Entrepreneurship after displacement

According to Hoetker and Agarwal (Academy of Management Journal, 50(2), 446–469, 2007), research on knowledge transfers related to business closures is scarce. This paper intends to fill the knowledge gap on the transition to entrepreneurship after a business closure. This paper studies which employees are most likely to start an entrepreneurial venture after being affected by a displacement. Furthermore, following, e.g., Hyttinen and Maliranta (Scandinavian Journal of Economics, 110(1), 1–21, 2008) and Sørensen (Administrative Science Quarterly, 52, 387–412, 2007), this study investigates the link between former workplace characteristics, such as the size and age of the former workplace, and the transition into entrepreneurship. In the second part of the analysis, the performance of the entrepreneurial ventures started by employees after displacement is explored as it relates to survival, employment, and profitability. The empirical setting employs an employer-employee-matched dataset coving all displaced employees in Sweden during 2001–2010. The empirical findings suggest that employees displaced from smaller firms are more likely to transition to entrepreneurship. Employing a Cox proportional hazard model to study the survival of these companies shows that new firms generated by displaced employees from small establishments are more viable. Furthermore, individuals who took part in labor market polices have a higher probability of becoming entrepreneurs, although these firms tend to show lower survival rates, which indicates that these transitions are necessity-based. As for the performance of the business, the empirical findings suggest modest growth in terms of employment, turnover, and operating profit for the vast majority of entrepreneurial ventures started after displacement.