Moving on from nascent entrepreneurship: measuring cross-national differences in the transition to new business ownership

Abstract

Nascent entrepreneurship and new business ownership are subsequent stages in the entrepreneurial process. We illustrate how information from the largest internationally harmonized database on entrepreneurship, the Global Entrepreneurship Monitor project, can be used to approximate the entrepreneurial process. We make a methodological contribution by computing the ratio of new business ownership to nascent entrepreneurship in a way that reflects the transition from nascent to new business ownership and provides cross-nationally comparable information on the efficiency of the entrepreneurial process for 48 countries. We report evidence for the validity of the transition ratio by benchmarking it against transition rates obtained from longitudinal studies and by correlating it with commonly used entrepreneurship indicators and macro-level economic indices. The transition ratio enables future cross-national research on the entrepreneurial process by providing a reliable and valid indicator for one key transition in this process.

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Notes

  1. 1.

    The minimum sample size per country and year is 2,000 respondents. However, the entrepreneurial activity indicators are only calculated for people in the age range of 18–64 years, which reduces the number of eligible cases for some countries (the lowest number of respondents per country was 1,628).

  2. 2.

    The half year is added to the 3-year time-span because data collection in the GEM project usually takes place in the summer. Thus, if somebody says, for example, in the summer of 2010 that the first year he received wages, profits or payments in kind was 2007, the business can be up to 3.5 years old.

  3. 3.

    That is, the commonly used NBOM rate is likely to be influenced by a survivor bias. This rate does not capture all people who have started a new business in the last 3.5 years, but only those whose business is still active and who are still involved in this business when being surveyed. A NBOM who has already abandoned the business that he/she started less than 3.5 years ago will not be captured by this measure. Thus, the commonly used NBOM measure depends to some extent on the survival rate of new businesses in the early years of their existence (Wennekers et al. 2005: 297). If the survival rate is high, then the NBOM rate and consequently the NBOM/NE ratio are high (Reynolds and Curtin 2011b).

  4. 4.

    As explained above, it is not possible to calculate a rate for new businesses that are exactly 1 year old because GEM only asks for the first year of wages, profits or payments in kind and because data collection in the GEM project takes place at midyear.

  5. 5.

    It should be noted that although the adapted rate of new business owner managers (NBOM1 rate) is superior from a theoretical point of view, it correlates highly with the commonly used measure of NBOM (Pearson correlation: 0.98).

  6. 6.

    Due to the cost of data collection, GEM data are not available for all countries for all time periods.

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Correspondence to Ute Stephan.

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Both authors equally contributed to this manuscript and are listed in alphabetical order.

Appendix

Appendix

Exact wording of screening items in the Global Entrepreneurship Monitor (GEM) adult population survey (taken from GEM 2006 APS questionnaire):

In the GEM, the process of identifying nascent entrepreneurs (NE), i.e. individuals in the process of starting a business, is as follows. There are two basic screening questions: “You are, alone or with others, currently trying to start a new business, including any self-employment or selling any goods or services to others” and “You are, alone or with others, currently trying to start a new business or a new venture for your employer—an effort that is part of your normal work.” If people answer “yes” to one of the questions, they are then asked: “Over the past twelve months have you done anything to help start a new business, such as looking for equipment or a location, organizing a start-up team, working on a business plan, beginning to save money, or any other activity that would help launch a business?” and “Will you personally own all, part, or none of this business?”. People who have done anything over the past twelve months to help start a business and who are owner or part-owner of this business are considered as nascent entrepreneurs (NE). The rate of NE is the number of NE relative to the population 18–64 years old.

People are considered as new business owner-managers (NBOM) when they say that they are “alone or with others, currently the owner of a company … (they) help manage, self-employed, or selling any goods or services to others” and that “they own all or part of this business”. They then have to answer which year was the first year that the founders of the business received “wages, profits, or payments in kind from this business.” If this is less than 3.5 years ago, the person is considered to be a NBOM. The rate of NBOM is the number of NBOM relative to the population 18–64 years old.

Identification of NE

(1a) You are, alone or with others, currently trying to start a new business, including any self-employment or selling any goods or services to others (Yes/No/Don’t know/Refused)

(1b) You are, alone or with others, currently trying to start a new business or a new venture for your employer—an effort that is part of your normal work (Yes/No/Don’t know/Refused)

(2a) Over the past twelve months have you done anything to help start a new business, such as looking for equipment or a location, organizing a start-up team, working on a business plan, beginning to save money, or any other activity that would help launch a business? (Yes/No/Don’t know/Refused)

(2b) Will you personally own all, part, or none of this business? (All/Part/None/Don’t know/Refused)

(2d) Has the new business paid any salaries, wages, or payments in kind, including your own, for more than three months? (Yes/No/Don’t know/Refused)

Identification of NBOM

(1c) You are, alone or with others, currently the owner of a company you help manage, self-employed, or selling any goods or services to others (Yes/No/Don’t know/Refused)

(3a) You said you were the owner and manager of a company. Do you personally own all, part, or none of this business? (All/Part/None/Does not apply/Don’t know/Refused)

(3c) What was the first year the owners received wages, profits, or payments in kind? (#__________/No payments yet/Don’t know/Refused)

See also http://www.gemconsortium.org/about

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Bergmann, H., Stephan, U. Moving on from nascent entrepreneurship: measuring cross-national differences in the transition to new business ownership. Small Bus Econ 41, 945–959 (2013). https://doi.org/10.1007/s11187-012-9458-4

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Keywords

  • Entrepreneurial process
  • Nascent entrepreneurship
  • Transition ratio
  • Birth rate
  • Global Entrepreneurship Monitor
  • Panel Study of Entrepreneurial Dynamics

JEL Classifications

  • L26
  • M13
  • O57