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«Nicos Nicolaou Tanaka Business School, Imperial College London, South Kensington Campus, London, SW7 2AZ, United Kingdom. Tel: 44-20-75949499 Email: ...»

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IS THE TENDENCY TO ENGAGE IN ENTREPRENEURSHIP GENETIC?

Nicos Nicolaou

Tanaka Business School, Imperial College London,

South Kensington Campus,

London, SW7 2AZ,

United Kingdom.

Tel: 44-20-75949499

Email: nicos.nicolaou@imperial.ac.uk

Scott Shane

Weatherhead School of Management,

Case Western Reserve University,

11119 Bellflower Rd.,

Cleveland, OH 44106.

Tel: 216-368-5538

Email: sas46@cwru.edu

Lynn Cherkas, Janice Hunkin & Tim D. Spector Twin Research & Genetic Epidemiology Unit St Thomas' Hospital Lambeth Palace Road London, SE1 7EH, United Kingdom.

Acknowledgements: We are grateful to Wallace Hopp, the anonymous Associate Editor, and the anonymous reviewers for their insightful comments and encouragement. We would also like to thank Howard Aldrich, Jaideep Prabhu and seminar participants at the Massachusetts Institute of Technology, University of Pennsylvania, Case Western Reserve University, Cranfield University, Northwestern University, Imperial College London, Warwick University, the Inaugural Entrepreneurship Conference at London Business School, and a keynote session of the European Doctoral Research Conference for helpful comments on earlier drafts of this paper. We are also grateful to the twins who participated in the study.

1

IS THE TENDENCY TO ENGAGE IN ENTREPRENEURSHIP GENETIC?

ABSTRACT

We used quantitative genetics techniques to compare the entrepreneurial activity of 870 pairs of monozygotic (MZ) and 857 pairs of same-sex dizygotic (DZ) twins from the United Kingdom. We ran model fitting analyses to estimate the genetic, shared environmental, and non-shared environmental effects on the propensity of people to become entrepreneurs. We found relatively high heritabilities for entrepreneurship across different operationalizations of the phenomenon, with little effect of family environment and upbringing. Our findings suggest the importance of considering genetic factors in explanations for why people engage in entrepreneurial activity.

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Why do people engage in entrepreneurial activity? Despite the centrality of this question to the field of entrepreneurship, and over 40 years of research that has sought to answer it, researchers have offered incomplete and uncertain answers (Gartner, 1988; Shane & Venkataraman, 2000). In this paper, we argue that the failure to develop a comprehensive understanding of why people engage in entrepreneurial activity has occurred, in part, because researchers have failed to examine an important category of explanatory factor, genetics.

Despite a body of empirical evidence that has shown that genetic factors influence a variety of business-related outcomes, from job satisfaction (Arvey et al, 1989) to vocational interests (Betsworth et al, 1994), to work values (Keller et al, 1992), entrepreneurship researchers have not, to date, examined empirically the role of genetic factors in explaining the tendency of people to engage in entrepreneurial activity. Rather, the entrepreneurship literature has assumed that the tendency to engage in entrepreneurial

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In this paper, we provide the first empirical test of the effects of genetic factors on the tendency of people to engage in entrepreneurial activity. 1 We employ the methodology of behavioral genetics, which holds that researchers can compare monozygotic (MZ) and dizygotic (DZ) twins to determine if genetic factors influence the propensity of people to engage in an outcome of interest. Because MZ twins share all of their genetic composition and DZ twins share half of their genetic material on average, differences in the concordance between entrepreneurial activity of MZ and DZ twins can be attributed to genetic factors, if one assumes that environmental factors are not systematically different for MZ and DZ twin pairs.

Investigating the influence of genetic factors on the propensity of people to engage in entrepreneurial activity is important for several reasons. First, an understanding of the role of genetic factors will help to improve entrepreneurship research. Genetics offers an explanation for why people engage in entrepreneurial activity that is complementary to the standard ones in the literature of having a certain psychological composition or being present in opportunity rich situations (White et al, 2006;

White et al, 2007; Shane and Venkataraman, 2000). Because the scholarly field of entrepreneurship has explained only some of the variance in the tendency of people to engage in entrepreneurial activity, examination of additional factors that account for this variance will help scholars to develop a more comprehensive model of why some people and not others become entrepreneurs.

Moreover, empirical investigation of genetic factors will provide richer, more precise explanations for the tendency of people to engage in several important aspects of entrepreneurial activity.

For example, genetic research could help to explain to what extent the influence of parental entrepreneurship on children’s propensity to become entrepreneurs is influenced by genetic factors transmitted biologically from parent to child, and to what extent it is influenced by environmental factors, such as the role modeling that the parents provide (Sorenson, forthcoming), the transmission of information from parents to children about how to run a business (Aldrich and Kim, forthcoming), and

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the transfer of resources useful for entrepreneurship (e.g., information, social and financial capital) from parents to children (Sorenson, forthcoming).

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The extant literature shows that people who engage in entrepreneurial activity are not randomly determined. A variety of factors are associated with the tendency of people to engage in entrepreneurial activities, including psychological attributes, such as need for achievement (McClelland, 1961), overconfidence (Busenitz, 1999), locus of control (Evans and Leighton, 1989), optimism (Cooper et al., 1988), and risk taking propensity (Stewart and Roth, 2001), and demographic factors, such as education (Bates, 1995), employment status (Ritsila and Tervo, 2002), age (Bates, 1995), marital status (Evans and Leighton, 1989), income (Amit et al, 1995), career experience (Evans and Leighton, 1989), social ties (Aldrich et al, 1987), and social skills (Baron, 2004).

However, no empirical research has examined the effect of genetic factors on the tendency of people to engage in entrepreneurship. This is surprising given the evidence that many aspects of human behavior are influenced by genes (Benjamin et al., 2003; Plomin and Walker., 2003), including personality (Ebstein et al., 1996; Benjamin et al., 1996), attitudes (Bouchard et al. 2004) and intelligence (Plomin, 2003), job satisfaction (Arvey et al, 1989), work-related values (Keller et al, 1992), and interests (Lykken et al, 1993). If genetic factors influence other aspects of human behavior, they are likely to influence the tendency of people to engage in entrepreneurial activity as well. 2 Genetic factors might influence the tendency of people to engage in entrepreneurship through a variety of complementary mechanisms. First, genes might have direct effects on chemical mechanisms in the brain that predispose people with that genetic composition to engage in entrepreneurial activity.

Genes provide instructions for the creation of proteins out of amino acids. If a gene that codes for the 2 We do not reject the possibility that other factors, such as the exogenously determined external environment, also influence the development of the characteristics that lead some people to engage in entrepreneurial activity.

Moreover, we do not argue that genes determine who engages in entrepreneurial activity in the way that specific genes determine whether or not people will develop diseases, such as Huntington’s disease. Rather, we argue genes increase the probability that people will engage in entrepreneurial activity (Plomin et al, 1990). As Plomin et al 4 creation of a particular protein is missing, then the chemical reaction that it is designed to facilitate will not occur as efficiently. If that chemical reaction controls brain activity, it can influence behavior. For example, the Taq A1 allele 3 of the DRD2 gene has been shown to be more prevalent among excessive gamblers than the general population because the gene affects sensations of pleasure in response to risk taking (Comings et al., 1996). Because entrepreneurship involves risk taking, it is possible that people with this variant of the DRD2 gene are more likely to engage in entrepreneurial activity than other people because the gene increases the pleasure that they obtain from taking risks.

Second, genes might predispose people to develop individual attributes that affect the tendency of people to engage in entrepreneurship (White et al, 2006; 2007). For example, extraversion is a personality trait that incorporates several attributes, including sociability, gregariousness, talkativeness and exhibitionism (Barrick & Mount, 1991). Extraversion increases the likelihood that people will engage in entrepreneurship because it facilitates many skills, such as selling, that are important to it (Baron and Markman, 2003). Moreover, extraversion is heritable (Bouchard & Loehlin, 2001; Eaves et al., 1989; Jang et al., 1996; Riemann et al., 1997) and is related to the long alleles of the DRD4 exon III repeat gene (Benjamin et al., 1996). Thus, genes might affect the tendency of people to engage in entrepreneurial activity by influencing their level of extraversion.

Third, genes might affect the tendency of people to select into environments more favorable to entrepreneurial activity, a phenomenon called gene-environment correlation (Plomin, DeFries & Loehlin, 1977; Kendler and Eaves, 1986). Because genes lead people to select their environments (Scarr, 1992), environmental factors are non-randomly distributed among people of different genetic make-up (Neale & Maes, 2002). For example, gene-environment correlations might influence the tendency of people to engage in entrepreneurial activity by affecting their educational choices (Taubman, 1976; Lichtenstein & Pedersen, 1992; Tambs et al, 1989; Behrman & Taubman, 1989). People are more likely to engage in

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entrepreneurial activity if they are more highly educated because education provides the background knowledge necessary to notice new business opportunities (Shane 2000), and information and skills that increase the expected returns to entrepreneurial activity (Clouse, 1990). Genes affect the level of education that people obtain (Behrman and Taubman, 1989; Tambs et al., 1989). Thus, genes might affect the tendency of people to engage in entrepreneurship by influencing their level of education.

Fourth, genes might make some people more sensitive than others to environmental stimuli that increase the likelihood of engaging in entrepreneurial activity. This tendency, called, gene-environment interaction, means that a person with the relevant gene displays a greater reaction to the environmental stimulus than a person without that gene (Plomin, DeFries and Loehlin, 1977; Rowe, 2003; Moffitt et al., 2005). For example, the dopamine D4 receptor gene, which regulates the level of dopamine in the brain (Ebstein et al., 1996; Benjamin et al., 1996), has been shown to increase the salience of information (Berridge and Robinson, 1998, Volkow, 2004). The identification of new business ideas is affected by the salience of information to the person receiving it (Gaglio and Katz, 2001; Shane 2000). People with the DRD4 gene might be more sensitive than others to the stimulus of information about potential business opportunities. That is, the DRD4 gene might interact with information about opportunities to increase the likelihood that a person will identify a new business idea, and so increase the probability that the person will engage in entrepreneurship.

These four mechanisms, through which genes influence social outcomes, suggest that the tendency of people to engage in entrepreneurship might be at least partially heritable. Therefore, we hypothesize: Genetic factors have a statistically significant and substantive effect on the propensity of people to engage in entrepreneurship.

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Twin Studies The natural experiment of twins allows us to measure whether the tendency of people to engage in entrepreneurship has a genetic component. The experiments are based on comparison of monozygotic

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their genetic make-up, and dizygotic (DZ) twins, which are created when two separate eggs are fertilized by two separate sperm, and share, on average, 50 percent of their genetic make-up.

Comparing the similarity and difference in entrepreneurship between the two types of twins provides insight into the proportion of variance in entrepreneurship that is explained by genetic factors.

Because MZ twins share all of their genetic make-up and DZ twins share, on average, 50 percent of their genetic make-up, greater MZ than DZ twin concordances in entrepreneurship would indicate that genetic factors are important. However, if the tendency to engage in entrepreneurship is explained solely by environmental factors, then no difference between MZ and DZ twin concordances in entrepreneurship should be observed.

Twin studies depend on the assumption that MZ and DZ twins experience equivalent environments. For violation of this assumption to occur, environmental factors must treat MZ twins more similarly than DZ twins and the similarity in treatment must make a difference in the phenotype under study. The equal environments assumption has been tested extensively and many sources now confirm the robustness of this assumption (Scarr and Carter-Saltzman, 1979; Bouchard and Propping, 1993;



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