The new firm effect on entrepreneurship

This paper examines the new firm effect on entrepreneurship and investigates the new firm employee transition to entrepreneurship and controls for the worker's ability in terms of income residuals. For empirical analysis, dataset collected from Swedish matched employee-employer database from five different cohorts (2001-2005), is used and competing risk models are employed. The findings indicate that the new firm effect on entrepreneurship is positive and statistically significant and remains even after controlling for a worker's ability. Moreover, workers with the lowest and the high- est abilities are more likely to enter entrepreneurship. This effect on worker's ability is also true for the entrepreneurial transition among incumbent firm employees. In contrast, among new firm employees, women entering into entrepreneurship are drawn from the lowest and the next highest tails of the income residual distribution, while men entering into entrepreneurship are drawn only from the lowest tails of the income residual distribution.QC 20160914