Utz Weitzel

A Model of Destructive Entrepreneurship

The research on entrepreneurship as an economic phenomenon often assumes its desirability as a driver of economic development and growth. However, entrepreneurial talent can be allocated among productive, unproductive and destructive activities. This allocation has important implications in the developing world, particularly for countries hosting conflict or recovering from conflict. The allocation of entrepreneurship is theorized as driven by institutions. Although the trade-off between productive and unproductive entrepreneurship has been examined, destructive entrepreneurship has been largely ignored. We build from existing theory and define destructive entrepreneurship as wealth destroying. We propose three assumptions to develop a model of destructive entrepreneurship that presents the mechanisms through which entrepreneurial talent behaves in this manner. We present four key propositions on the nature and behavior of destructive entrepreneurship. We conclude by identifying research agendas and policy streams, with a focus on relevance to conflict and postconflict recovery.

The Effects of Cross-border and Cross-industry Mergers and Acquisitions on Home-region and Global Multinational Enterprises

We examine the effects of international and product diversification through mergers and acquisitions (M&As) on the firms risk–return profile. We identify the rewards from different types of M&As and investigate whether becoming a global firm is a value‐enhancing strategy. Drawing on the theoretical work of Vachani (Journal of International Business Studies, 22 (1991), pp. 307−222) and on Rugman and Verbekes (Journal of International Business Studies, 35 (2004), pp. 3−18) metrics, we classify firms according to their degree of international and product diversification. To account for the endogeneity of M&As, we develop a panel vector autoregression. We find that global and host‐region multinational enterprises benefit from cross‐border M&As that reinforce their geographical footprint. Cross‐industry M&As enhance the risk–return profile of home‐region firms. This effect depends on the degree of product diversification. Hence there is no value‐enhancing M&A strategy for home‐region and bi‐regional firms to become ‘truly global’.

Theory and evidence on mergers and acquisitions by small and medium enterprises

The theory of mergers and acquisitions (MA are more likely to be withdrawn, suggesting that SMEs are more flexible, and more able to avoid deals that turn sour; and, finally, SME M&As are more likely to be financed with equity rather than debt, indicating that the influential financial pecking order theory is of less relevance to SMEs.

Endogenous mergers: bidder momentum and market reaction

Recent empirical studies on stock misvaluation as a possible determinant of mergers are inconclusive concerning the central hypothesis that over (under) valuation is negatively (positively) associated with merger announcement returns in stock mergers, but not in cash mergers. We provide empirical support for this hypothesis. In contrast to prior research, we employ a two-stage model to account for endogenous mergers and suggest an alternative specification of misvaluation based on an asset-pricing model (bidder momentum). In the first stage, we specify panel logit models to predict US mergers from 1981 to 2003 and find that bidder momentum triggers stock mergers, but not cash mergers. In the second stage, we regress cumulated abnormal returns on merger probabilities to control for the endogeneity of mergers. This reveals a lower market response for stock mergers compared to cash mergers, which we identify as market correction of misvalued acquirers.

Work Context and Employee Behaviour as Antecedents for Intrapreneurship

Intrapreneurial employees and intrapreneurial projects are considered to be an important driver of innovation and strategic renewal within companies. While many studies addressed the top-down implementation of innovative projects, analyses of employee initiatives in promoting innovation within companies are scarce. This paper therefore takes a bottom-up approach and focuses on employee behaviour and how it can be stimulated towards intrapreneurship. We propose and test a two-step model where formal and informal work context affects employees’ intrapreneurial behaviour, which then provides the basis for bottom-up initiated intrapreneurial projects. Our empirical data consist of questionnaire responses of 176 employees in six Dutch companies. The results of structural equation model estimations indicate that formal organisational factors (horizontal participation, resource availability) affect employees’ intrapreneurial behaviour, but also highlight informal factors such as trust in the direct manager. We also find that innovativeness and personal initiative, but not risk taking, play a role for an effective translation of employees’ behaviour into intrapreneurial projects.

Misallocation of Entrepreneurial Talent in Postconflict Environments

Entrepreneurship is generally regarded as a productive force of change, innovation, and development in modern economies. Particularly for institutionally less developed environments, however, it has been argued that the same energy and talent can also be allocated to unproductive ends. In this article, we present a model that analyzes the allocation of entrepreneurial talent into productive activities and raiding in Postconflict environments, where most formal and informal institutions have broken down. We show that the distribution of initial wealth and entrepreneurial talent play a decisive role. Our analysis also suggests that microcredits can support the transition to a productive equilibrium, because they help to overcome credit constraints without creating incentives for raiding.

Speculative Bubbles - An Introduction and Application of the Speculation Elicitation Task (SET)

A rich history of theoretical models in finance shows that speculation can lead to overpricing and price bubbles. We provide evidence that, indeed, individual speculative behavior fuels overpricing in (experimental) asset markets. In a first step, we elicit individual speculative behavior in a one-shot setting with a novel Speculation Elicitation Task (SET). In a second step, we use this measure of speculative behavior to compose dynamic, continuous double auction markets in line with Smith, Suchanek, and Williams (1988). We find significant higher overpricing in markets with traders who exhibited more speculative behavior in the individual SET. However, we find no such differences in overpricing when we test for alternative explanations, using a market environment introduced by Lei, Noussair, and Plott (2001) where speculation is impossible. Taken together, our results corroborate the notion that speculation is an important factor in overpricing and bubble formation if market environments allow for the pursuit of capital gains.

Entrepreneurs’ Exploratory Perseverance in Learning Settings

We introduce “exploratory perseverance” as a novel construct that captures perseverant behavior in settings in which several alternatives can be explored and evaluated. We suggest that entrepreneurs display exploratory perseverance reflected by a tendency to keep exploring broader sets of alternatives, to adopt a parallel rather than sequential approach to trial-and-error learning, and, after negative experiences with some alternatives, to be more inclined to give them a second chance. The results from an experimental study of 449 individuals participating in the Iowa Gambling Task indicate that more entrepreneurially experienced individuals display greater exploratory perseverance than those with little to no entrepreneurial experience.

Reference Dependence and Loss Aversion in Probabilities: Theory and Experiment of Ambiguity Attitudes

In standard models of ambiguity, the evaluation of an ambiguous asset, as of a risky asset, is considered as an independent process. In this process only information directly pertaining to the ambiguous asset is used. These models face signi ficant challenges from the finding that ambiguity aversion is more pronounced when an ambiguous asset is evaluated alongside a risky asset than in isolation. To explain this phenomenon, we developed a theoretical model based on reference dependence in probabilities. According to this model, individuals form subjective beliefs on the potential winning probability of the ambiguous asset; use the winning probability of the (simultaneously presented) risky asset as a reference point to evaluate the potential winning probabilities of the ambiguous asset; code potential winning probabilities of the ambiguous asset that are greater than the reference point as gains and those that are smaller than the reference point as losses; weight losses in probability heavier than gains in probability. We tested the crucial assumption, reference dependence in probabilities, in an experiment and found supporting evidence.In standard models of ambiguity, the evaluation of an ambiguous asset, as of a risky asset, is considered as an independent process. In this process only information directly pertaining to the ambiguous asset is used. These models face significant challenges from the finding that ambiguity aversion is more pronounced when an ambiguous asset is evaluated alongside a risky asset than in isolation. To explain this phenomenon, we developed a theoretical model based on reference dependence in probabilities. According to this model, individuals (1) form subjective beliefs on the potential winning probability of the ambiguous asset; (2) use the winning probability of the (simultaneously presented) risky asset as a reference point to evaluate the potential winning probabilities of the ambiguous asset; (3) code potential winning probabilities of the ambiguous asset that are greater than the reference point as gains and those that are smaller than the reference point as losses; (4) weight losses in probability heavier than gains in probability. We tested the crucial assumption, reference dependence in probabilities, in an experiment and found supporting evidence.

The Good, the Bad, and the Talented: Entrepreneurial Talent and Selfish Behavior

Talent allocation models assume that entrepreneurially talented people are selfish and thus allocate into unproductive or even destructive activities if these offer the highest private returns. This paper experimentally analyzes selfish preferences of the entrepreneurially talented. Wefind that making a distinction between creative talent and business talent explains systematic differences in selfish behavior. Generally, both the less business-talented and the more creative are more willing to forego private payoffs to avoid losses to others. A moderator analysis reveals that less creative individuals with business talent are significantly more selfish than all others, including the creative with business talent. This finding applies to both certain and risky payoffs with and without negative externalities. The paper makes a contribution to entrepreneurship research by qualifying the implications of talent allocation models and highlighting the importance of distinguishing between the two types of entrepreneurial talent. We also add to the field of experimental economics by advancing research on altruism under risk and with negative externalities.