Entrepreneurial Success – a Comparative Approach on German and Swedish Entrepreneurs During the Nineteenth and Twentieth Century
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Linköping University | Department of Management and Engineering Master thesis, 30 credits | Economics Spring 2018 | LIU-IEI-FIL-A--18/02909--SE Entrepreneurial success – A comparative approach on German and Swedish entrepreneurs during the nineteenth and twentieth century Nada Faraj Farhijo Hashi Supervisor: Hans Sjögren and Joakim Persson Linköpings universitet SE-581 83 Linköping, Sweden 013-28 10 00, www.liu.se Title: Entrepreneurial success - A comparative study on German and Swedish entrepreneurs during the nineteenth and twentieth century Authors: Nada Faraj Farhijo Hashi Supervisor: Hans Sjögren Joakim Persson Publication typ: Master’s thesis in Economics Master’s program in Economics Advanced level, 30 credits Spring 2018 Linköping University Department of Management and Engineering (IEI) www.liu.se Acknowledgements To our supervisor Hans Sjögren and assisting supervisor Joakim Persson for valuable comments and helpful suggestions. The participants in our group seminars for providing interesting discussions regarding entrepreneurship. During this process, we had the possibility to visit Bocconi University in Milan, we would like to thank Andrea Colli for new and interesting viewpoints. Linköping, 2018-05-30 Abstract This paper examines the similarities and differences between German and Swedish entrepreneurs born in the nineteenth and twentieth century. It is a replicated study by Vasta et al. (2015). The study is a part of an international project, where the characteristics of entrepreneurs’ is reviewed in multiple countries. The information of entrepreneurs is collected from biographical dictionaries and the qualitative data is later on converted into quantitative data, where several different variables are measured. The applied method, Principal Component Analysis (PCA) generated three different dimensions of entrepreneurial success. The components are the following: celebrity (captures entrepreneurs’ visibility in the various sources), economic success (describes the economic performance of an entrepreneur) and social mobility (measures entrepreneurs’ social class improvement). By using a prosopographical approach, we found among other things that a level of innovation intensity is required in order to reach a higher level of economic success for both German and Swedish entrepreneurs. Keywords: Germany, Sweden, entrepreneurs, entrepreneurship, economic business history, founder, inventor 1 Table of content 1. Introduction 4 1.1 Problem discussion 5 1.2 Purpose 7 1.3 Research questions 7 1.4 Limitations 7 1.5 Implementation 8 1.6 Research contributions 9 2. Theory 10 2.1 The Schumpeterian entrepreneur 10 2.2 Risk and uncertainty 11 2.3 Previous studies 13 3. Sources and data 17 3.1 Biographical studies of German entrepreneurs 17 3.2 Biographical studies of Swedish entrepreneurs 18 3.3 Description and selection of variables 19 4. Method 26 4.1 Definition of Principal Component Analysis (PCA) 26 4.1.1 Example: Data reduction using Principal Components 27 4.2 Properties of Principal Components 29 4.3 Detection of Outliers and Robust Estimation 30 4.4 Rotation method and interpretation of principal components 31 4.5 Regression model 31 4.6 Criticism of the method 32 5. Results 34 5.1 Dimensions of entrepreneurial success for the German sample 34 5.2 Dimensions of entrepreneurial success for the Swedish sample 41 5.3 Multiple linear regressions 47 5.3.1 Regressions for the German sample 47 5.3.2 Regressions for the Swedish sample 48 5.4 Detecting heteroscedasticity and multicollinearity for both samples 50 6. Discussion 51 6.1 A comparative analysis of the components for Germany, Italy and Sweden 51 6.2 A comparative analysis of the results from regression models 54 6.3 A comparative analysis of American, British, French, German Italian, Spanish and Swedish entrepreneurs 61 2 7. Conclusion 65 References 67 Appendix 70 3 1. Introduction Entrepreneurship in Europe is evident and several entrepreneurs throughout history have led by example and been role models for many. A few successful entrepreneurs that were active in Germany respectively Sweden during the industrialization were Hugo Stoltzenberg, Otto Meyer, Axel Wenner-Gren and Alfred Nobel (Deutsche Biographie and Swedish Biographic Lexikon, 2018). In connection to the industrialization in the late nineteenth century, institutions gave individuals the possibilities of making success based on their individual drive and knowledge. The establishment of firms across Europe contributed to economic growth which would not have been possible without the help of financial institutions (Sylla and Toniolo, 1991). According to German economic history, Germany had by 1890 one of the largest economies in the world and was among the leading countries in the industrial sector (Plumpe, 2016). In the beginning of the twentieth century, German industrial sector was very successful internationally due to high production standards and low costs. Germany was also able to use skilled labors more efficiently than any other country in Europe (ibid). From 1850 to 1913 Sweden underwent industrialization and experienced economic growth at an accelerating rate (Myhrman, 2003). Between 1870 and 1970, Sweden’s economy was amongst the fastest growing economies in the world second to Japan (Johnson, 2006). The success of Sweden was mainly due to political reforms that occurred throughout the nineteenth century, for example the formation of the joint stock corporation law (Aktiebolagslagen) which took in effect 1848. The implementation of a renewed and more modern bankruptcy law in 1862 which simplified the reconstruction of firms for business owners. As well as the introduction of an improved patent and trademark law to secure innovations from possible imitation in 1884 (ibid). The impact entrepreneurship has on economic growth has been examined from different perspectives such as the relationship between entrepreneurship and job creation (Malchow- Møller et al., 2015). In high income countries entrepreneurship have shown to have a positive impact on macroeconomic growth, due to entrepreneurs’ efforts to maintain and develop their firm (Stam et al., 2011). Also, the entrepreneur attracted the attention of management which in turn forced owners to find the appearances that distinguish entrepreneurs from managers (Hébert and Link, 2009). 4 Previous literature has examined the traits and personality characteristics of entrepreneurs to find specific traits that defines an entrepreneur. The entrepreneur has been defined as a risk taker, innovator, manager of a business venture, decision maker, coordinator and asset owner. (Gartner, 1988). According to Schumpeter (1911) the entrepreneur is an innovator who identifies and introduces new products, production methods, resources and organizational structure (Henrekson and Stenkula, 2015). For many other researchers, entrepreneurs differ from each other and each of them are considered as a unique person whose qualities need to be examined (Gartner, 1988). In this study, we have examined 100 German and 100 Swedish entrepreneurs born between 1800 and 1970. Germany and Sweden stand out mainly due to their similarities in recent technological innovation (Government of Sweden, 2017). Taking this into account we find it suitable to examine entrepreneurs that are founders which have contributed to the establishment of enterprises and inventors. This study is a replicate of a previous study conducted by Nuvolari, Toninelli and Vasta (2015), “What makes a successful (and famous) entrepreneur? Historical evidence from Italy (XIX-XX centuries)”. 1.1 Problem discussion According to the entrepreneurship barometer1 from 2016, nearly half of Sweden’s population in working age have a positive attitude towards becoming entrepreneurs, in terms of starting or managing a business. The results have also showed that the distance between having a positive attitude towards entrepreneurship and starting a business is vast. This is partly because many individuals lack a business idea or believe the risks are too big (Swedish Agency for Economic and Regional Growth, 2017)2. It is therefore important that the public sector can lead the next generation of entrepreneurs to their goals, by influencing laws and regulations. Recently, studies have chosen to examine entrepreneurs’ biographies to find the factors and characteristics of individuals that led them to their entrepreneurial success. The first study 1 The entrepreneurship barometer is an attitude survey about Swedish people´s views on starting and managing a business. In the survey for 2016, 10 300 people in working age have participated. 2 The Swedish Agency for Economic and Regional Growth (Tillväxtverket) is a government agency under the Ministry of Enterprise and Innovation. 5 was conducted by Nicholas (1999) who examined British entrepreneurs with a lifetime wealth accumulation as a measure of entrepreneurial success. In another study by Vasta et al. (2015), researchers have examined the determinants of entrepreneurial success for Italian entrepreneurs in nineteenth and twentieth century. The idea of studying the entrepreneurs’ biographies and transforming the qualitative data into quantitative but on different samples and frameworks has spread amongst other authors. There are four replicated studies of Vasta et al. (2015) that has used a similar sample of American entrepreneur (Magenes, 2015), British entrepreneurs (Piantanida, 2017), French entrepreneurs (Bonsignore, 2018) and Spanish entrepreneurs (Zollet, 2018) for the