Entry and Exit Dynamics of Nascent Business Owners

This paper reports a comprehensive study on the dynamics of nascent business owners using a unique longitudinal matched employer–employee dataset. We follow over 157,000 individuals who leave paid employment and become business owners during the period 1992–2007. The contributions of this paper are twofold. First, we analyze both entry and exit, identifying and characterizing different profiles of individuals leaving paid employment to become business owners, and distinguishing exits by dissolution from exits by ownership transfer. Second, we provide new evidence on how particular experiences in the labor market and entry modes shape the post-entry dynamics of nascent business owners. By differentiating between different entry and exit routes, this paper provides new evidence on different human capital patterns among nascent business owners and on key determinants of entrepreneurial survival. Our results suggest that different exit modes can be predicted by business owners’ entry route. Furthermore, different exit modes exhibit different duration dependence patterns according to the entry mode. Additionally, the paper shows that businesses started after a displacement episode are not necessarily less successful. Those individuals entering entrepreneurship after being displaced due to previous employer closure are found to persist longer.