Initiating nascent entrepreneurial activities: the relative role of perceived and actual entrepreneurial ability

Abstract

Purpose: This study examines the direct effect of two individual level resources, one subjective and the other objective, and their interaction in influencing the business entry decision. By distinguishing perceived ability from actual ability and using theoretical underpinnings from the human capital theory and self-efficacy, the proposed hypotheses are tested on a dataset comprising respondents from the adult population. Methodology: Using 20046 observations from the Adult population survey (APS) collected according to the Global Entrepreneurship Monitor (GEM) methodology, a logistic regression analysis controlling for robust interaction term is used to determine the direct as well as the moderating effect of perceived entrepreneurial ability and high actual ability in influencing the decision to initiate nascent entrepreneurial activities. Findings: The results reveal that perceived entrepreneurial ability has a distinct positive influence on the decision to initiate entrepreneurial activities and its impact is greater than that of actual abilities. Furthermore, we find evidence of a positive interaction effect suggesting that perceived entrepreneurial ability is key to encouraging nascent entrepreneurial initiatives among those with high ability. Originality and Value: The main contribution of our study is to highlight the role of subjective judgments of ability in influencing entrepreneurial behaviour. Whereas prior research has found that high actual ability influences new venture performance, its influence on entrepreneurial entry was inconclusive. By adding perceived entrepreneurship to our model we not only establish a link between objective (observable) abilities and subjective (unobservable) abilities of individuals but also suggest the mechanism how such abilities drive the business entry decisions of individuals.