What You Care about or What You Know: Which Mechanism Explains the Intergenerational Transmission of Business Ownership Expectations?

Abstract

Research has consistently shown that the children of business owners are more likely to become business owners themselves. What mechanism underlies this intergenerational correlation is still not clear. This research assesses the importance of several mechanisms proposed to drive the children of business owners to expect to become business owners using data from the 1988-1992 NELS. Results are inconsistent with arguments asserting that the children of business owners expect to become business owners because of: the transmission of human capital or financial capital; the expectation of inheriting a business; a heightened awareness of the viability of business ownership; or preferences for having lots of money, leisure time, being successful in work, or finding steady employment. Findings are consistent with the notion that the intergenerational correlation in business ownership is a result of shared preferences and/or traits, and this effect is particularly strong when accompanied by awareness of paternal business ownership. These results remain after accounting for alternative interpretations and model specifications. Finally, model and variable specification make endogeneity unlikely.

Keywords: Business ownership, self-employment, entrepreneurship, expectations, intergenerational transmission

JEL Classification: J22, J23, J24, J31