Personality Characteristics and Entrepreneurship: Do Women Differ from Men?

Marco Caliendo, Frank M. Fossen, Alexander S. Kritikos AOM Symposium on Women as Agents of Change Boston, August 5, 2012

Personality and Entrepreneurial Processes

Entrepreneurs are
- the single most important players in a modern economy (Lazear, 2005), - a rare species only 10% in highly developed countries are self-employed,

only 1-2% start each year as self-employed; closing down their business in 50% of all cases after 5 years of experience
- The ratio between women and men in entrepreneurship is typically 1:2

Therefore: Ongoing discussion about personality characteristics and their

- Influence on individuals who decide to enter and exit entrepreneurship - Explanatory power for the gender gap in entrepreneurship - Explanation if women start entrepreneurship different from men
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Strategies and Goals as a mediating factor

Entry and Success of a business depends on decisions made by entrepreneur Decisions are driven by strategies and goals of entrepreneur Strategies and Goals depend on parameter values of personality characteristics of entrepreneurs If women are driven by differing personality characteristics in their entry decision, differing behavior in entrepreneurial decision making could be explained

Contribution

Systematic analysis of the influence of personality traits on entrepreneurial development Simultaneous observation of all kinds of personality traits:
- Big Five construct - Specific personality characteristics (like risk attitudes, locus of control,

impulsivity)

For the first time: influence of personality on entry and exit decision differentiated for women and men

The Five-Factor Model of Personality

Big Five taxonomy as developed by Costa and Mc Crae (1992): Extraversion: assertive, dominant, energetic, active (+,+,+):
- Seeking leadership roles - Enabling to develop more easily social network

Emotional stability: calm, even-tempered, stable, confident (+,+,+):

- Enables to manage situations of stress and - To bear uncertain times having taken entrepreneurial decisions

Openness to experience: tends to seek new experiences (+,+,0)

- Creative, innovative, and curious - Contains cognitive aspects

Conscientiousness: hard work, organization, persistence (0,0,+)

- Achievement oriented (+) - Dutifulness (???)

Agreeableness: trusting, forgiving, altruistic (0,0,-)

- Maintain positive relationships (+) - Inhibit willingness to make hard bargains (-)
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Specific Traits in the Context of Entrepreneurship

Special personality characteristics particularly related to entrepreneurial tasks: Risk attitudes (+,+,U)
- Positive influence on decision to become an entrepreneur - But inverse U-shape relationship with entrepreneurial survival

Internal locus of control (+,+,+):

- Internal LOC: people determine future outcomes through their own actions - External LOC: future outcomes are determined randomly / by fate

Trust (+,+,0)
- Delegate tasks to trustworthy people - Able to trust suppliers and clients

Impulsivity (+,0,0): helps to make fast decisions when situation is hot

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Representative Individual Panel Data

German Socio-Economic Panel (SOEP) 2000-2009, representative for the German population Individuals between 19-59 years, excluding farmers, helping family members, and those in education, vocational training or military service Rich set of socio-economic variables, including self-employment Special personality questionnaires in 2005 and 2009:
- Respondents are asked how much they agree with different statements about

themselves
- Answers on 7-point Likert scales - 15 items on Big Five personality traits - 10 items on Locus of Control (2005 only) - 3 items each on positive and negative reciprocity (2005 only)

Further Items on Personality and Cognitive Ability

Willingness to take risks
- 11-point scale (0=completely unwilling to take risks, 10=completely willing) - General willingness elicited in 2004, 2006, 2008, and 2009

Trust
- 3 statements on 4-point scale in 2003 and 2008

Patience and Impulsiveness

- 11-point scales in 2008 - Patience: 0=very impatient, 10=very patient - Impulsiveness: 0=not at all impulsive, 10=very impulsive

Cognitive ability
- Tests conducted on random sub-sample in 2006 - Symbol correspondence test similar to a sub-module of the Wechsler Adult

Intelligence Scale (WAIS)

- Conceptually related to fluid intelligence

Standardization of variables: (value-mean)/std dev.

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Previous Empirical Evidence: Selective Review (contd)

Caliendo/Fossen/Kritikos (2009,2010,2011,2012): effects of personality on entrepreneurial processes: ENTRY
- Openness - Extraversion - Locus of control - Trust - Risk Attitudes - (Emotional Stability)

SURVIVAL
- Agreeableness (-) - Locus of control - Risk Attitudes (inverse u-shaped)

Discrete Time Hazard Rate Models

Probabilities of transition into and out of self-employment
- Discrete time hazard rate models based on yearly data (logit specification) - Accounts for state dependence - Avoids survivorship bias - Exit model: Sample of self-employed, estimation conditional on duration in

self-employment
- Entry model: Sample of those in dependent employment or not working,

conditional on duration of state

- Baseline hazard
- Specified as 3rd degree polynomial - May differ between those in dependent employment and not working in entry model

- Inclusion of variables (depending on specification):

- Socio-economic control variables (e.g. age, gender, human capital variables, capital

income as wealth indicator, self-employed father)

- Personality traits (Big5 and specific traits); quadratic term for risk attitude - Cognitive ability

Additional estimation of probability of being self-employed

- Logit model
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Differences in Big Five, Risk, and Trust

Compared to men, women score significantly higher
- Neuroticism - Agreeableness - Trust

lower
- Openness - Extraversion - Risk Attitudes

No larger differences:
- Conscientiousness - Locus of Control - Impulsivity

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Women

Empirical Results: Main Specifications

Self-employment Spec. A openness conscientiousn extraversion agreeableness neuroticism will_risk will_risk_sq internal_loc external_loc recip_pos recip_neg trust patience impuls Control variables Log likelihood Mean outcome Person-years yes -6489.281 0.124429 32019 0.0167*** -0.0058** 0.0090*** -0.0013 -0.0031 Spec. B 0.0153*** -0.0062*** 0.0063** -0.0002 -0.0008 0.0056* -0.0001 0.0050** -0.0044* -0.0026 -0.0009 0.0030 -0.0032 -0.0020 yes -6398.918 0.124429 32019 yes -1316.174 0.009650 27357 Spec. A 0.0021*** -0.0002 0.0002 -0.0005 -0.0003 Entry Spec. B 0.0017*** -0.0001 -0.0000 -0.0002 0.0000 0.0002* 0.0000 0.0006* -0.0003 -0.0006* 0.0005 0.0009*** 0.0000 -0.0002 yes -1296.838 0.009650 27357 yes -569.818 0.061214 1752 Spec. A 0.0088 0.0044 -0.0127 0.0023 0.0043 Exit Spec. B 0.0049 0.0061 -0.0108 0.0045 0.0025 -0.0222** 0.0020** -0.0078* 0.0052 0.0018 0.0075 0.0092 0.0001 0.0067 yes -564.934 0.061214 1752

Notes: Marginal effects evaluated at the means of the variables. Stars (***/**/*) indicate significance at the 1%/5%/10% levels based on cluster robust standard errors.
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Men

Empirical Results: Main Specifications

Self-employment Spec. A openness conscientiousn extraversion agreeableness neuroticism will_risk will_risk_sq internal_loc external_loc recip_pos recip_neg trust patience impuls Control variables Log likelihood Mean outcome Person-years yes -9258.384 0.116659 28682 0.0155*** 0.0071 0.0156*** -0.0028 0.0029 Spec. B 0.0131*** 0.0013 0.0065 -0.0018 0.0102** -0.0066 0.0017*** 0.0265*** -0.0159*** -0.0066 0.0024 -0.0021 0.0032 0.0025 yes -8959.385 0.116659 28682 yes -1391.557 0.013218 23074 Spec. A 0.0012*** -0.0003 0.0016*** 0.0004 -0.0005 Entry Spec. B 0.0011*** -0.0005 0.0012*** 0.0004 0.0002 -0.0009 0.0002** 0.0012*** -0.0008* -0.0005 0.0007* 0.0006 0.0008** -0.0001 yes -1360.613 0.013218 23074 yes -744.597 0.077024 3038 Spec. A 0.0007 -0.0071* -0.0018 0.0103** -0.0101** Exit Spec. B -0.0014 -0.0079* -0.0022 0.0113** -0.0118** -0.0136* 0.0014** -0.0058* 0.0034 0.0039 -0.0011 -0.0019 -0.0014 -0.0003 yes -739.958 0.077024 3038

Notes: Marginal effects evaluated at the means of the variables. Stars (***/**/*) indicate significance at the 1%/5%/10% levels based on cluster robust standard errors.
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Women

Empirical Results: Main Specifications

Self-employment Spec. A highschool apprenticeship highertechncol university age agesq prworkexp10 prunempexp german fatherse nchild married divorced capiner1000 Control variables Log likelihood Mean outcome Person-years 0.0208*** -0.0299*** -0.0075 0.0115 0.0070*** -0.0001*** 0.0111*** -0.0027 -0.0066 0.0259** 0.0029 -0.0057 0.0063 0.0002** yes -6489.281 0.124429 32019 Spec. B 0.0184*** -0.0288*** -0.0078 0.0083 0.0070*** -0.0001*** 0.0102*** -0.0023 -0.0119 0.0261** 0.0028 -0.0048 0.0046 0.0002** yes -6398.918 0.124429 32019 Spec. A 0.0009 -0.0032*** -0.0014* 0.0015 0.0012*** -0.0000*** 0.0003 -0.0002 0.0009 0.0030* -0.0004 -0.0002 -0.0008 -0.0000 yes -1316.174 0.009650 27357 Entry Spec. B 0.0007 -0.0029*** -0.0013* 0.0011 0.0011*** -0.0000*** 0.0002 -0.0002 0.0002 0.0029** -0.0003 0.0001 -0.0007 -0.0000 yes -1296.838 0.009650 27357 Spec. A -0.0183 0.0386 0.0033 -0.0152 -0.0017 0.0000 -0.0437*** 0.0153** -0.0011 -0.0253 0.0058 0.0163 -0.0173 -0.0002 yes -569.818 0.061214 1752 Exit Spec. B -0.0218 0.0371 0.0035 -0.0203 -0.0022 0.0000 -0.0463*** 0.0150** -0.0012 -0.0256 0.0047 0.0136 -0.0236 -0.0002 yes -564.934 0.061214 1752

Notes: Marginal effects evaluated at the means of the variables. Stars (***/**/*) indicate significance at the 1%/5%/10% levels based on cluster robust standard errors.
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Men

Empirical Results: Main Specifications

Self-employment Spec. A highschool apprenticeship highertechncol university age agesq prworkexp10 prunempexp german fatherse nchild married divorced capiner1000 Control variables Log likelihood Mean outcome Person-years 0.0247* -0.0202* 0.0205 -0.0074 0.0211*** -0.0001*** -0.0603*** -0.0084** -0.0111 0.0662*** 0.0022 -0.0136 0.0131 0.0022*** yes -9258.384 0.116659 28682 Spec. B 0.0214* -0.0185* 0.0180* -0.0064 0.0222*** -0.0002*** -0.0597*** -0.0060* -0.0107 0.0600*** 0.0025 -0.0173 0.0019 0.0018*** yes -8959.385 0.116659 28682 Spec. A 0.0027* 0.0002 0.0009 0.0022 0.0018*** -0.0000*** -0.0007 -0.0011*** 0.0004 0.0027 0.0005 -0.0019* -0.0020 0.0001*** yes -1391.557 0.013218 23074 Entry Spec. B 0.0025* 0.0004 0.0007* 0.0018 0.0018*** -0.0000*** -0.0005 -0.0008** 0.0002 0.0023 0.0004 -0.0020* -0.0022** 0.0000*** yes -1360.613 0.013218 23074 Spec. A -0.0092 -0.0013 -0.0027 0.0059 -0.0101** 0.0001 0.0281* 0.0022 0.0075 -0.0024 0.0002 0.0033 0.0123 -0.0001 yes -744.597 0.077024 3038 Exit Spec. B -0.0069 -0.0059 -0.0048 0.0023 -0.0099** 0.0001 0.0282* 0.0010 0.0067 -0.0006 0.0003 0.0031 0.0150 -0.0001 yes -739.958 0.077024 3038

Notes: Marginal effects evaluated at the means of the variables. Stars (***/**/*) indicate significance at the 1%/5%/10% levels based on cluster robust standard errors.
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Conclusions
Effects in the main specification: Influence on Entry Same
- Openness (gap) - Risk Attitudes (gap) - Locus of control

Different
- Extraversion (men) - Trust (women)

Influence on Survival: Same

- Risk Attitudes - Locus of control -

Different
- Conscienc. (men) - agreeableness (men) - neuroticism (men)

Other differences: Differing Entry decision of women/men with technical university degree
Marco Caliendo, Frank Fossen, Alexander Kritikos, Sept 29, 2011 16

Conclusions
Personality characteristics affect entrepreneurial decisions partly in the same way for women and men, partly in a different way Big Five construct is (only) partly useful, explains well the entry/exit decision of men, but no influence on exit decision of women The specific traits approach adds additional information for women and men Some personality variables affect the decision of becoming an entrepreneur and different ones (or different parameter values of the same one) affect the life span as an entrepreneur; only locus of control has the same influence Explanatory power of the personality variables among all observable internal variables amounts to almost 30%. Information about traits can partly explain why women are less willing to become entrepreneurs and why they act differently when starting entrepreneurial activities.
Marco Caliendo, Frank Fossen, Alexander Kritikos, Sept. 29, 2011 17