Why do small firms produce the entrepreneurs?

Abstract

Employees are significantly more likely to quit small rather than large firms to found new ventures. I examine empirically three alternative theories that might explain this finding: a transmission theory; a blocked mobility theory; and self-selection of workers. A representative sample of British panel data containing information on workplace, job and personal characteristics from 1991 to 2003 are used to explore the relationship between firm size and transitions into self-employment. The transmission and blocked mobility theories do not receive consistent empirical backing whereas the selection theory does. The implications of these findings for researchers and policy-makers are discussed.