The (Un) intended consequences of institutions lowering barriers to entrepreneurship: The impact on female workers

• Published date: 01 July 2020
• DOI: http://doi.org/10.1002/smj.3133
• Author: Aleksandra Kacperczyk,Raffaele Conti,Francesco Castellaneta
• Date: 01 July 2020

RESEARCH ARTICLE

The (Un) intended consequences of institutions

lowering barriers to entrepreneurship:

The impact on female workers

Francesco Castellaneta

1

| Raffaele Conti

2

|

Aleksandra Kacperczyk

3

1

SKEMA Business School, Université

Côte d'Azur (GREDEG)

2

Catolica Lisbon School of Business and

Economics, Lisbon, Portugal

3

London Business School, London, UK

Correspondence

Aleksandra Kacperczyk, London Business

School, 26 Sussex Place, London NW1

6SA, UK.

Email: okacperczyk@london.edu

Abstract

We propose that institutions that reduce barriers to entre-

preneurship lead to intended consequences, increasing

entry rate among individuals facing obstacles to entrepre-

neurship, such as women. But these regulations also have

unintended consequences, decreasing the value appropri-

ated by women who stay in paid employment, as these

women lose support of their departing peers. Using an

exogenous reduction in entry barriers in Portugal

between 2005 and 2009, we find that women launch new

ventures at higher rates than men, when entry barriers

fall, but the same changes lead to a relative decline in

women's wages in paid employment. These effects are

amplified for women in managerial positions, who bene-

fit if they leave but lose if they stay. Our study contributes

to a nuanced understanding of rent-allocation in firms.

Managerial Summary: We study the unintended

consequences of lowering barriers to entry—an

important institutional change to foster entrepreneur-

ship, especial ly among those fac ing strongest e ntry

barriers. We examine the effects of such regulations

on women departing to entrepreneurship and those

staying in incumbent firms, using the registry data

from Portugal. The results show that lowering entry

barriers leads to higher rates of entrepreneurial entry

among women, as intended. But we also find that this

deregulation reform results in a wider gender pay gap

Received: 27 December 2018 Revised: 19 November 2019 Accepted: 29 November 2019 Published on: 3 February 2020

DOI: 10.1002/smj.3133

1274 © 2020 John Wiley & Sons, Ltd. Strat. Mgmt. J. 2020;41:1274–1304.wileyonlinelibrary.com/journal/smj

among those who stay in incumbent firms. We attri-

bute these increases to reductions in bargaining power

and productivity, which result from the departure of -

socially-proximate peers. Finally, these intended and

unintended consequences are especially common

among female managers—who are more likely to

leave for entrepreneurship, on the one hand, but also

more likely to witness greater pay gaps in wage work,

on the other hand.

KEYWORDS

entrepreneurship, institutional change, gender, difference-in-

differences, regulation

1|INTRODUCTION

The concept of barriers to venture formation is central to both entrepreneurship and strategy

research, which has increasingly recognized the key role the institutional environment plays in facil-

itating or hindering the founding of a startup. Entrepreneurship scholars have long linked regulatory

changes, which ease the access to capital and other resources when forming and nurturing a new

venture, to higher rates of new foundings and greater quality of new ventures, conditional on entry

(e.g., Armour and Cumming, 2008; Chatterji and Seamans, 2012; Eberhart, Eesley, and Eisenhardt,

2017; Eesley, 2016). At the same time, strategy scholars have recognized the threat that such changes

impose on incumbent firms, whose competitive advantage might be eroded because market compe-

tition intensifies (Porter, 1980), and valuable employees move to startups (e.g., Agarwal et al., 2004,

Ganco, Ziedonis, and Agarwal, 2015; Hall, 1993; Lippman and Rumelt, 1982).

However, past studies have only focused on individuals who leave for entrepreneurship

(e.g., Eberhart et al., 2017; Eesley, 2016), contributing to the relevant loss of human capital for

incumbent firms (e.g., Ganco, Ziedonis, and Agarwal, 2015). Yet not all employees will become

founders when entry barriers to forming new ventures fall; indeed, many will stay behind at incum-

bent firms. Though little attention has been devoted to such “stayers,”these employees may suffer

the unintended consequences, which alter the ways in which rent is appropriated inside an

established organization. Strategy researchers have recognized that rent allocation among

employees is of key importance for a firm's ability to achieve and sustain its competitive advantage

(Blyler and Coff, 2003; Qian et al., 2017). But when certain groups of employees leave to become

founders, some “stayers”might witness a significant yet unforeseen impact on their ability to create

and capture value. Hence, the following research questions are critical: what types of employees

leave the company when barriers to entry are reduced and, among those who stay put, what types

of employees are most affected by these departures and how?

To advance the understanding of the effects of regulations that reduce entry barriers, we

develop a more comprehensive theory regarding their intended and unintended consequences: the

former pertaining to employees who become founders, and the latter pertaining to employees who

stay behind at incumbent firms. First, turning our attention to the intended effects, we predict that

entry rates will increase most starkly among historical minority groups, such as women, who tend

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