Personal Experience: A Most Vicious and Limited Circle!? On the Role of Entrepreneurial Experience for Firm Survival

Personal Experience: A Most Vicious and Limited Circle!?

the results of Metzger (2006) reveal significantly negative effects of failure ex-
perience (concretely: of bankruptcy experience) on firm growth.

To sum up, two hypotheses can be derived from the theoretical considera-
tions:

Hypothesis 1: Entrepreneurial experience enables entrepre-
neurs to make decisions which lead to a decreased risk of fail-
ure compared to novice entrepreneurs.

Hypothesis 2: Entrepreneurial failure experience enables en-
trepreneurs to make decisions which lead to a decreased risk of
failure compared to novice entrepreneurs and to entrepreneurs
who do not have such experience.

Applied data

For the survival analysis, this study makes use of the ZEW Foundation Panel
(see Almus et al. 2000 for details). The panel is the result of a co-operation be-
tween the Centre for European Economic Research (ZEW) and Creditreform,
the largest German credit rating agency. Due to the size of Creditreform their
data on enterprises in Germany is the most comprehensive available. Creditre-
form has provided the data in semi-annual waves since 1989. For the period from
1990 until 2005 the ZEW Foundation Panel contains information about three
million start-ups. The unit of registration is the company itself rather than any
subsidiaries, i.e. this investigation is based on original foundation events and
ignores affiliated foundations. Creditreform uses three sources of information for
collecting their data: (1) official sources of information like the trade register,
registers of societies and associations, the land register etc., (2) general sources
of information about enterprises like press releases, balance sheets and company
reports etc., and finally (3) internal sources of information, i.e. active research in
the form of enquiries about individual firms or for marketing purposes, control
queries etc. (Egeln et al. 1999).

Relying on these sources of information means that particularly very small
firms and entrepreneurs in liberal professions are underrepresented in the data
(Fritsch et al. 2002; Harhoff and Steil 1997). Firms trading in liberal professions
are excluded from the analyses. Liberal professions are occupations that require
special training in the liberal arts or sciences, for example lawyers, notaries, en-
gineers, architects, doctors and accountants. Actually, they are not comparable
with other entrepreneurs because self-employment in liberal professions is dif-
ferent from entrepreneurial self-employment. The former is rather focused on the
individual, who earns his or her living by supplying “superior” services and em-
ploys few assistants, if any. Entrepreneurship on the other hand is a more com-
prehensive type of self-employment comprising business establishment, hiring of
employees, withstanding competition etc. However, even considering that small
firms are underrepresented in the data and liberal professions are disregarded,

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