Do entrepreneurial goals matter? Resource allocation in new owner-managed firms

Abstract

This paper focuses on how entrepreneurial goals affect the resource allocation of new firm owners. It connects research in psychology and management that examines the core motivations of entrepreneurs with research in economics that models the behavior of owner-managers as utility-maximizing rather than profit-maximizing. We hypothesize that new owners with nonmonetary goals allocate their resources differently than do owners with monetary goals and that the differences are meaningful in size. To test these hypotheses, we estimate firm level equations based on economic theories of input demand that show how input quantities depend on owner goals. Data come from a national survey of new U.S. business owners. We find owner goals have both a statistically and substantively significant effect on resource allocation for new firms. Owners with nonmonetary goals put in more of their own and family hours rather than hiring outside employees. Implications for research and policy are discussed.The entrepreneurship literature has long recognized that entrepreneurs have different goals when starting a business, many of which are nonmonetary such as the desire to be one's own boss. The literature has been less definitive with regard to the behavioral significance of these goals. The research reported here focuses on the influence entrepreneurial goals have on new firm resource allocation. Once businesses are launched, entrepreneurs must decide on the appropriate input mix-for example, how much labor should be provided by themselves or family members and how much by hired employees. If goals are behaviorally important, they should affect the outcomes of these decisions. While it would seem likely that entrepreneurs with nonmonetary goals operate their firms differently than do those with monetary goals, scant evidence exists to support this assertion.Drawing on previous work in management, psychology, and economics, we construct a conceptual framework in which the input decisions of utility-maximizing entrepreneurs are partly determined by their goals. We then specify an econometric model based on this framework consisting of equations showing firm inputs as functions of the entrepreneur's goals and a set of standard economic control variables (industry, region, and human capital measures). The model is estimated using a unique dataset obtained from

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