Abstract
Many entrepreneurs face challenges in hiring employees, in part because of information asymmetries between start-ups and jobseekers. This paper argues that the prestigious organizational affiliations of founders act as signals that can convey two distinct unobservable attributes: (1) founder-related attributes and (2) venture-related attributes. We perform a series of randomized controlled experiments with respondents who are searching for jobs or will do so in the near future. Our results show that a founder’s affiliations with prestigious organizations make a start-up venture more attractive to jobseekers, and that they do so by signaling founder-related attributes rather than venture quality. Furthermore, we also find that the effects of prestigious founder affiliations are likely to be particularly strong when recruiting jobseekers straight out of universities.
Plain English Summary
Having a founder who is affiliated with prestigious organizations makes a start-up venture more attractive to young jobseekers and allows start-ups to hire them at a lower cost. Attracting talented employees is critical but challenging for start-ups, since jobseekers often know little about them. This paper argues that having a founder who is affiliated with prestigious organizations can act as a valuable signal to jobseekers. Our results suggest that a founder’s affiliations with prestigious organizations make a start-up venture more attractive to jobseekers, and that they do so by signaling attractive founder-related attributes, rather than venture-related attributes. One implication is that, despite the debate about the usefulness of obtaining prestigious credentials, there are benefits for entrepreneurs of doing so, and that those who lack such credentials may need to overcome this disadvantage by obtaining other forms of personal achievement.
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Notes
This is unlikely to create a self-selection problem in our setting. If students are inattentive and react less to the signals in the experiment, that would reduce the treatment effect and make our results conservative estimates of the effects of founder affiliations. If, on the other hand, the students who participated in our study are those who want to excel and value employer quality, they would constitute an ideal good sample for testing our theory.
One of the questions in the preliminary questionnaire asked the participants to choose their area of specialization from the following list: management/strategy, marketing, entrepreneurship, accounting, finance/investment banking, or “other.” The experiment was set up so that the participants who recorded management/strategy, marketing, entrepreneurship, or “other” as their area of specialization were presented with the Business Analyst job post; and those who recorded finance/investment banking or accounting were presented with the Financial Analyst job post. The reason for having two different versions of job post was to reduce the number of participants who dismissed the opportunity as unattractive due to a mismatch between the job and their background (Stenard & Sauermann, 2016). Online Appendices 1 and 2 provide details of both types of job post.
The questions included in the Intention to Pursue scale are as follows: (1) I would accept a job offer from this company, (2) I would make this company one of my first choices as an employer, (3) If this company invited me for a job interview, I would go, (4) I would exert a great deal of effort to work for this company, and (5) I would recommend this company to a friend looking for a job. The questions included in the Organizational Attractiveness scale are as follows: (1) For me, this place would be a good place to work, (2) I would not be interested in this company except as a last resort (reverse coded), (3) This company is attractive to me as a place for employment, (4) I am interested in learning more about the company, and (5) A job at this company is appealing to me.
Subjective and objective measures of socioeconomic status are found to be similar in their relationship to various outcomes such as risk-taking and prosocial behavior (Kish-Gephart & Campbell, 2015; Piff et al., 2010). However, to verify the validity of the scale, which is subjective in nature, we calculated the Spearman’s rank correlation between the subjective scale and the parent’s combined income. The correlation between the participants’ perceived socioeconomic status and parent’s combined income was .72 (p < .001). The result is in line with previous research which shows a moderate to strong correlation between subjective and objective measures of socioeconomic class (Kish-Gephart & Campbell, 2015).
We made two slight changes to the vignettes. First, since the participants on Prolific are heterogeneous, we stated the salary of the job as Competitive instead of providing a fixed number (both for control and treatment group subjects). Second, since participants are no longer business students, they may not be familiar with the Boston Consulting Group. Therefore, we changed the employer (after MBA) to Amazon.
The elements included in the questions were as follows: (1) strong entrepreneurial capabilities of the founder that would foster venture success, (2) strong work ethic of the founder, (3) high IQ of the founder, (4) superior social capital (personal network) of the founder, (5) opportunity to gain access to the founder’s social network, (6) opportunity to learn from the founder, and (7) other resources of the founder.
To examine the ranking data, we coded the rankings so that the element with the highest rank was assigned a score of 7 and the score decreasing by 1 with each rank. The elements that were not selected to be ranked received a score of 0.
Some have argued for instance that credentials such as an Ivy League education are not useful for those who plan to pursue entrepreneurship because they have no need to appeal to employers who make hiring decisions based on such characteristics. An example of the argument can be found at https://www.linkedin.com/pulse/20130816025740-8451-if-you-want-to-be-an-entrepreneur-don-t-go-to-harvard/ [Accessed on 2021.09.29].
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Chung, S.D., Parker, S.C. Founder affiliations: jobseeker reactions and impact on employee recruitment by start-up ventures. Small Bus Econ 61, 259–283 (2023). https://doi.org/10.1007/s11187-022-00694-7
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DOI: https://doi.org/10.1007/s11187-022-00694-7