Syracuse University SURFACE Dissertations - ALL SURFACE June 2017 BUSINESS FAILURE AND ENTREPRENEURSHIP: THREE ESSAYS ON THE EFFECTS OF THE COST OF FAILURE Chong Kyoon Lee Syracuse University Follow this and additional works at: https://surface.syr.edu/etd Part of the Business Commons Recommended Citation Lee, Chong Kyoon, "BUSINESS FAILURE AND ENTREPRENEURSHIP: THREE ESSAYS ON THE EFFECTS OF THE COST OF FAILURE" (2017). Dissertations - ALL. 694. https://surface.syr.edu/etd/694 This Dissertation is brought to you for free and open access by the SURFACE at SURFACE. It has been accepted for inclusion in Dissertations - ALL by an authorized administrator of SURFACE. For more information, please contact [email protected]. ABSTRACT When entrepreneurs encounter business failure, they have to bear the financial, emotional, and social cost of failure. Prior research on the effects of these costs has focused mainly on entrepreneurial exit context or on the quantity of new firms. Moreover, these studies suggest to policy makers to establish institutions to lower the costs of failure with the aim of increasing entrepreneurial activities. However, this dissertation seeks to improve our understanding by providing more extensive and fine-grained assessments of the effects of the cost of business failure in entrepreneurship contexts. The first essay in this dissertation conducts a systematic review regarding the role of institutions that are related to the cost of business failure in entrepreneurial decisions and behaviors. The review extensively takes stock of what has been studied on the effect of the costs of failure and provides future research questions to advance our knowledge. The second and third essay respond to the call of research questions from the review study of this dissertation while utilizing real options logic and multi-level analysis. In particular, the second essay shows that while high social costs of failure can negatively impact the quantity of entrepreneurs in society, there can also be a positive impact on the quality of the entrepreneurs who enter and persist in their careers. In particular, this study finds evidence of a positive relationship between high social costs of business failure and the entry of entrepreneurs with growth and export orientation. The third essay finds that the stigma of failure is positively associated with social entrepreneurship entry decisions. Further, the stigma of failure affects revenue-generating type social entrepreneurship, but not NGO-type social entrepreneurship. BUSINESS FAILURE AND ENTREPRENEURSHIP: THREE ESSAYS ON THE EFFECTS OF THE COST OF FAILURE by Chong Kyoon Lee B.A., University of Wisconsin-Madison, 2005 M.B.A., University of Oxford, 2010 Dissertation Submitted in partial fulfillment of the requirement for the degree of Doctor of Philosophy (Ph.D.) in Business Administration. Syracuse University May 2017 Copyright © Chong Kyoon Lee Ph.D. 2017 All Rights Reserved ACKNOWLEDGMENT Most of all, I wish to thank my advisor, Dr. Johan Wiklund, for his intellectual support, encouragement and patience during my PhD study. It has been a pleasure and a privilege to work and learn from him. Especially his personal care beyond the academic work made my time richer and meaningful. I also want to thank Dr. Tom Lumpkin, Dr. Alex McKelvie, Dr. Alejandro Amezcua, and Dr. Sharon Simmons to be on my thesis committee. From mentors, to co-authors and colleagues, they have shaped what I am today. I am honored to learn from my committee members. In addition, I should also thank my doctoral program cohort and many others who helped me through my doctoral programs. I would like to thank my beloved parents, Soon Ki Lee and Mai Hee Yea, for their unconditional love and strong support. Especially, I want to thank to my father who rests in peace with God. Without his encouragement and endless intellectual challenges, I would not even have pursued a doctoral degree at the first place. I also owe a debt of gratitude to my mother who has helped me through my PhD by taking care of my children and providing me the most delicious Korean foods. Moreover, I would like to thank to my parents-in-law, Kil Nam Kang and Soon Yae Oh, and my brother as well as his wife, Chong Hwi Lee and Yeon Mi Shin, for their support. Finally, my special thanks also go to my wife, Jin Young Kang, and my children, William Vio Lee and Isabella Via Lee, for their continued love and patience without which this dissertation would not have been possible. I give all my glory to God. iv TABLE OF CONTENTS CHAPTER I : DISSERTATION OVERVIEW ........................................................................ 1 1. BACKGROUND ................................................................................................................. 2 2. OVERVIEW OF THREE ESSAYS .................................................................................... 5 3. CONTRIBUTION................................................................................................................ 7 REFERENCES FOR CHAPTER I ........................................................................................... 11 CHAPTER II : THE COST OF FAILURE AND INSTITUTIONS IN ENTREPRENEURSHIP: REVIEW AND RESEARCH AGENDA ................................ 14 1. INTRODUCTION ............................................................................................................. 15 2. METHOD .......................................................................................................................... 17 3. APPROACH TO REVIEW ............................................................................................... 20 4. ASSESSING THE STATE OF CURRENT RESEARCH ................................................ 22 5. RESEARCH AGENDA ..................................................................................................... 33 6. DISCUSSION .................................................................................................................... 40 7. CONCLUSION .................................................................................................................. 43 FIGURES AND TABLES FOR CHAPTER II ......................................................................... 53 CHAPTER III : THE EFFECT OF SOCIAL COSTS OF FAILURE ON ENTREPRENEURIAL ENTRY: AN APPLICATION OF REAL OPTIONS LOGIC .. 63 1. INTRODUCTION ............................................................................................................. 64 2. THEORETICAL DEVELOPMENT ................................................................................. 66 3. METHOD .......................................................................................................................... 74 4. RESULTS .......................................................................................................................... 79 5. DISCUSSION .................................................................................................................... 83 v 6. LIMITATIONS AND FUTURE RESEARCH .................................................................. 87 7. CONCLUSION .................................................................................................................. 88 REFERENCES FOR CHAPTER III ......................................................................................... 90 FIGURES AND TABLES FOR CHAPTER III ....................................................................... 98 CHAPTER IV : EFFECTS OF STIGMA ON MARKET ENTRY: A COMPARISON OF SOCIAL AND COMMERCIAL ENTREPRENEURS ..................................................... 104 1. INTRODUCTION ........................................................................................................... 105 2. THEORETICAL DEVELOPMENT ............................................................................... 110 3. METHOD ........................................................................................................................ 122 4. RESULTS ........................................................................................................................ 129 5. DISCUSSION .................................................................................................................. 134 6. LIMITATIONS AND FUTURE RESEARCH ................................................................ 136 7. CONCLUSION ................................................................................................................ 137 REFERENCES FOR CHAPTER IV ....................................................................................... 138 FIGURES AND TABLES FOR CHAPTER IV ..................................................................... 149 VITA ........................................................................................................................................... 159 vi LIST OF FIGURES Figure II-1: Conceptual Framework for Review .......................................................................... 53 Figure III-1: Conceptual Framework: The Social Costs of Failure and Entrepreneurial Entry .... 98 Figure III-2: Moderating Effect Graphs ...................................................................................... 103 Figure IV-1: Conceptual Framework: The Stigma of Failure and Social Entrepreneurial Entry 149 Figure IV-2: Moderating Effect Graphs (Baseline = General Population) ................................. 153 Figure IV-3: Moderating Effect Graphs (Baseline = Commercial Entry) .................................