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Regional ecologies of entrepreneurship

September 11th, 2017 | Posted by admin in 2017 - (0 Comments)

Olav Sorenson

Why do some regions produce more entrepreneurs than others? An ecological lens provides insight into this question: The demography of organizations in a region – particularly the proportion of small and young em- ployers – shapes many aspects of the environment for would-be entrepreneurs: (i) beliefs about the desirability of founding a firm, (ii) opportunities to learn about entrepreneurship and to build the abilities needed to succeed, and (iii) the ease of acquiring critical resources. Births of new industries and the demise of mature ones can therefore catalyze rapid changes in the rates of entrepreneurship that become self-reinforcing.

Journal of Economic Geography, 17 (2017): 959-974

The who, why and how of spinoffs

May 27th, 2014 | Posted by admin in 2014 - (0 Comments)

Michael S. Dahl and Olav Sorenson

Studies have consistently found that entrepreneurs who enter industries in which they have prior experience as employees perform better than others. We nevertheless know relatively little about what accounts for these differences. The presumed explanation has generally been that these entrepreneurs benefit from the knowledge that they gained in their former jobs. But they might also differ from other entrepreneurs on a variety of other dimensions: Preferential access to resources or differing motivations, for example, may account for their decisions to enter known industries instead of new ones. Combining novel data from a representative survey of entrepreneurs in Denmark with a matched employer-employee database of all residents in Denmark, we examined how entrepreneurs with prior industry experience differed from those without and the extent to which these differences could account for the performance premium associated with prior industry experience. We found that those with industry experience came from younger, smaller and more profitable firms, and that they recruited more experienced employees, worked harder and placed less value on having flexible hours. The recruitment of more experienced employees and the greater effort exerted appeared to account for at least some of the performance advantage associated with prior industry experience.

Industrial and Corporate Change, 23 (2014): 661-688

The migration of technical workers

December 4th, 2009 | Posted by admin in 2010 - (0 Comments)

Michael S. Dahl and Olav Sorenson

Using panel data on the Danish population, we estimated the revealed preferences of scientists and engineers for the places in which they choose to work. Our results indicate that these technical workers exhibit substantial sensitivity to differences in wages but that they have even stronger preferences for living close to family and friends. The magnitude of these preferences, moreover, suggests that the greater geographic mobility of scientists and engineers, relative to the population as a whole, stems from more pronounced variation across regions in the wages that they can expect. These results remain robust to estimation on a sample of individuals who must select new places of work for reasons unrelated to their preferences—those who had been employed at establishments that discontinued operations.

Journal of Urban Economics, 67 (2010): 33-45

The embedded entrepreneur

December 1st, 2009 | Posted by admin in 2009 - (0 Comments)

Michael S. Dahl and Olav Sorenson

Using comprehensive data on the Danish population, this paper examines the determinants of entrepreneurs’ choices of where to locate their newventures. Our findings suggest that entrepreneurs place much more emphasis on being close to family and friends than on regional characteristics that might influence the performance of their ventures when deciding where to locate those businesses. Two factors could explain our findings: On the one hand, entrepreneurs may simply value proximity to family and friends. On the other hand, these relationships may help them to assemble the assets and to recruit the personnel that they need to succeed in their ventures. Our results suggest that the former plays the greater role in entrepreneurs’ location choices.

European Management Review, 6 (2009): 172-181

Corporate demography and income inequality

August 7th, 2009 | Posted by admin in 2007 - (0 Comments)

Jesper B. Sørensen and Olav Sorenson

We examine the relationship between income inequality and corporate demography in regional labor markets and specify two mechanisms through which the number and diversity of employers in a labor market affect wage dispersion. Vertical differentiation, or variation in the ability of organizations of a particular kind to benefit from labor inputs, amplifies inequality through quality sorting, as the most productive employees in a particular domain pair with the most productive employers. Increasing horizontal differentiation—variation in the kinds of organizations—reduces inequality as individuals can more easily find firms interested in their distinctive attributes and talents. Our analysis of Danish census data provides support for each thesis. Increased numbers of organizations operating within an industry in a region, a proxy for vertical differentiation, increases wage dispersion in that industry-region. Variation in wages, however, declines with increased horizontal differentiation among employers; this is measured by the diversity of industries offering employment within a region and the variance in firm sizes in an industry-region.

American Sociological Review, 72 (2007): 766-783

Social networks and industrial geography

August 7th, 2009 | Posted by admin in 2003 - (0 Comments)

Olav Sorenson

In many industries, production resides in a small number of highly concentrated regions; for example, several high tech industries cluster in Silicon Valley. Explanations for this phenomenon have focused on how the co-location of firms in an industry might increase the efficiency of production. In contrast, this article argues that industries cluster because entrepreneurs find it difficult to access the information and resources they require when they reside far from the sources of these valuable inputs. Since existing firms often represent the largest pools of these important factors, the current geographic distribution of production places important constraints on entrepreneurial activity. As a result, new foundings tend to arise in the same areas as existing ones, and hence reproduce the industrial geography. In support of this thesis, the article reviews empirical evidence from the shoe manufacturing and biotechnology industries.

Journal of Evolutionary Economics, 13 (2003): 513-527

Toby E. Stuart and Olav Sorenson

In this paper, we examine the ecological consequences of initial public offerings (IPOs) and acquisitions, specifically how the spatial distribution of these events influences the location-specific founding rates of new companies. We explore whether relatively small spatial units (metropolitan statistical areas) in close geographic proximity to firms that recently have been acquired or experienced an IPO exhibit high new venture creation rates and whether the magnitudes of these effects depend on regional differences in statutes governing the freedom of employees to move between employers. Count models of biotechnology firm foundings establish three findings: (1) IPOs of organizations located contiguous to or within an MSA accelerate the founding rate within that MSA, (2) acquisitions of biotech firms situated near to or within an MSA accelerate the founding rate within the MSA, but only when the acquirer enters from outside of the biotech industry, and (3) the enforceability of post-employment non-compete covenants, which is determined at the state level, strongly moderates these effects.

Administrative Science Quarterly, 48 (2003): 175-201

Jesper B. Sørensen and Olav Sorenson

Studies consistently find regions dense in concentrations of similar firms to be fecund sources of new firms of the same kind. This pattern persists even in industries with negative returns to geographic concentration. Why do these patterns persist? On the one hand, social networks may constrain entrepreneurs’ opportunities, making it difficult to mobilize resources in more attractive locations. On the other hand, nascent entrepreneurs may systematically misperceive opportunities in such a way as to lead them to continue founding attempts in overcrowded regions. To distinguish between these two processes, we analyze a unique set of data on television stations that contains information on both attempts to start new stations, as well as successful foundings. Our exploratory analysis suggests that nascent entrepreneurs do consistently misinterpret information related to population dynamics. These patterns could easily contribute both to industrial agglomeration and to the fragility of Red Queen dynamics. We discuss the implications of these results for both future research and for public policy.

Advances in Strategic Management, 20 (2003): 89-117

Toby E. Stuart and Olav Sorenson

One of the most commonly observed features of the organization of markets is that similar business enterprises cluster in physical space. In this paper, we develop an explanation for firm co-location in high-technology industries that draws upon a relational account of new venture creation. We argue that industries cluster because entrepreneurs find it difficult to leverage the social ties necessary to mobilize essential resources when they reside far from those resources. Therefore, opportunities for high tech entrepreneurship mirror the distribution of critical resources. The same factors that enable high tech entrepreneurship, however, do not necessary promote firm performance. In the empirical analyses, we investigate the effects of geographic proximity to established biotechnology firms, sources of biotechnology expertise (highly-skilled labor), and venture capitalists on the location-specific founding rates and performance of biotechnology firms. The paper finds that the local conditions that promote new venture creation differ from those that maximize the performance of recently established companies.

Research Policy, 32 (2003): 229-253

Olav Sorenson and Pino G. Audia

Nearly all industries exhibit geographic concentration. Most theories of the location of industry explain the persistence of these production centers as the result of economic efficiency. This article argues instead that heterogeneity in entrepreneurial opportunities, rather than differential performance, maintains geographic concentration. Entrepreneurs need exposure to existing organizations in the industry to acquire tacit knowledge, obtain important social ties, and build self-confidence. Thus, the current geographic distribution of production places important constraints on entrepreneurial activity. Due to these constraints, new foundings tend to reify the existing geographic distribution of production. Empirical evidence from the shoe industry supports this thesis.

American Journal of Sociology, 106 (2000): 424-462