Work

Reputation capital, financial capital, and entrepreneurship

Year: 2012

Type: article

Abstract: About 90% of entrepreneurs in the high-tech and professional service industries were previously employed in the same sector. In this paper, we provide a theory for how aspiring entrepreneurs choose an employer. We contrast ‘transparent’ employers (or firms) promoting personal accountability and employee empowerment with ‘opaque’ employers emphasizing team work and down-playing individual accomplishment. Markets use transparent firms' output to a larger extent to update employees' reputation since this output is more informative about individual talent. This has three effects. First, it harms employees who could become entrepreneurs if their reputation was maintained, but benefits the others. Second, it fosters effort, which raises wages, and thus the financial capital available to start a venture. Third, the perspective of entrepreneurship can induce employees to exert excessive effort, an effect that transparency exacerbates. We show that intermediate-reputation employees choose opaque firms, whereas higher- and lower-reputation employees choose transparent firms. Empirical implications follow.

Source: Oxford Economic Papers

DOI: 10.1093/oep/gps016

Authors: Frédéric Loss, Antoine Renucci

Institutions: Conservatoire National des Arts et Métiers, Laboratoire interdisciplinaire de recherches en sciences de l'action, Université de Pau et des Pays de l'Adour, Université Paris Dauphine-PSL

Language: English

Topic: Entrepreneurship Studies and Influences

Subfield: Management of Technology and Innovation

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

Funder: Agence Nationale de la Recherche