, a policy aiming to increase the potential
of individuals becoming entrepreneurs should facilitate socio-cultural norms
that legitimize entrepreneurial activity as moral and beneficial to society as a
whole.
Keywords: Social norms, moral legitimacy, entrepreneurship, firm formation
1. Introduction
Different nations reveal different pre-nascent, nascent and established
entrepreneurship levels (Bosmaet al., 2009; Bosma and Levie, 2010; Minniti,
2006), whilst research emphasizes a relatively strong relationship between
(nascent) entrepreneurial activity and economic development (e.g., Reynolds,
1994; Wennekers and Thurik, 1999; Wennekers et al., 2005), even if the
relationship is not always straightforward (e.g., Carree et al., 2007).
Subsequently, cross-country analyses have increased the focus on the
environmental drivers of entrepreneurial motivation (e.g., Begley, Tan, and
Schoch, 2005; Hessels, Gelderen, and Thurik, 2008), nascent entrepreneurial
activity (e.g., Suddle, Beugelsdijk, and Wennekers, 2010; Wennekers et al.,
2005) and business start-up activity (e.g., Blanchflower, 2000; Reynolds,
1
This paper represents the original full-length, but slightly revised and re-formatted, version of the
paper published in the Best Paper Proceedings of the Academy of Management 2012,
Doi:10.5465/AMBPP.2012.123.
130
Storey, and Westhead, 1994). While a range of influencing factors, including
economic, institutional or demographic indicators, have been identified
(Blanchflower, 2000), there is only limited (multi-country) research on the
impact of the socio-cultural environments on entrepreneurial behavior
(Freytag and Thurik, 2007; Schendel and Hitt, 2007; Thornton, Ribeiro-
Soriano, and Urbano, 2011).
Prior research argues that national culture and institutions influence
economic activity (e.g., North, 1990; Shane, 1993) and development (e.g.,
Beugelsdijk, 2007; McClelland, 1961; North, 2005). Entrepreneurship
literature also suggests that the national environment with its socio-cultural
norms and values shapes entrepreneurial behavior (e.g., Baumol and Strom,
2007; Freytag and Thurik, 2007; Hayton, George, and Zahra, 2002; Sternberg,
2009) through both the demand and supply side of entrepreneurship (Verheul
et al., 2002). Thorntonet al. (2011) conclude that an institutional perspective
can serve as an appropriate framework to analyze socio-cultural contexts that
influence decisions to found new firms. In this regard, the degree of social and
moral legitimation of entrepreneurship in a society (Etzioni, 1987) has been
discussed as one potential way of capturing such informal institutional settings
for entrepreneurship (Bruton, Ahlstrom, and Li, 2010; Freytag and Thurik,
2007), suggesting that the more entrepreneurship is socially legitimized in a
society the higher the entrepreneurial activity should be (Etzioni, 1987; Shane,
2003; Wilken, 1979). However, existing (cross-country) studies on socio-
cultural values and entrepreneurship have mainly followed Hofstede’s (2001)
seminal work (Hayton, George, and Zahra, 2002) or an aggregated psycho-
logical trait approach (Freytag and Thurik, 2007), thus largely neglecting
conceptualizations of the social and moral legitimacy of entrepreneurship. In
addition, many of the studies on the influence of culture on entrepreneurship
do not consider that ‘entrepreneurship is a process of emergence’ (Sternberg,
2009: 15) as they focus either on entrepreneurial motivation, nascent activity
or business start-up rates as the dependent variables. In summary, little is yet
known about the informal institutional environment, particularly the social and
moral legitimacy of entrepreneurship in society, and the influence of that level
of legitimacy on the individual’s progress through the different stages of the
firm formation process.
Against this backdrop, this study addresses the impact of the moral legiti-
macy of entrepreneurship in a society on an individual’s entrepreneurial
engagement, as operationalized with the concept of the entrepreneurial ladder
(Van der Zwan, Grilo, and Thurik, 2010) and its sequential start-up stages:
‘never considered starting a business’, ‘thinking about starting a business’,
‘taking steps to start a business’, and ‘running a business for less than three
years’. The theoretical foundation is based on an institutional perspective
131
(Scott 1995) on entrepreneurship (Busenitz, Gómez, and Spencer 2000;
Brutonet al., 2010; Thorntonet al., 2011; Veciana and Urbano, 2008; Welter
and Smallbone, 2011), within which ‘legitimacy’ is seen as an informal
institution, a common perception of social acceptance (Scott, 1995; Suchman,
1995). The moral legitimacy accorded to entrepreneurs, in particular, is
operationalized in the spirit of Suchman (1995), and broadly defined ‘as
shared value premises that structure collective assessments of the good and the
bad’ (Deephouse and Suchman, 2008: 53) as they relate to entrepreneurs and
their actions.
This study makes the following contributions to the knowledge. First, it
contributes to the entrepreneurship literature by conceptualizing and analyzing
the moral legitimacy of entrepreneurship and its impact on the individual’s
progress through the different phases of the firm formation process. Second,
the study adds to the important challenge of theorizing and measuring the
influence of socio-cultural contexts on entrepreneurial behavior (Brutone et
al., 2010; Schendel and Hitt 2007; Thornton et al. 2011), also addressing the
need for multilevel research designs (Autio and Acs 2010) and more extensive
and internationally comparable empirical studies (Verheul et al., 2002). Third,
the study provides implications for policy and entrepreneurship practitioners,
offering detailed insights into how levels of moral approval of entrepreneur-
ship either support or undermine an individual’s progress in the firm formation
process.
The paper is organized as follows. The first section describes the theoretical
framework underlying the analysis and derives hypotheses for empirical
examination. The subsequent section introduces the methodological design of
the empirical work. The third section presents the results of the empirical
analysis, while the final section discusses the findings and their implications
for policy and further research
2. Theoretical Framework and Hypotheses
2.1 Institutional Theory and Legitimacy
Institutional (economic and sociological) theories broadly share the assump-
tion that individual behaviour is structured (Giddens 1984) by rules and norms
of the institutional environment (Meyer and Rowan 1977; North 1990; Scott
1995; Hodgson 2006). ‘Institutions’, in this context, often refer to formal rule
sets (e.g., laws, regulatory frameworks) (North 1990) and implicit rules
(Hodgson 2006), where the latter involves less formal shared expectations and
interactions (J epperson 1991) as well as ‘taken-for-granted’ assumptions
132
(Meyer and Rowan 1977; Scott 1995). Following this, institutional scholars
also suggest that institutional rules can enable and constraint behaviours of
individuals, but also depend upon them (Hodgson 2006; North 2005; Scott
2010).
This study particularly follows the theoretical work of Scott (1995: 33),
which views institutions as ‘social structures that have attained a high degree
of resilience. [They] are composed of [three institutional pillars:] cultural-
cognitive, normative, and regulative elements that, together with associated
activities and resources, provide stability and meaning to social life’. Scott’s
concept, briefly summarized by Garud, Hardy, and Maquire (2007: 958),
suggests that ‘the regulative [pillar] guides action through coercion and threat
of formal sanction; the normative […] guides action through norms of
acceptability, morality and ethics; and the cognitive guides action through the
very categories and frames by which actors know and interpret their world’.
Drawing upon these ideas, institutional scholars, especially in organiza-
tional research, strongly emphasized the (bipartite or tripartite) constructs of
social legitimacy (e.g., Aldrich and Fiol, 1994; DiMaggio and Powell, 1983;
Meyer and Rowan, 1977; Suchman, 1995; see Bitektine, 2011 for an
overview), also acknowledging a strong cultural dimension in their analysis of
legitimating processes (Deephouse and Suchman, 2008; Nicholls, 2010).
Social legitimacy, in this context, is widely seen as ‘a generalized perception
or assumption that the actions of an entity are desirable, proper or appropriate’
(Suchman, 1995: 574). Reflecting the work of Scott (1995), Suchman (1995)
suggests three conceptual dimensions of social legitimacy – pragmatic
(‘regulative’), moral (‘normative’) and cognitive legitimacy (‘cognitive’) –,
whereas he refined this framework with two temporal dimensions (episodic
versus continual) and two substantive foci (actions versus essences), resulting
in twelve distinct types of legitimacy (for an overview of the typology, see
Suchman, 1995: 384).
This study addresses moral legitimacy, with a particular focus on one of
Suchman’s (1995) conceptualized sub-types of moral legitimacy, consequen-
tial moral legitimacy (the episodic dimension and action focus of moral
legitimacy) (Deephouse and Suchman, 2008; Suchman, 1995). Generally
speaking, moral legitimacy refers to collective normative approvals and
judgments of good and bad, whereas consequential legitimacy is particularly
concerned with the moral evaluation of the outcomes and benefits of actions
for the whole of society (Bitektine, 2011; Suchman, 1995). The focus on this
specific form of moral legitimacy is reasoned in the theoretical work of
Anderson and Smith (2007) on the moral imperative in entrepreneurship. They
argue that the legitimation of entrepreneurship is the result of a congruent
interplay between entrepreneurial actions, outcomes and social beliefs, while
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specifying that moral legitimacy is particularly based on normative appraisals
of the social benefits for the public domain. In line with North’s concept,
which intends to frame and measure a general structure at the national level
(Rafiqui, 2009), the moral legitimacy conferred by society is here also under-
stood as an informal institution in a national context. The following section
discusses the potential influence of the moral legitimacy accorded to entrepre-
neurs on the entrepreneurial behavior and firm formation process, and derives
hypotheses for empirical testing.
2.2 An Institutional Approach to Entrepreneurship and the Moral
Legitimacy Accorded to It
A growing number of scholars argue that an institutional approach shows great
promise for analyzing entrepreneurial behavior (e.g., Busenitz et al., 2000;
Brutonet al., 2010; Thorntonet al., 2011; Urbano and Veciana 2008; Welter
2011; Welter and Smallbone, 2008, 2011). The main premise of an institu-
tional perspective on entrepreneurship is that entrepreneurial behavior and
firm formation processes depend on the individual’s relationship with the
‘external’ environment, particularly the institutional environment (Garud et
al., 2007; Veciana and Urbano, 2008; Welter and Smallbone, 2011). Veciana
and Urbano (2008) contend that the process of becoming an entrepreneur is
highly conditioned by institutions, further arguing that human beliefs and
interest in entrepreneurship are social and cultural in origin, and thus mirror
the characteristics of the institutional environment. Thorntonet al. (2011) and
Welter and Smallbone (2011) underline the important role of institutional
contexts for entrepreneurial behavior by suggesting that institutions promote
entrepreneurship, while also constraining it. Baumol and Strom (2007: 236)
briefly summarize enterprising activity ‘as much affected by individual values
as it is by established institutions and social norms’. In other words, ‘it isn’t
just something that entrepreneurs ‘do’, it is also a social phenomenon that
emerges within the context of a broader society’ (Lundström and Stevenson,
2005: 44).
Highlighting the need for future research on the role of institutions in
entrepreneurship culture studies, Beugelsdijk (2007) states that entrepreneurial
activity is determined by the interplay of informal and formal rules of the
game; whereas it should be noted that informal institutions are embedded in
society, and are thus more stable than formal institutions (Welter and
Smallbone, 2011). Welter and Smallbone (2008) further specify that while
formal institutional forces condition the actual level of entrepreneurial oppor-
tunities, it is the informal institutions that shape the collective and individual
perception of entrepreneurship. Shane (2003: 160) concludes that the informal
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institutional environment co-determines the exploitation of entrepreneurial
opportunities in society by ‘influencing the degree to which entrepreneurial
activity is considered desirable’ and ‘through specific cultural beliefs that
encourage or discourage entrepreneurial activity’.
Scholars have discussed the social acceptance of entrepreneurship as an
informal institution by suggesting that higher levels of acceptance increase the
entrepreneurial activity level in a given society (Etzioni, 1987; Shane, 2003;
Wilken, 1979). In other words, the more entrepreneurship is socially accepted
as an essential part of people’s well-being, the more it is culturally embedded,
and, subsequently, creates an environment with less negative informal
sanctioning mechanisms for entrepreneurial behavior (Welter and Smallbone,
2011). This study addresses the moral legitimacy of entrepreneurship as a
source of social acceptance (or legitimacy) (Suchman, 1995) of entrepreneurs
in society, which, in turn, is part of the broader informal institutional environ-
ment (Bruton et al., 2010; Shane, 2003; Thornton et al., 2011). According to
the theoretical framework above, the moral legitimacy of entrepreneurship is
seen as a normative approval of most members of society of the ‘good and
bad’ of entrepreneurship and the actions of entrepreneurs. More specifically,
the consequential moral legitimacy accorded to entrepreneurs is understood as
a collective normative evaluation of the actions entrepreneurs as being benefi-
cial to the whole society, which, in turn, is argued to influence an individual’s
propensity to engage in the processes required to form a firm. Research indi-
cates that moral norms influence an individual’s decision to perform certain
behavior (Kaiser, 2006; Raats, Shepherd, and Sparks, 1995). Zafirovski (1999)
suggests that moral concerns influence and constrain entrepreneurship, whilst
Anderson and Smith (2007) argue that moral legitimacy shapes individual
enterprising perceptions and practices. Following this rationale, this study
assumes that if the entrepreneurs’ activities in a country are commonly valued
as more beneficial to the whole society, potential entrepreneurs enjoy higher
levels of moral acceptance; subsequently this may augment their motivation to
engage in entrepreneurial activities and to progress the firm formation process.
Hence, it is proposed that: The moral legitimacy of entrepreneurship has a
positive impact on the individual’s progress in the venture creation process
(Hypothesis 1).
An opposing viewpoint might hold that the influence of the moral
legitimacy accorded to entrepreneurs in society varies in the different stages of
forming a firm. Baumol and Strom (2007) suggest that entrepreneurial
incentive structures are particularly guided by social and cultural norms.
Rafiqui (2009) specifies that institutions form motivational structures that
shape the feasibility and profitability of engaging in economic activity, such as
135
starting a business. Freytag and Thurik (2007) argue that cultural elements
influence the individual preference for entrepreneurship, whereas hard
economic factors shape the actual start-up levels. Moreover, Sternberg (2009)
proposes that the national environment with its socio-cultural norms and
values influence individual perceptions and beliefs towards entrepreneurship,
subsequently shaping an individual’s general interest in engaging in entrepre-
neurial activity. Hence, it might well be that the moral legitimacy of entrepre-
neurship in society plays a stronger role in the earlier start-up stages than in
phases in which individuals are just embarking on or already running a
business.
Previous empirical research in this context tells us that perceived environ-
mental conditions across nations exert different effects on various stages of the
firm formation process (Van der Zwan et al. 2009; Van der Zwan, Verheul,
and Thurik 2011). For instance, Van der Zwan et al. (2009) finds that a
country’s risk tolerance towards entrepreneurship has a positive impact on the
fact that people even start thinking about becoming an entrepreneur, while it
has no effect on subsequent business start-up or early firm operation phases.
Further, the study of Begley and Tan (2001) shows that socio-cultural values
shape individual interest in entrepreneurship, and can hinder or support an
individual’s decision to prepare for and start a business. Mueller and Thomas
(2001) illustrate that culture influences an individual’s perceived ability to run
a successful business, whilst Begley et al. (2005) underline that different cul-
tural contexts relate to different levels of start-up feasibility and desirability.
Moreover, Shane (2003) indicates that the interest in engaging in entrepre-
neurial activities is higher when the level of social acceptance of entrepreneur-
ship in a society is high too. On the sub-national scale, Kautonen, Tornikoski,
and Kibler (2011) and Liñánet al. (2011) show that socio-cultural norms that
are favorable to entrepreneurship positively influence the formation of
entrepreneurial intentions, for instance, by shaping an individual’s entrepre-
neurial attitude and the self-esteem required to start (preparing) a business. To
this, Kaiser (2006) adds that moral norms particularly influence peoples’
attitude towards certain behavior, and in turn, shape their intention and initial
decision to perform the behavior.
In addition, a lower effect of moral legitimacy in the later phases of the firm
formation process may be deduced from the findings of Tornikoski and
Newbert (2007). Investigating the transition from a nascent organization to a
new firm based on a legitimacy approach, with a specific focus on ‘exchange
legitimacy’, a conceptual sub-type of ‘pragmatic legitimacy’ (see Suchman,
1995), they conclude that ‘the key to gaining legitimacy seems to be a function
of a nascent organization’s ability to convince resource gatekeepers that it is
operational’ (Tornikoski and Newbert, 2007: 329). Consequently, nascent
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organizations tend to be more influenced by the perceptions of their immediate
audiences rather than those from their broader socio-cultural environment.
This is due to the importance to them of becoming legitimized in the eyes of
their potential resource gatekeepers (Tornikoski and Newbert, 2007).
In summary, the present research argues that the moral legitimacy accorded
to entrepreneurs in society has a stronger impact in the early stages of the firm
formation process than in the later phases closer to the actual business start-up.
Hence, it is proposed that: The moral legitimacy of entrepreneurship has a
stronger influence on the early stages in the venture creation process
(Hypothesis 2).
3. Data and Variables
This study uses data from the 2009 Flash Eurobarometer Survey on Entrepre-
neurship (European Commission, 2009) for the individual-level variables, and
data from the Eurostat Statistics Database in the period, 2005-2009 (European
Commission, 2011), complemented by statistics from the Global Entrepre-
neurship Monitor (GEM) in the period 2005-2009, for the country-level
covariates. The Eurobarometer data were collected in 2009 based on a
telephone survey. The national sample sizes vary from 500-1017 and are
representative of the population aged 15 and above in each country. Since the
aim of this study is to examine different firm formation stages rather than
long-term business ownership, respondents who had been running a business
for more than three years were excluded from the analysis. Hence, the final
sample for this analysis amounts to 11,002 individuals from 24 European
countries as well as China, J apan and the United States.
Dependent variable. The operationalization of the dependent variable
follows the conception of the entrepreneurial ladder (Van der Zwan et al.,
2010). The entrepreneurial ladder recognizes the firm formation process as a
series of sequentially ordered stages where each stage indicates an increasing
engagement in the start-up process. The level of engagement of the respond-
ents refers to the following question ‘How would you describe your situation?’
Respondents were offered the following four response options: 1) ‘It has never
entered your mind to start up a business’, 2) ‘You are thinking about starting
up a business’, 3) ‘You are currently taking steps to start a new business’, and
4) ‘You have started or taken over a business in the last three years which is
still active today’. The remainder of this article abbreviates these stages as
‘Never thought’, ‘Thinking’, ‘Taking steps’ and ‘Running a young business’.
The ordinal dependent variable in this analysis therefore captures three thresh-
137
olds in the firm formation process: a) fromnever thought to thinking, b) from
thinking to taking steps and c) fromtaking steps to running a young business.
Explanatory variable. The explanatory variablecaptures the perceived level
of the moral legitimacy of entrepreneurship. In the spirit of Kaiser’s (2006)
global measure of perceived moral norms in a broader social context (as
against one’s own moral obligations), this analysis examines the perceived
moral legitimacy with the following global question in the Eurobarometer
survey: ‘Please tell me, do you agree or disagree with [the following
statement:] ‘Entrepreneurs create new products and services and benefit us all’
(on a scale from ‘4’ =strongly agree to ‘1’ =strongly disagree). Because of
non-normality, this variable is treated as an ordered categorical one in this
analysis with ‘strongly disagree’, indicating low moral legitimacy, as the base
category.
Control variables. This analysis includes the respondent’s sex, age, and
income as control variables at the individual-level. Utilizing the same dataset
Van der Zwan, Verheul, and Thurik (forthcoming) found sex and age to be
significant determinants of an individual’s progress through the sequential
stages of the firm formation process. Prior research further underlines that
women are generally less likely to engage in entrepreneurial behavior than
men (e.g., Bosmaet al., 2009), whilst age is seen as among the most relevant
influencing factors of entrepreneurial activity (Parker, 2009). Moreover,
previous research has highlighted that an individual’s income plays a role in
firm formation, even if the effect is not always straight forward. For instance,
while higher income levels increase the supply of resources to capitalize
businesses (Evans and J ovanovic, 1989), it can lead to higher opportunity
costs of becoming an entrepreneur (Amit, Muller, and Cockburn, 1995).
Individuals with lower incomes often tend to be more interested in starting a
business due to the potential to increase income (Mueller, 2006). Sex is
included as a dummy variable with the value 1 assigned to female
respondents. In order to account for the curvilinear effects of age, the model
specification includes both linear and squared terms for age in years. Income is
measured by four response categories referring to the person’s feelings about
their current income, so that they either 1) live comfortably, 2) get by, 3) find
it difficult to manage, or 4) find it very hard to manage. Due to violation of
normality, this ordinal scaled variable was dummy coded with ‘live comforta-
bly’ as the base category.
A country-level control variable captures the ‘objective’ relationship
between entrepreneurial activity and economic development in the past, in
order to further adjust the model so as to uncover the effect of the perceived
moral legitimacy. This variable serves as an indicator of whether new business
formations are ‘objectively’ beneficial to a country’s economic growth, and is
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developed by correlating two country measures: the average new business
owner growth rate (GEM reports 2005-2009) and the average growth rate of
the real GDP per capita (European Commission, 2011), both in the period
2005–2009. Hence, this variable denotes each country’s correlation coefficient
between these two measures and consists of values between ‘-1’ and ‘+1’.
According to GEM, the new business owner rate is defined as the proportion
of individuals in the country that have started a business and have been
running it for no longer than three years (Bosma and Levie, 2010).
The descriptive statistics of the model variables are displayed in the
appendix.
4. Analysis
The analysis by Van der Zwan et al. (2009) demonstrates that different
covariates have varying effects in different stages of firm formation. Further,
hypothesis 2 requires that this analysis differentiates between various thresh-
olds in the individual firm formation process. Therefore, following Van der
Zwanet. al (2009), this analysis estimates a separate binary regression model
for each of the three thresholds. In so doing, the model examines the impact of
the moral legitimacy of entrepreneurs (explanatory variable) on the odds of
being beyond a certain firm formation stage in relation to being at that stage.
In other words, the respondents who are at a particular stage of firm formation
(e.g. ‘thinking’) are compared with all individuals that reached higher stages
(e.g. ‘taking steps’ and ‘running a young business’). Hence, an individual’s
engagement in the firm formation process is considered as a sequence of
binary transitions. As a result, the original ordinal response variable consisting
of four values is recoded into three binary measures (for an overview of this
procedure see Van der Zwan et al., 2009). Since the response variables are
binary and the data are clustered at the country level, this analysis fits a series
of hierarchical binominal logistic models using the maximum-likelihood
estimator with numerical integration (30 quadrature points) to test the research
hypotheses. The analysis strategy follows the recommendations in Hox (2010)
and estimates each threshold in five steps. The relevant test statistics for each
threshold are summarized in table 1.
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Table 1Test-statistics for the five model estimations
New venture creation process
Estimation step
Threshold a Threshold b Threshold c
Never thought to think-
ing about it and beyond
Thinking to taking steps
and beyond
Taking steps to running
a young business
(1) Random intercept only
a
750.76*** 163.55*** 40.53***
(2) Individual-level control variables added
a
1181.33*** 145.43*** 80.38***
(3) Explanatory variable added
a
59.86*** 39.80*** 4.35
(4) Random coefficient added
b
5.32*** 4.06*** 2.57**
(5) Country-level covariate added
a
11.94*** 9.41** 5.48**
Notes: *p