Reversal of Fortune: Opportunity Cost and Endowment Effects Along Stages of Entrepreneurship

In this paper, the start-up process is split conceptually into four entrepreneurial stages considering entrepreneurship, intending to start a new business in the next three years, nascent entrepreneurship and newly established business. We investigate the determinants of all of these stages jointly, using a multinomial logit model which allows the effects of resources and capabilities to vary across these different entrepreneurial stages. We employ a pooled Global Entrepreneurship Monitor database for the years 2006 to 2009, containing 8,269 usable observations of the East Midlands region in the United Kingdom, controlling for the local environmental effects. Our results show that the role of human capital, experience and local context varies along the different stages of the entrepreneurial process. In the early stages the negative (opportunity cost) effect of resources dominates, yet it tends to reverse in advanced stages, where the positive (endowment) effect becomes stronger.