Peer Effects and Entrepreneurship

Several recent studies in entrepreneurship have shown that the propensity for individuals to become entrepreneurs seems to vary considerably by the type of firm for which they work. Many of these studies have hypothesized that this may result from ‘knowledge spillovers’ within the firm or due to ‘entrepreneurial exposure’ to employees’ colleagues. In this paper, we directly test the hypothesis that an individual’s colleagues might impact their transition to entrepreneurship, by looking at how diversity in the prior career histories of an individual’s peers relates to their own propensity to become an entrepreneur. We find that employees are more likely to become entrepreneurs if their co-workers have had prior self-employment experience or have had more diverse work experience in the past. Our findings suggest the presence of both ‘knowledge-spillovers’ and ‘entrepreneurial exposure’ as important mechanisms contributing to firm-level heterogeneity in entrepreneurial spawning, and highlight the importance of studying the social context of firms when looking at labor market outcomes.