Frontiers of Entrepreneurship Research 1995

Frontiers of Entrepreneurship Research
1995 Edition

1995 Abstracts

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    Per Davidsson, Jönköping International Business School (JIBS), Sweden
    Johan Wiklund, Jönköping International Business School (JIBS), Sweden


    Despite recurrent claims that cultural values are an important determinant of the level of entrepreneurship in a society, relatively few empirical studies with this focus seem to have been carried out. That is, while some studies of national culture and rate of economic development have been published and received wide readership, empirical studies of regional cultural variation and its relation to variations in new firm formation rates seem to be lacking. In a previous study in that vein by one of the authors the results suggested that regional variations in explicit beliefs about entrepreneurs and owner-managed firms were not related -- at least not in a straightforward way -- to regional variations in autonomous firm start-up rates. Regional variations in more basic 'entrepreneurial values' did, however, appear to affect new firm formation rates. Importantly, it was also found that possible cultural and economic-structural determinants of the new firm formation rate were positively correlated, so that the unique contribution of each type of explanation could not be determined. In the present follow-up study, three matched pairs of regions are investigated. While the regions in each pair are similar on economic-structural dimensions, one region in each pair has shown a higher and the other region a lower rate of new firm formation than predicted by carefully developed regression models that use economic-structural factors as explanatory variables. To determine whether cultural differences can explain the deviations from the predictions based on economic-structural variables, large samples of 35-40 years old in each region were surveyed for cultural values and beliefs data. The results of this study suggest that both values and beliefs of the investigated kind do have an effect on regional new firm formation rates. The cultural variation is small, however, and with respect to current Sweden it appears to be a relatively less important determinant of new firm formation rates than are variations in economic-structural conditions.


    Large-scale studies concerning regional environment determinants of new firm formation rates have recently been carried out in several different countries. These studies have established that about 70 percent of the regional variation in business start-up rates can be explained -- at least in the statistical sense -- by differences concerning certain economic and socio-demographic characteristics of the regions (Audretsch & Fritsch, 1994; Davidsson, Lindmark & Olofsson, 1994; Fritsch, 1992; Garofoli, 1992; 1994; Guesnier, 1994; Hart & Gudgin, 1994; Keeble & Walker, 1994; Reynolds, 1994). As regards the major determinants there is a high degree of agreement in the results from various countries (Reynolds, Storey & Westhead, 1994). In addition, studies that have carried the analysis one step further have found support for the notion that high rates of new firm formation are positively associated with regional economic development (Davidsson et al, 1994; Reynolds & Maki, 1990).

    There is a widespread belief that in addition to structural factors, cultural variation is a powerful determinant of regional or national variation in the 'supply' of entrepreneurship. However, systematic empirical research on this issue is scarce. Of course, there are the classical and debated attempts of Weber (1930) and McClelland (1961) at large-scale sociological or macro-psychological explanations for economic development. Hofstede (1991) suggests similar explanations for the post-WWII development in East Asia, and Lynn (1991) provided additional support for a relationship between certain aspects of national culture (in the 'mental software' sense) and economic growth. However, none of these studies specifically relates cultural variations to new firm formation. The same is true for Jackson & Brophy's (1986) study of presumably entrepreneurship-related attitudes in different regions in the US. Other 'culture and entrepreneurship' studies more explicitly concern new firm formation, but delimit themselves to the study of attitudes and motivations among entrepreneurs rather than among the general population (Bellu, Davidsson & Goldfarb, 1990; Guo, 1991; McGrath & MacMillan, 1992; McGrath, MacMillan & Scheinberg, 1992; Scheinberg & MacMillan, 1988).

    Except for a previous study conducted by one of the authors (Davidsson, 1993; 1995; Davidsson & Delmar, 1992) we have not been able to track one single study of the relationship between culture and entrepreneurship in the same sense as we do here, i.e., a study which specifically compares the values and beliefs among the general population in different regions and relates the established differences to regional variations in new firm formation rates. This is somewhat surprising, given the interest in regional studies and the emphasis some prominent scholars have given the cultural dimension in theoretical accounts of environmental influences on entrepreneurship (Shapero & Sokol, 1982; Etzioni, 1987; Carsrud & Johnson, 1989). On the other hand, it could be argued that such studies would be superfluous given the relative success of explanatory models based on economic and socio-demographic variables (cf. above).

    However, apart from the fact that 70 percent explanatory power means that 30 percent is still unexplained, the results of the previous study (Davidsson, 1993; 1995; Davidsson & Delmar, 1992) strongly suggest that cultural determinants of regional variations in entrepreneurship is worthy of further attention. In summary, it was found that a) regional variation in business start-up rates do appear to be related to cultural variation, b) however, across the (rather large) spatial units used the cultural variation was small, c) while regional differences in more generic values apparently influence regional start-up rates, differences as concerns specific beliefs about entrepreneurs and owner-managed firms are not influential, and d) structural and cultural factors that appear to influence regional levels of new firm formation are positively correlated, so that no solid conclusion can be drawn regarding the unique impact of either type of factor. This last finding is a very important one, since it suggests that to the extent that cultural variation is the real cause for variations in new firm formation rates, studies that use only structural (i.e., economic and socio-demographic) explanatory variables may exaggerate the influence of the latter. If so, the theoretical interpretations as well as the policy prescriptions that are derived from such studies may be at least partly wrong.

    The research questions for the current follow-up study were derived from the above findings. It was found that the cultural variations were peculiarly small. An artifactual reason for this might be that some of the regional variations canceled out due to the employed definition of region types. Hence, our first research question is

    If smaller spatial units are investigated, can it be established that substantial cultural variation of the investigated kind exists within Sweden?

    Most importantly, we wish to study whether cultural variation has an effect of its own on new firm formation rates. Our second research question is

    If structural factors are held constant, can it be established that cultural variation has a causal influence of its own on the regional rates of new firm formation?

    Finally, the distinction between values and beliefs is important because values are likely to be hard to change while beliefs are more likely to be directly affected, e.g., by the contents in media. Our third research question therefore is

    Can it be confirmed that values are more important than differences concerning beliefs about entrepreneurs and owner-managed firms?


    Selection of regions

    In order to answer the research questions we need region level data on structural characteristics, new firm formation rates and culture. The first two types of data were obtained from a related research project (Davidsson et al, 1994). In that project, the country was divided into 80 Labor Market Areas (LMAs) and regression analysis was employed which identified seven structural characteristics as influencing the start-up rate. The explanatory variables were current small firm density (+), population density (+), previous period population growth (+), current unemployment level (+), previous period unemployment trend (-), absolute population (+) and public business support expenditure per capita (+). For the present study, the 80 regions were cluster analyzed using these seven variables. Through this procedure, three structurally matched pairs were distilled for further investigation, i.e., the paired regions belong to the same cluster. In each structurally matched pair one region has a higher, and the other a lower new firm formation rate than predicted by the regression model. In addition to the requirement that the regions in each pair belong to the same cluster they were also located in the same part of the country. Hence, the control of potential influences other than culture could be further increased. Since the regions in each pair are structurally matched, something else has to be responsible for their different rates of new firm formation. Cultural differences is one plausible explanation. The regions and data on their new firm formation rates are specified in Table 1.

    (TABLE 1)

    a Average annual No. of new single-establishment firms per 1000 inhabitants in the 16-64 years age bracket during the 1985-9 period.

    b This figure shows how much higher or lower the region's new firm formation rate is compared to what is 'normal' for a region with the given characteristics, according to Davidsson et al's (1994) regression results.

    Data on culture

    In order to obtain data on cultural variables a mail survey was directed to random samples of 35-40 years old inhabitants in each region. This age group was considered to be the most relevant with respect to new firm formation. A narrow age span was chosen in order to avoid that sample differences in the age distribution distort the results. Descriptive data on the samples are given in Table 2. The response rates are high and reasonably even, while the gender and entrepreneur representation varies. We will revert to the latter issue later in this sub-section. The survey was carried out in February-March, 1994.

    Apart from personal background questions the questionnaires included questions concerning values and beliefs that could be expected to have an effect on entrepreneurial behavior. The values part of the questionnaire comprises items reflecting change-orientation, achievement motivation, need for autonomy, Jante-mentality (a Scandinavian breed of cultural repression -- 'you shouldn't think you are someone'), acceptance of capitalism, competitiveness, and valuation of money. This selection of value dimensions was based on theories and empirical results concerning national culture and economic development, in-depth studies of communities considered to be more and less entrepreneurial, and research results concerning psychological characteristics of entrepreneurs (Davidsson, 1993, Ch. 2 and pp. 38-40). Each value dimension was measured by an index based on four or five 4-point agree-disagree statements. The former five indices were developed in our previous study, while the latter two were the strongest predictors of economic growth rate in Lynn's (1991) study. They were translated and validated by Lynn's Swedish collaborators (see Ekehammar & Niemenmaa, 1992).

    (TABLE 2)

    a Includes full-time and part-time business owner-managers as well as ex-entrepreneurs.

    The items used for measuring values make no mention of entrepreneurs, business start-ups, owner-managed firms, and the like. Such items were used instead for the beliefs part, which concerned the societal contribution of entrepreneurs as well as beliefs concerning entrepreneurs' gains and sacrifices in terms of money, workload, risk-taking and social status. The risk-taking index was developed for this study while the others were used also in the previous study. A further addition in the present study is two more self-oriented beliefs concerning personal know-how about where to turn for finance and advice if one had an idea for a business start-up, and whether the respondent perceives the idea of going into business for oneself is something 'for-me'. The selection of beliefs to include was guided by common sense reasoning rather than established theories or previous research findings. In order to make maximum use of the available data, mean substitution was employed for internal non-response for individual items in the values and beliefs indices (1 to 28 cases out of 1300+). The values and beliefs indices are further described in Table 3.

    As may be noted we have been fairly permissive, accepting indices with Alpha values down to 0.50. This accords with Nunnally's (1967) recommended lower limit for exploratory research. Two planned indices were excluded from the analysis because of Alpha's lower than 0.50. A factor analysis was performed which largely confirmed the presumed dimensionality of the pre-specified indices. An additional reason for being permissive with the Alpha criterion is that since the analysis is conducted on the regional level it is not a given that individual level correlations are relevant. For instance, Hofstede's widely used indices are based on country level, not individual level inter-correlations (Hofstede, 1991. pp 142-143).

    (TABLE 3)

    a The expected direction of the influence on new firm formation refers to the effect of the index as conceptualized and illustrated by the item(s). In the analysis to follow, all indices are scored so that the region with the higher new firm formation rate is expected to have the higher index value.

    Data analysis

    The presented analyses are straightforward. Within each matched region pair, arithmetic mean scores are compared for all indices. The absolute values of the index scores are arbitrary in the sense that they are affected by the scoring system and the number of items included. For ease of comparison and interpretation, differences concerning standardized versions of the indices will be reported (i.e., zero mean; unity standard deviation). For standardized variables mean differences of 1.0 can, as a rule-of-thumb, be considered large. Differences of 0.50 are still substantial, while differences around 0.25 are small but non-negligible. Throughout, the indices are computed so that a higher value is expected for the region with high new firm formation. The hypotheses thus are uni-directional and the reported associated probabilities have been computed accordingly. In order to avoid effects of sampling differences in gender representation, the analyses are weighted for equal gender representation. As entrepreneurs are part of the general population their responses should be included. However, if random sampling error makes the proportion of individuals with entrepreneurial experience in the samples non-representative for the regions the results may be distorted. Therefore analyses including and excluding such individuals are both reported.

    It should be noted that while culture data were collected in 1994 the data on new firm formation rates concern the 1985-9 period. This means that any interpretation involving that cultural variations cause variations in new firm formation require that regional differences in culture and new firm formation be fairly stable over medium range periods of time. This is a plausible assumption. However, as an additional check that the regions' deviating patterns in terms of new firm formation during the 1985-9 period were not random or temporary phenomena, we compare the regions in each pair concerning 1994 questionnaire data on the respondents intentions to go into business for themselves. The entrepreneurial intentions index is based on two straight questions about the respondents perceived probability of being in business for him/herself within a) one year, and b) five years (Cronbach's Alpha=0.91).


    Results concerning values

    The results concerning values are displayed in Table 4. The matched pairs are presented with the region with high new firm formation appearing first, i.e., Kristianstad, Katrineholm, and Köping, respectively. The first row of figures for each value index refers to the analysis including all respondents, while all italicized figures refer to the analysis excluding respondents with entrepreneurial experience. The first column in each match displays the standardized mean difference between the two regions (cf. method section above). When the difference is in the expected direction, a positive value appears. The second column displays the associated probability, or 'absolute significance' level. That is, values of 0.05 or smaller translate to the conventional 'significant at 5 percent risk level.' The associated probabilities refer to uni-directional tests. Hence, they indicate the probability that a difference of this size or larger in this direction be obtained, if no difference exists between the underlying populations.

    A first observation is that all differences are small (cf. the rule-of-thumb given in the method section). Few of the differences are statistically significant at conventional levels. Further, for only two of the seven indices do all tests uniformly yield positive differences and in neither of these cases are all differences of a satisfactory magnitude. It can thus hardly be argued that the analysis points out any particular set of values as consistently influential with regard to regional rates of new firm formation. As regards Need for Achievement and Jante-mentality the analysis does not provide any support at all for the notion that they, regarded as cultural variables, have the expected effects.

    However, the over-all results support the notion that values of this kind do have an effect. The distribution is clearly biased towards positive differences rather than negative ones. In the analysis including entrepreneurs we find 13 positive differences, three ties and five negative differences. In the analysis excluding entrepreneurs these figures become 16, 0, and 5, respectively. According to simple sign-tests, such distributions are unlikely to be randomly generated(p<0.05 in both cases). The most reasonable interpretation of the results therefore is that regional differences concerning values of the studied kind among the general population in relevant age categories do have an effect on regional rates of new firm formation. It is also reasonable, however, to assume that these effects are marginal and that the cultural differences established here may not be the sole explanations for the studied regions' positive and negative deviations from their expected levels of new firm formation.

    (TABLE 4)

    Results concerning beliefs

    The results concerning beliefs are very similar to those concerning values. Again, while most differences are in the expected direction, no differences are large and few reach statistical significance at conventional levels. For three belief indices the differences are uniformly positive across all comparisons, but again a difference of satisfactory magnitude and statistical certainty does not appear consistently for any variable, even if the 'for-me' dimension comes close to that. For one index, Financial pay-off, there is no support for an influence of the belief on new firm formation. This is in line with the recurrent result in Scandinavian studies of motivations of business founders that expectations of monetary gain generally rank low among stated reasons for founding one's own firm (cf. Scheinberg & MacMillan, 1988).

    (TABLE 5)

    Despite the relatively weak separate differences, the over-all results in terms of the sign of the differences clearly support the notion that regional differences regarding this kind of beliefs have an influence on regional rates of new firm formation. In the analysis of all respondents the region with high new firm formation has a higher value for entrepreneurial beliefs in 16 cases out of 21. Four differences run in the opposite direction while one comparison yields a tie. In the analysis excluding entrepreneurs we find eighteen positive differences, one tie, and two negative ones. Again, such distributions are unlikely to be randomly generated(p<0.01 in both cases; sign-test). Therefore, unlike the previous study (Davidsson, 1993; 1995; Davidsson & Delmar, 1992) these results are in line with the assumption that the relative prevalence of this kind of beliefs do affect regional levels of new firm formation, although this influence may be marginal.

    A check of the regional differences in entrepreneurial inclination

    Under the assumption that regional levels of entrepreneurial intentions are highly correlated with their levels of actual new firm formation, our analysis of entrepreneurial intentions in the samples can serve as a check that the differences in new firm formation in the 1985-9 period were not random or temporary phenomena. That is, we regard differential levels of entrepreneurial intentions as a proxy measure for the regions' current levels of new firm formation rather than as a separate aspect of culture. The results are displayed in Table 6.

    (TABLE 6)

    In this particular case the analysis excluding entrepreneurs should be regarded the main results. For example, the highly significant result for Kristianstad vs. Karlskrona in the all-respondents analysis is hardly surprising given the proportion of entrepreneurs in the respective samples (cf. Table 2). Even with the more conservative approach the results are quite clear. In all three pairs the respondents from the region assumed to be more entrepreneurial show more of entrepreneurial intentions. Admittedly, the differences are not large and viewed separately they do not all reach statistical significance at conventional levels. However, the joint probability of three results of this sign and magnitude is extremely low. We can therefore consider the results as support for the assumption -- which is critical for the logic of this study -- that regional differences in new firm formation rates are fairly stable over medium range periods of time.


    In the introduction, we specified three questions for this study. As regards the first question, whether it can be established that substantial cultural variation of the investigated kind exists within Sweden, the answer is a clear no. The differences that have been established are universally small in magnitude. For those indices that were used in both studies, the range of variation across all six regions in this study is narrower in every case, than was the range of variation across the six region types in our previous study (Davidsson, 1993; 1995; Davidsson & Delmar, 1992). Indirectly this supports the finding from the first study, that cultural and (some) structural determinants of new firm formation rates are positively correlated. In this study we have deliberately restricted the structural variation. Consequently, we find less cultural variation.

    Concerning the second question, whether it can be established that culture has a unique influence on new firm formation rates, our conclusion is that the most reasonable interpretation of the results is that cultural variations of the studied kind do affect the new firm formation rates. Because the cultural variation is small, however, cultural factors of this kind are likely to explain less of the total variation in new firm formation than the share accounted for by structural factors such as current small firm density or population growth. With regard to particular values or beliefs, we were unable to point out specific aspects of regional culture which consistently appear as a determinant of the new firm formation rate.

    While the tentative conclusion from the previous study was that values influence business start-ups while beliefs do not, the results of the present study do not confirm this pattern. Thus, our answer to the third question thus is that the results of this study suggest that both sets of factors have small effects in the expected direction.


    An over-all interpretation of the results

    Is the supply of entrepreneurship in a society contingent on the values and beliefs that are prevailing? Of course it is! Nevertheless, our results give only limited support for this idea. While it has been demonstrated that demographic and economic-structural factors can explain a major share of the regional variations in new firm formation rates, cultural differences appear at best to be another contributing, although marginal factor. Then, why could no strong relationships between culture and entrepreneurship be established in this study? Let us examine three possible explanations.

    The first explanation would be that the measurement of cultural variations is inadequate, even if the limitation to 'mental software' is accepted. This objection can be raised at several different levels. Firstly, it could be claimed that it is generally impossible to measure aspects of culture by means of questionnaires. The frequent use of similar approaches in social science research and -- not least -- commercial activities is but one of several possible rebuttals to such an objection, even if it should be admitted that no survey study could give more than a crude and over-simplified image of a culture. If the approach as such be accepted it can still be claimed that the study did not capture the right aspects of culture. However, a comprehensive search for presumably relevant values and beliefs was conducted before the first study, and taken together the two studies do cover a fairly broad set of values and beliefs. If this is accepted it can still be argued that some of the theoretical variables included in the study have an influence on new firm formation, but this does not come through in the results because of measurement error. This point is relevant in the sense that several of the indices have lower reliability coefficients than could be wished for. However, apart from the defense for the measures already provided in the method section, it can be demonstrated that several of the used indices yield larger, statistically significant, and logically reasonable differences when males and females are contrasted, or when entrepreneurs are compared with non-entrepreneurs. This gives reason to believe that the used indices do capture psychologic-cultural realities that are related to entrepreneurial behavior or potential. In summary, measurement problems do not seem to be the main reason why strong relationships between culture and entrepreneurship could not be established in this study.

    The second explanation for the relatively weak relationships would be that a region's rate of new firm formation is too crude an indicator of that region's degree of entrepreneurship. We have refrained from using the terms 'new firm formation' and 'entrepreneurship' interchangeably. However, our choice of cultural explanatory variables has been guided by an implicit assumption that firms are founded for 'entrepreneurial' reasons. Such is not always the case. In recessions and in deprived areas, going into business for oneself is not seldom a choice of last resort. In many other cases the founder has grown up in a family of business owners and founding his/her own business has therefore become the most natural career choice this individual could possibly make. It can be argued that both of those alternatives are 'less entrepreneurial' than when the prime motivation is the wish to exploit an attractive market opportunity. Quite certainly, the distribution of different start-up motivations, and the sectoral split of start-ups between infant and mature industries, is not the same across regions. The over-all start-up rate may therefore not be the theoretical dependent variable we are trying to capture.

    It is unlikely, however, that any other measure of the regions' level of entrepreneurship would have yielded distinctly different results. The reason for this is also the third explanation for the relatively weak relationships that were obtained, viz. that the cultural variation is very limited. The country appears to be culturally homogeneous 'on average.' A constant cannot explain variations. Therefore, the main reason for the relatively weak relationship between culture and new firm formation seems to be the relative lack of cultural variation.

    But then again, how strong relationships could we reasonably expect? And how much cultural variations would it take to produce the deviating patterns of new firm formation that the regions have shown? These are important questions. Let us focus on one particular difference, viz. the 0.19 higher standardized Need for autonomy index value that Kristianstad has compared with Karlskrona. The original variable is an index were the answers to four 4-point agree-disagree statements have been summed. The range of the scale thus is 4-16, and it turns out that Kristianstad's mean is 0.38 higher than is Karlskrona's. All it takes to produce it is that we can pick 20 people (out of 200+) from each sample in such a way that the 20 'Kristianstaders' express strong agreement (4) with each statement while the 20 'Karlskroners' only express moderate agreement (3), and the remainder of the samples have identical mean values.

    Now, could this apparently tiny difference have any effect on the regions' new firm formation rates? The answer to that question is partly contingent on the nature of the culture -> entrepreneurship relationship. If one region has a higher value than another region on a cultural variable, this may affect the region's level of entrepreneurship in at least two different ways. Firstly, we may assume that everybody in the region would be a little more inclined towards entrepreneurship (regardless of his/her own values and beliefs) because the favorable values and beliefs of others in the region create a supportive environment for entrepreneurship. This is the societal legitimization effect put forward by Etzioni (1987) and it was also the starting point for this project. We would argue that for this mechanism to have a measurable effect, larger cultural differences than the one described above would be needed. Only then could they become noticeable for individuals as a characteristic of their general environment.

    Alternatively, the higher value on the cultural variable may be interpreted as showing that the region has a larger pool of potential entrepreneurs. We then assume that it is those individuals who have the more entrepreneurial values and beliefs who also found firms, i.e., an aggregated version of the psychological explanation for entrepreneurial behavior. Remember that what we are trying to explain is that Kristianstad has had about one too many and Karlskrona one too few start-ups annually per one thousand 16-64 years old inhabitants. We have just shown that for the autonomy dimension alone, Kristianstad has in the 35-40 age bracket an 'excess capacity' of about one hundred somewhat more entrepreneurially inclined people per one thousand, compared to Karlskrona. Viewed from this perspective, the difference does not appear marginal.

    Our preferred interpretation of the results is that the cultural differences are small and that their effects are likely to be marginal in comparison to the effects of some structural factors. The above exercise, however, illustrates a problem with all attempts at explaining minority phenomena such as the number of business start-ups in relation to the size of the population. Maybe we are often looking for unrealistically large effects; perhaps do we often disregard 'small' effects that are important results and of the largest magnitude that could reasonably be expected.

    Implications for policy-making and research

    The major policy implication of this study is that given the limited cultural variation, there seems to be little need for customizing policies regionally because of cultural variation. It must be stressed, however, that the situation may be totally different in other countries. It should further be noted that the results in no way rule out the possibility that cultural variation over time may be substantial for the country as a whole, and that this may have a substantial impact on temporal variations in entrepreneurial activity.

    A research implication is that the general research approach is viable, i.e., it is possible to get decent response rates and response quality and thus possible to measure cultural variation by means of questionnaires directed to samples of the general population. Given the limited cultural variation in Sweden the following extensions of this research may be fruitful. Firstly, cultural variations across countries could be studied. While this most likely would capture more variability, such an approach would add problems related to questionnaire translation and different data collection methods for new firm formation. Secondly, the approach could be replicated within other countries that are less culturally homogeneous. Thirdly, the approach could be used longitudinally rather than for cross-section comparisons. In all of these extensions, it would be beneficial to collect more detailed data on the composition -- in terms of sectors and preferably also in terms of start-up motivations -- of the total number of new firms.

    Finally, since this research has focused mean differences across regions, it can be accused of emphasizing too much the 'mainstream' or 'average' culture of the regions. Issues of cultural variability within regions, the prevalence of certain sub-cultures et cetera may be equally or even more important. Paying more attention to these issues may prove fruitful in future attempts at isolating the role of cultural differences for regional variations in entrepreneurship


    This research was funded by the Swedish Foundation for Small Business Research. We are also grateful to Professor Leif Lindmark and Professor Christer Olofsson for their permission to use the data on new firm formation and structural characteristics of regions for this study.


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