The Effects of Entrepreneurship Education

Transcription

1 The Effects of Etrepreeurship Educatio Richard Weber ad Georg vo Graeveitz ad Dietmar Harhoff Discussio paper August Muich School of Maagemet Uiversity of Muich Fakultät für Betriebswirtschaft Ludwig-Maximilias-Uiversität Müche Olie at

2 The Effects of Etrepreeurship Educatio Richard Weber, Georg vo Graeveitz, Dietmar Harhoff July 30, 2009 Abstract Etrepreeurship educatio raks highly o policy agedas i Europe ad the US, but little research is available to assess its impacts. I this cotext it is of primary importace to uderstad whether etrepreeurship educatio raises itetios to be etrepreeurial geerally or whether it helps studets determie how well suited they are for etrepreeurship. We develop a theoretical model of Bayesia learig i which etrepreeurship educatio geerates sigals which help studets to evaluate their ow aptitude for etrepreeurial tasks. We derive predictios from the model ad test them usig data from a compulsory etrepreeurship course at a Germa uiversity. Usig survey resposes from 189 studets ex ate ad ex post, we fid that etrepreeurial propesity declied somewhat i spite of geerally good evaluatios of the class. Our tests of Bayesia updatig provide support for the otio that studets receive valuable sigals ad lear about their ow type i the etrepreeurship course. JEL Classificatio: D83, J24, L26, M13 Keywords: etrepreeurship, etrepreeurship educatio, Bayes Rule, learig, sigals Ackowledgemets: We would like to thak the participats of the 2009 Max Plack Aual Summit Coferece o Experimetal Etrepreeurship for commets ad suggestios. Particular thaks go to Michael Fritsch for detailed suggestios for improvemets. Dietmar Harhoff ad Georg vo Graeveitz gratefully ackowledge the support of the SFB Trasregio 15. The usual caveat applies. Richard Weber, Ludwig Maximilias Uiversität, LMU Muich School of Maagemet, LMU EC (Etrepreeurship Ceter), Kaulbachstraße 45, D-80539, Muich, richard.weber@lmu.de Georg vo Graeveitz, Ludwig-Maximilias-Uiversität, LMU Muich School of Maagemet, INNO-tec, Kaulbachstraße 45, D-80539, Muich, graeveitz@lmu.de Dietmar Harhoff, Ludwig-Maximilias-Uiversität, LMU Muich School of Maagemet, INNO-tec, Kaulbachstraße 45, D-80539, Muich, harhoff@lmu.de

3 1 Itroductio New veture formatio is of cosiderable importace for ecoomic growth ad techological progress (Birch, 1979; Reyolds et al., 1994; Sheshiski et al., 2007). The ecoomic impact of ew busiesses fouded by uiversity faculty, graduates ad alumi is particularly sigificat. Academic etrepreeurs are likely to employ more people tha their o-academic couterparts (Dietrich, 1999), ad fouders with uiversity educatio apparetly make higher ivestmets i their busiess tha o-academic etrepreeurs (Reyolds et al., 1994) ad their firms are disproportioately high performig (Shae, 2004). Additioally, uiversity spioffs create importat spillover effects for the local ecoomy (Harhoff, 1999; Shae, 2004). For Germay, Audretsch ad Fritsch (2002) fid that etrepreeurship has become a source of growth. I awareess of these fidigs, may govermets declare the sesitizatio ad advacemet of potetial fouders at tertiary educatioal istitutios a primary goal of iovatio policies. Etrepreeurial educatio is frequetly cosidered a effective strategy (Li, 2004) towards more iovatio. Uiversities i may coutries have followed the example of US istitutios ad have istituted a wide rage of etrepreeurship educatio efforts (Fayolle, 2000; Li, 2004). Noetheless, the impact of such educatio is poorly uderstood at preset. I this paper we ivestigate the effects of etrepreeurship educatio o studets etrepreeurial itetios. Usig a model of Bayesia updatig we show that if studets differ i their aptitude for etrepreeurship ad if etrepreeurship educatio helps them ucover these differeces, etrepreeurship traiig may ot always lead to stroger etrepreeurial itetios. I our empirical study we fid cofirmatio for the predictio that etrepreeurship educatio has heterogeeous effects, ad that some studets graduate from the course with stroger, ad some with weaker etrepreeurial itetios. Research o the impact ad effects of etrepreeurship educatio has ot kept pace with the growth of teachig capacity. The assertio that etrepreeurship educatio leads to icreased etrepreeurial itetios ad therefore to more ew veture formatio may seem ituitive. However, despite the recogitio that educatio ad prior etrepreeurial experieces ifluece people s attitudes towards startig their ow busiess, the impact of etrepreeurship educatio o itetios to foud a busiess has remaied relatively utested (Dockels, 1991; Kruegel Jr ad Brazeal, 1994). Moreover, o closer ispectio the claim turs out to be less tha trivial. Some studies have suggested that the average etrepreeur may expect 1

4 her life-time earigs to be cosiderably below those of a salaried employee (Astebro ad Thompso, 2007). Hece, if etrepreeurship traiig cofers a realistic assessmet of future career optios, etrepreeurial itetios may very well declie. This eed ot be a detrimetal effect, if those who have misjudged themselves as fit or well-suited for etrepreeurship lear to avoid a career that would leave the would-be etrepreeurs ad their fiaciers ad other stake-holders uhappy. But ay ormative discussio of what etrepreeurship traiig is supposed to achieve may be premature as log as we do ot have a robust characterizatio of the learig processes which studets experiece i such a settig. Several previous studies have foud a positive impact of etrepreeurship educatio courses or programs at uiversities o perceived attractiveess ad perceived feasibility of ew veture iitiatio (Tkachev ad Kolvereid, 1999; Peterma ad Keedy, 2003; Fayolle ad Lassas- Clerc, 2006; Souitaris et al., 2007). May of these studies ted to have methodological limitatios. For example, few studies employ a pre-post desig, ad eve fewer ivolve a cotrol group (Block ad Stumpf, 1992). Most of the studies have cosidered self-selected participats with some existig predispositio towards etrepreeurship, thus biasig the results i favor of educatioal itervetios (Gorma et al., 1997). Fially, oly very few fidigs exist for the Germa laguage area (Frake ad Lüthje, 2000). Regardig the impact of etrepreeurship educatio, there is still a major research gap. I order to overcome some of the above metioed limitatios, we coducted a study of a large-scale compulsory etrepreeurship course at a major Germa uiversity, usig a pretest post-test desig. The focus of this paper is to explore if studets used this course to lear about their ow etrepreeurial aptitude. We provide a descriptive aalysis of studets itetios to become etrepreeurs before the course ad after the course. This aalysis idicates that the course iduces sortig ad that especially studets who are iitially ucertai about their etrepreeurial ability are able to determie more clearly whether or ot they are positively iclied towards etrepreeurship after the course. To provide firmer support to these descriptive results we test implicatios from a simple model of Bayesia updatig usig the survey data we have collected. Bayes Rule is frequetly used to describe how people update their beliefs uder ucertaity i ecoomics. Recet research by behavioral ecoomists demostrates that people do ot always update their beliefs accordig to Bayes Rule (Rabi ad Schrag, 1999; Charess ad Levi, 2005; Charess et al., 2007). However, the experimets udertake by Charess et al. (2007) demostrate 2

5 that Bayes Rule describes learig behavior better if subjects update their beliefs after iteractio with people i larger groups, which applies to the course settig we ivestigate here. Our paper cosists of seve sectios. Next, we review the literature o etrepreeurship as itetioally plaed behavior. The, we develop a formal model of learig which employs the otio of Bayesia updatig i Sectio 3. Sectio 4 describes the settig of our study, Sectio 5 cotais a descriptive aalysis of the data. I Sectio 6, we test the predictios from our theoretical model. Sectio 7 cocludes ad discusses future research. 2 Etrepreeurial Itetios ad Etrepreeurship Educatio The lik betwee etrepreeurship educatio ad etrepreeurial activity may seem somewhat teuous. Successful etrepreeurs do ot ecessarily set up their compaies directly after or eve before graduatio, although there are otable exceptios. I this sectio we survey literature that shows why studets etrepreeurial itetios matter for etrepreeurship ad how etrepreeurship educatio impacts etrepreeurial itetios. We also briefly review other major determiats of etrepreeurial itetios. 2.1 Etrepreeurship as Itetioally Plaed Behavior Itetioality is a state of mid directig a perso s attetio (ad therefore experiece ad actio) toward a specific object (goal) or a path i order to achieve somethig (meas) (Bird, 1988). Ay plaed behavior is best predicted by observig itetios toward that behavior, ot by attitudes, beliefs,persoality or demographics (Bagozzi ad Yi, 1989). Thus, accordig to social psychology literature, itetios are the sigle best predictor of plaed behavior, especially whe the target behavior is rare, hard to observe or whe it ivolves upredictable time lags (Ajze, 1991). Whe the target behavior affords a perso complete cotrol over behavioral performace, itetios aloe should be sufficiet to predict behavior, as explaied i the theory of plaed behavior (Ajze, 1991). Itetios have bee foud to be a ubiased predictor of actio, eve where time lags exist, for example i career choices (Let et al., 1994). Hece, itetios predict behavior, while i tur certai specific attitudes predict itetio. Attitudes, agai, derive from exogeous iflueces (Ajze, 1987). Thus, itetios 3

6 are idirectly affected by exogeous iflueces: Either they drive attitudes or they moderate the relatioship betwee itetios ad behavior (i.e. facilitate or ihibit the realizatio of itetios). Ad itetios serve as a mediator or catalyst for actio: itetio-based models describe how exogeous iflueces chage itetios ad, i the ed, actual behavior. This is cofirmed by meta-aalytic studies (Kim ad Huter, 1993). Across a wide variety of target behaviors ad related itetios, attitudes explai over 50% of the variace i itetios, itetios i tur explai over 30% of the variace i behavior. This compares to 10% usually explaied by trait measures or attitudes aloe (Ajze, 1987). May researchers see etrepreeurship as a typical example of plaed itetioal behavior (Bird, 1988; Katz ad Garter, 1988; Kruegel Jr ad Brazeal, 1994). Havig a etrepreeurial itetio meas that oe is committed to startig a ew busiess (Krueger, 1993). The attitude towards etrepreeurship may be iflueced by educatioal measures. However, despite the recogitio that educatio ad prior etrepreeurial experieces may ifluece people s attitudes towards startig their ow busiess, the impact of etrepreeurship educatio, as distict from geeral educatio, o itetios towards etrepreeurship has remaied largely uexplored (Dockels, 1991; Kruegel Jr ad Brazeal, 1994). 2.2 Research o Etrepreeurship Educatio Effects Research about the effects of etrepreeurship educatio is still its ifacy (Gorma et al., 1997). Most studies up to date aim at simply describig etrepreeurship courses (Vesper ad Garter, 1997), at discussig the cotets of good etrepreeurship educatio (Fiet, 2001) or at evaluatig the ecoomic impacts of courses by comparig takers ad o-takers (Chrisma, 1997). Some researchers have proposed a positive lik betwee etrepreeurship educatio ad etrepreeurial attitudes, itetio or actio, but the evidece is still slim (Gibb Dyer, 1994; Robiso et al., 1991; Kruegel Jr ad Brazeal, 1994). There has bee little rigorous research o the effects of etrepreeurship educatio (Gorma et al., 1997). Some empirical studies do cofirm that there is a positive impact of etrepreeurship educatio courses or programs at uiversities o perceived attractiveess ad perceived feasibility of ew veture iitiatio (Tkachev ad Kolvereid, 1999; Fayolle ad Lassas-Clerc, 2006). Reviews of literature o eterprise ad etrepreeurship educatio (Daiow, 1986; Gorma et al., 1997) 4

7 ad of particular etrepreeurship programs (McMulla et al., 2002) give evidece that these programs ecourage etrepreeurs to start a busiess. But usually, there are serious methodological limitatios. For example, studies rarely ivolve cotrol groups or a form of stochastic matchig (Block ad Stumpf, 1992), basic cotrols as pre- ad post-testig are ot employed ad most studies survey participats with a existig predispositio towards etrepreeurship, biasig the results i favor of educatioal itervetios (Gorma et al., 1997). The studies by Peterma ad Keedy (2003), Souitaris et al. (2007) ad Oosterbeek et al. (2008) are three remarkable exceptios, usig pre-test-post-test cotrol group desigs. The first study fids that exposure to eterprise educatio affects etrepreeurial itetios of highschool studets. Souitaris et al. fid that sesitizatio through a semester-log (Jauary-May) etrepreeurship program leads to a stroger etrepreeurial itetios. They employed a pre-test-post-test cotrol group-desig ad coducted their survey at two major Europea uiversities askig sciece ad egieerig studets. They received 124 matched questioaires from the program group ad 126 from the cotrol group. The studets of the program group took a etrepreeurship course as a elective module withi their curriculum. Hece, the allocatio of studets to the program group was ot radom, ad differet classes were taught by differet academic istructors so that the treatmet might have differed across classes. Fially, Oosterbeek et al. (2008) study the impact of etrepreeurship educatio i a compulsory course, usig a istrumetal variables approach i a differece-i-differeces framework. Sice studets may have self-selected ito differet school locatios, locatio choice (ad thus treatmet) is istrumeted. Their results show that the effect o studets self-assessed etrepreeurial skills is isigificat. Moreover, the effect o etrepreeurial itetios is sigificatly egative. Noe of the studies attempts to ivestigate the ature of learig processes that are takig place durig the respective courses. Several researchers have called for more research to aswer the questio if etrepreeurship educatio ca ifluece etrepreeurial perceptios ad itetios (Dockels, 1991; Kator, 1988; Kruegel Jr ad Brazeal, 1994; McMulla et al., 2002). Descriptive ad retrospective studies are ot appropriate to provide covicig evidece for the above metioed theoretical claims (Alberti, 1999; Gorma et al., 1997; Matthews ad Moser, 1996). Peterma ad Keedy (2003) call for the developmet of credible methods of testig precoceived hypotheses, usig large sample sizes ad cotrol groups, i order to move this youg field of research beyod its exploratory stage (Alberti, 1999). 5

8 2.3 Prior Exposure to Etrepreeurship Etrepreeurship educatio will ot have homogeeous effects o all participatig studets (Lüthje ad Frake, 2002), depedig for example o their persoality structure (Brockhaus Sr ad Horwitz, 1986) or to a eve greater extet o their prior exposure to etrepreeurship. Role models have bee foud to be a strog determiat of career choices (Katz, 1992). Role modelig occurs whe social behavior is iformally observed ad the adopted by a learer who has leared by example rather tha by direct experiece (Badura, 1977). Accordig to social learig theory, role models are importat evirometal factors for career itetios (Mitchell, 1996). Accordig to Shapero ad Sokol (1982), the immediate family, ad i particular father or mother, play the most powerful role i formig a otio of desirability ad credibility of etrepreeurial actios. Empirical evidece for a relatioship betwee the presece of paretal etrepreeurial role models ad the preferece for a self-employmet career has bee repeatedly reported (Scott ad Twomey, 1988; Scherer et al., 1989; Matthews ad Moser, 1996; Peterma ad Keedy, 2003). Boyd ad Vozikis (1994) show that etrepreeurial itetios are stroger with a growig degree of etrepreeurial self-efficacy due to the presece of etrepreeurial role models i close relatives. These isights lead to a hypothesis already stated by Lüthje ad Frake (2002) who assume that the effects of etrepreeurship educatio will differ across studets, because studets have received sigals of their etrepreeurial ability prior to the etrepreeurship courses take at a uiversity. Hece, we eed to study how itetios develop give prior assessmets. Moreover, we argue that ivestigatig the variable which most studies have focused o - average etrepreeurial itetios - is ot satisfactory if oe seeks to aalyze the ature of learig processes. Towards that objective, we also eed a assessmet of the distributio of itetios, ad of chages i the distributio. 3 Model This sectio sets out a theoretical model of the effects of a etrepreeurship course o studets beliefs about their etrepreeurial ability. We model the evolutio of studets beliefs about their ow etrepreeurial ability whe they receive sigals of this ability. We distiguish betwee etrepreeurs ad employees. Beig (truly) a etrepreeur meas that oe s ow utility from beig i a etrepreeurial fuctio is greater tha the 6

9 utility from beig i a employee fuctio. Coversely, we label employees all studets who are better suited to o-etrepreeurial work. The label employee is ot iteded to be pejorative. A importat fuctio of etrepreeurship educatio is to help studets self-select ito activities which they are most suited to. Our model shows whe this type of sortig is supported by etrepreeurship educatio. Iitially, both types of studet are ill-iformed about their true type ad form beliefs about themselves. If we allow for heterogeeity i the stregth of previous sigals about etrepreeurship i the studet populatio, the it might be expected that studets who have stroger priors about their etrepreeurial ability are less likely to receive iformatio that leads them to revise their beliefs about their etrepreeurial ability, ad vice versa. Our theoretical model idetifies coditios uder which this ituitio holds. We derive empirical tests from the model to test whether studets update their beliefs about their etrepreeurial ability as a cosequece of etrepreeurship educatio. 3.1 Settig ad Assumptios We assume that there are two types of studet: etrepreeurs () ad employees (m). Studets kow that these two types exist ad have iformatio about the proportio of etrepreeurs φ, but they do ot kow their ow type. We distiguish betwee sigals that etrepreeurs ad employees receive about etrepreeurial ability. Depedig o the culture they live i, etrepreeurs may have stroger or weaker iformatio about their type tha employees. I a culture i which etrepreeurship is ot a predomiat feature we might expect formal educatio to help studets discover ad develop maily those talets suited to beig employees. I cotrast, a culture which accetuates etrepreeurship is less likely to provide strog sigals ad traiig for taleted employees ad more sigals for taleted etrepreeurs. 1 I our model studets receive iformatio about their ability as etrepreeurs ad as employees i two successive periods: periods oe ad two. Period oe takes place before studets go to uiversity. Here studets receive a sigal σ 1 of their etrepreeurial ability which could 1 Diamod (1997) discusses the reactios of eighborig stoe age cultures i New Guiea whe exposed to wester civilizatio. He provides examples of cultures with a etrepreeurial bet which have embraced moder techologies ad more coservative cultures which still observe traditios they have upheld for milleia. This shows that cultural opeess towards etrepreeurship varies cosiderably. We might expect formal etrepreeurship educatio to be particularly effective i cultures that are ot etrepreeurial. 7

10 be due to iteractio with etrepreeurs, be they parets or acquaitaces. Period two takes place oce studets go to uiversity. Here studets receive a sigal σ 2 of etrepreeurial ability from formal etrepreeurship educatio. Studets beliefs about their ow etrepreeurial ability are distributed o the iterval [0, 1]. A belief of 0 implies that the studet believes absolutely that they are a employee, a belief of 1 implies that they believe they are certaily a etrepreeur. Each type of studet will receive a positive sigal of etrepreeurial ability i each period with probability ψ k where ψ [0, 1] ad k {, m}. Defie the precisio of these positive sigals as ς i where i {1, 2}. We assume that etrepreeurial ability either exists or it does ot. Further, we assume that the sigalig process is iformative. This assumptio has two compoets: (i) 1 ψ > ψ m 0 (ii) 1 ς i > 0. (I) Part (i) implies that the probability that a etrepreeur-type receives a positive sigal that they are a etrepreeur is greater tha the probability that a employee-type receives such a sigal. Part (ii) implies that sigals always cotai some iformatio. Next, we assume that studets update their beliefs about their ow type accordig to Bayes Rule. We defie the stregth of positive sigals that studets receive as: σ k i ψ k ς i (S) Assumptio (I) implies that the belief of a etrepreeur-type studet who receives a positive sigal of etrepreeurial ability (σi ) that they are a etrepreeur will ot declie as a result of the sigal. Similarly a employee-type receivig a positive sigal that they are a employee (σi m ) will ot revise their belief that they are a etrepreeur upwards. Assumptio (I) also implies that there are strictly more etrepreeur-types i the populatio of studets tha employee-types who receive the icorrect sigal. 3.2 Defiitios Iitially studets oly kow that a proportio φ of people i the populatio aroud them are etrepreeurs. Hece their prior of the probability that they are a etrepreeur is φ. The, i the 8

11 course of their pre uiversity life they receive the first sigal about their ow etrepreeurial ability. This sigal will geerally differ depedig o their type. Beliefs after period oe are etrepreeurs after period oe is: By Bayes rule the stregth of the beliefs of etrepreeurs that they B σ 1 φ σ 1 φ + σ m 1 (1 φ) ad B m (1 σ 1 ) φ (1 σ 1 ) φ + (1 σ m 1 ) (1 φ), (1) where B is the stregth of the first period belief of a etrepreeur that they are a etrepreeur if they receive a positive sigal, while Bm is the stregth of the etrepreeur s first period belief that they are a etrepreeur if they receive a egative sigal. The expressios i (1) show that the first period sigal divides the group of etrepreeurs ito two sets, oe of which believes more firmly that they are etrepreeurs (B) ad oe of whom o loger believes very strogly that they are etrepreeurs (Bm). We defie the stregth of the beliefs of the employees that they are employees after period oe as: B m σ m 1 σ1 m (1 φ) (1 φ) + σ1 φ ad B m m (1 σ m 1 ) (1 φ) (1 σ 1 ) φ + (1 σ m 1 ) (1 φ). (2) These expressios show that employees who receive a misleadig sigal (B m ) that they are ot employees (Type II error) will falsely ifer that they are etrepreeurs. Similarly those who receive the correct sigal (B m m) will have a high level of belief that they are employees. Beliefs after period two Applyig Bayes rule oce more the stregth of beliefs of the etrepreeurs that they are etrepreeurs after period two is give by: B = σ 2 B σ 2 B + σ m 2 B m ad B m = σ 2 B m σ 2 B m + σ m 2 B m m (3) B m = (1 σ 2 ) B (1 σ 2 )B + (1 σ m 2 )B m ad B m m = (1 σ 2 )B m (1 σ 2 ) B m + (1 σ m 2 ) B m m where B is the stregth of the etrepreeur-type studet s belief that she is a etrepreeur after receivig a secod period sigal that she is a etrepreeur ad a first period sigal that she is a etrepreeur ( ). Bm is the studet s secod period belief that she is a etrepreeur if she received a secod period sigal that she is a employee ad a first period 9

12 sigal that she is a etrepreeur ( ) give that she is a etrepreeur ( ). After period two there are four groups of studets each with a distict level of belief about their etrepreeurial ability. These beliefs are a fuctio of the history of sigals that studets have received. Two groups of studets have received sigals goig i the same directio ad they ow have the strogest (B ) ad the weakest (B m m ) beliefs that they are etrepreeurs. I cotrast the other two groups have received coutervailig sigals. These groups revise their belief about beig etrepreeurs upwards (B m ) ad dowwards (B m ) after period two. Aalogously there are four groups of employees with differet levels of beliefs that they are employees after period two: B m = σ2 m B m σ2 m B m + σ2 B (1 σ2 m ) B m (1 σ2 m )B m + (1 σ2 )B ad B m m = σ2 m Bm m σ2 m Bm m + σ2 Bm (1 σ2 m )Bm m (1 σ2 m ) Bm m + (1 σ2 ) Bm (4) B m m = ad B m m m =. There are those employees who are truly employee-types ad have received a series of cosistet sigals, leadig them to believe quite strogly that they are employees (Bm m m ) or quite strogly that they are ot (B m ). Also, those employees who receive icosistet sigals will revise their beliefs that they are etrepreeurs upwards (B m m ) ad dowwards (Bm m ). Give these defiitios we ca characterize the size of the chage i studets beliefs about their etrepreeurial ability after studets update their period oe beliefs o the basis of their period two sigals. I the followig sectio we derive a umber of propositios about the chages i studets beliefs. 3.3 Results I this sectio we derive two sets of results: first we focus o studets beliefs about their etrepreeurial ability i period two; secod we aalyze the chage i beliefs betwee periods oe ad two. I each case we focus o the stregth of studets beliefs. Stroger beliefs are beliefs that are further away from studets iitial prior that they are etrepreeurs: φ. Similarly, stroger sigals are sigals that are further away from uiformative sigals. A sigal is uiformative if it is 1/2. Aalyzig secod stage beliefs we show that stroger sigals i the first period lead to stroger beliefs about beig a etrepreeur or a employee if both sigals are cosistet. I 10

13 cotrast, beliefs become weaker if sigals are ot cosistet. Additioally, it is show that chages i beliefs about beig a etrepreeur also deped o the cosistecy of sigals ad o the stregth of first period sigals. If first period sigals are sufficietly strog, chages i beliefs will be greater for those receivig cosistet sigals. Both predictios ca be tested empirically, as we do i Sectio 5 below. Beliefs after Etrepreeurship Educatio We begi with the most obvious implicatio of updatig of beliefs: If there are etrepreeurs ad employees i the populatio of studets, if these all receive iformative sigals as defied i Assumptio (I), if etrepreeurs first period sigals that they are etrepreeurs are ot too strog (σ 1 < 0.5) ad if studets update their beliefs accordig to Bayes Rule, the we ca show that: Propositio 1 The distributio of beliefs after period two will have greater variace tha the distributio of beliefs after period oe. We prove this propositio i Appedix 7.1. There we derive the expectatio ad the variace of studets beliefs that they are etrepreeurs for each period. A compariso of the variaces for periods oe ad two shows that the variace of beliefs after studets have received the sigals provided by etrepreeurship educatio is always greater tha the variace of beliefs after period oe, if σ 1 < We test whether Propositio 1 holds by testig the followig hypothesis: Hypothesis 1 The variace of beliefs i period two is greater tha the variace of beliefs i period oe. We test this hypothesis usig a robust differece of variaces test. This test is robust to o-ormality of error terms. Now cosider the effects of first period sigals o the secod period beliefs of etrepreeurs ad employees. As is almost obvious, cosistecy of sigals i period oe ad two will lead to stroger beliefs. Also, greater stregth of sigals to either type i the first period will make secod period beliefs more distict. 2 This result may also hold for greater values of σ 1 but we have ot pursued the exact boud as we are quite cofidet that i the populatio we study the stregth of the sigal is weak. 11

14 Propositio 2 If the sigals received by studets i period oe ad two are cosistet, the beliefs i period two will be stroger, tha if sigals are icosistet. Stroger first period sigals lead to stroger beliefs after period two. As oted above stroger beliefs are closer to certaity (B = 1 or B = 0) ad weaker beliefs are closer to the prior of uiformed studets (B = φ). I Appedix 7.2 Propositio 2 is proved. I Sectio 6 we test whether Propositio 2 holds by testig the followig hypothesis: Hypothesis 2 i) If sigals are cosistet the secod period beliefs are stroger. ii) Stroger first period sigals lead to stroger secod period beliefs. To test this hypothesis we regress a measure of strog first period sigals (SF P S) ad of cosistet sigals (CS) o the variace of secod period beliefs ( B) aroud their mea. The depedet variable is defied such that stroger beliefs icrease the level of the depedet variable. It does ot matter whether the belief that oe is a etrepreeur is close to oe or close to zero. I both cases studets have strog beliefs ad i both cases the level of the depedet variable is high. Hypothesis 2 implies that the coefficiets o the measure of extreme sigals, the measure of cosistet sigals ad their iteractio are all positive. Our empirical model is: B = β 0 + β 1 CS + β 2 SF P S + β 3 CSX + β 4 X + ɛ, (5) where B (B[2] µ(b[2])) 2 captures the squared deviatio of studets secod period beliefs (B[2]) from the overall mea, CS is a measure of cosistet sigals, SF P S is a measure of the stregth of the first period sigal ad CSX is the iteractio of the latter two variables. X represets a vector of cotrol variables. Hypothesis 2 predicts that β 1 > 0, β 2 > 0 ad β 3 > 0. The Chage i Beliefs after Etrepreeurship Educatio Now cosider chages i the studets beliefs betwee the two periods. These chages characterize the impact of the course. We fid that it is quite difficult to characterize the relatioship 12

15 betwee the size of the chage i studets beliefs about their aptitude for etrepreeurial tasks ad the stregth of first period sigals they receive. However, if we may assume that the sigalig process is iformative ad also reliable the we may derive a additioal predictio. We have already assumed that sigals are iformative above (Assumptio I). If sigals are also reliable that meas studets have a probability greater tha 1/2 of receivig the correct sigal for their type. I such a settig there will be more studets with correct ad cosistet sigals tha studets with misleadig ad cosistet sigals. The it is possible to prove the followig additioal result: Propositio 3 If studets receive sufficietly precise ad reliable first period sigals the those who receive cosistet sigals will chage their beliefs less as first period sigals become stroger. Here a chage of beliefs is the differece betwee the secod ad the first period beliefs. Sigals are precise if they are far away from the uiformative levels aroud 1/2, i.e. if σ1 1 ad σ1 m 0. Note that we do ot have a clear predictio for those idividuals receivig icosistet sigals. I Appedix 7.3 Propositio 3 is proved. Propositio 3 ca by tested by the followig hypothesis: Hypothesis 3 If studets receive cosistet sigals, the those amog them who have received stroger sigals i period oe will chage their beliefs less. To test this hypothesis we will regress the square of the chage i beliefs o a measure of the stregth of sigals i period oe ad of cosistet sigals. We predict a egative coefficiet o the iteractio of strog ad cosistet sigals. The depedet variable is squared, sice our model makes predictios about the extet of a chage i beliefs, ot about their directio. The empirical model i this case is: = γ 0 + γ 1 CS + γ 2 SF P S + γ 3 CSX + γ 4 X + ɛ, (6) where ( µ( )) 2 captures the squared chage i studets beliefs. The remaiig variables are defied as above. Hypothesis 3 predicts that γ 3 < 0. 13

16 Propositio 3 is weaker tha Propositio 2. It relies o the additioal assumptio that the sigalig process is reliable. Additioally, it is weaker because our model predicts that i the couterfactual case i which studets receive icosistet sigals there are two groups with differet reactios to more precise first period sigals. Our model predicts that these two groups will be of equal size, i which case these reactios cacel out i aggregate. I smaller populatios we may see deviatios from this predictio. 4 Istitutioal Backgroud ad Data Collectio This sectio discusses the Busiess Plaig course we survey ad the way i which we collected our data. Istitutioal Backgroud The settig for data collectio is the Departmet of Busiess Admiistratio, i the Muich School of Maagemet, at Ludwig-Maximilias-Uiversität (LMU) Muich, oe of Germay s largest uiversities. At the time of the course we study, over busiess admiistratio studets were erolled at this departmet. The Bachelor curriculum at the departmet is somewhat utypical due to its obligatory etrepreeurship educatio course Busiess Plaig. This course is comprised of several lectures ad itegrated exercises. Every busiess admiistratio studet i the Bachelor of Sciece curriculum at LMU has to eroll i this course i the third semester of their study program. The objectives of the Busiess Plaig course are threefold: i) to teach studets basic capabilities eeded i the plaig ad maagemet of a startup eterprise, i particular to covey the ecessary kowledge ad skills for craftig a complete busiess pla; ii) to sesitize studets for etrepreeurship accordig to the classificatio by Liña (2004): studets are supposed to acquire kowledge about small eterprises, self-employmet ad etrepreeurship so that they ca make a ratioal career decisios; iii) to allow studets to gai practical experiece by iteractio with real-world etrepreeurs; ad iv) the traiig of key qualificatios such as teamwork ad presetatio skills. It is importat to realize that the course objectives do ot ecompass ay otio of covicig studets to become etrepreeurs or to describe etrepreeurship as a particularly desirable optio. While the ecoomic importace of etrepreeurship is clearly sigaled, studets are ot meat to be idoctriated. The course took place from October 2008 to February 2009 ad was obligatory for the 14

17 third semester busiess admiistratio studets. The studets were workig i groups of five to develop a full busiess pla based o a idea developed by a etrepreeur from the Muich regio. More tha 40 etrepreeurs were thus supported by 80 studet teams, where each etrepreeur was cosulted by two studet teams. The two teams supportig a etrepreeur iitially shared basic iformatio that they have obtaied o the busiess cocept, but are the competig agaist each other. At the ed of the course, the studets have to deliver the busiess pla to the teachig staff as well as to their etrepreeur together with a presetatio i frot of hypothetical ivestors. The studets had to take part i eight lectures coveyig the priciples of busiess plaig. These lectures were held by LMU faculty, supported by experts o fiacial plaig ad etrepreeurial marketig as well as experieced etrepreeurs ad ivestors givig a first-had isight ito their busiesses. The studets also atteded tutorials with 25 studets each, i.e., five teams per exercise group. I these exercises the studets repeated the cotets of the lectures ad preseted their progress i their busiess-plaig project, receivig feedback from their fellow studets as well as from the respective teachig assistat ad a tutor. As far as we kow, the semiar cocept ad the obligatory character of the course, are uique i Germa uiversity etrepreeurship educatio. The settig presets a particularly suitable framework for our study sice studets do ot self-select ito the Busiess Plaig course. Moreover, give that studets iteract with real-world etrepreeurs we believe that they receive iformative ad importat sigals of their ow ability as etrepreeurs. Data Collectio Studets were surveyed (either usig a writte or a olie survey) directly after the kickoff sessio of the course ad immediately before the time whe the studets received their grades at the ed of the semester. The survey istrumets used had bee reviewed by three academics ad 12 o-participatig studets to esure clarity of wordig ad face validity of the costructs. Out of ethical cocers, we did ot attempt to eforce full participatio i the two surveys. The two survey istrumets were largely idetical. However, the secod survey also cotaied items used i the course evaluatio. 3 The survey forms were aoymized i both rouds, ad matchig was achieved by employig a volutary structured idetificatio code. 4 3 The survey forms are available upo request. 4 The code cosisted of the first letter of the first ame of the studet s mother, the last letter of the studet s ame, the first digit of the studet s moth of birth, ad the first letter of the studet s place of birth. 15

18 5 Descriptive Aalysis of the Data I this sectio we provide descriptive iformatio o the compositio of our sample, the way i which studets i the sample evaluated the Busiess Plaig course ad o the effects which the course had o studets itetios to become etrepreeurs. We show that sample selectio biases are ot of cocer ad that the course was perceived as iformative by studets. We documet that 17.9% of studets takig the course who respoded to both the pre ad post surveys chage their mids about watig to become fouders of a eterprise. 5/7 of these moved from a positive to a egative respose, while oly 2/7 chage their mids i the opposite directio. Fially, we provide descriptive evidece cosistet with Bayesia updatig of beliefs about etrepreeurial ability. 5.1 Participatio i the Surveys ad Possible Selectio Biases We collected resposes from 357 studets who either participated the the ex ate or the ex post survey. They represet 97.8 percet of the total erollmet i the Busiess Plaig course. 265 studets participated i the first, 274 studets respoded to the secod survey. For 196 studets we were able to match the two survey resposes. While our research desig has the advatage that studets caot self-select ito the course itself, we may still face selectio issues due to differetial propesities to respod to our surveys. Table 1: Demographic Characteristics subgroup age female protestat o-germa parets self-employed (years) (%) (%) (%) (%) pre-survey oly (N=69) both surveys (N=196) post-survey oly (N=78) Note: -p < 0.10, -p < 0.05 Differeces sigificat betwee studets who participated i both surveys ad pre- or post-group oly. Post-survey age was corrected by 0.30 years to correct for caledar time of survey. A first suggestio that we are ot facig major (or possibly ot ay) selectio issues ca be take from Table 1 where we display several demographic variables for three groups of 16

19 respodets: those who oly respoded i the first survey, those who participated i both data collectios, ad those who oly respoded i the ex post survey. Participats i both surveys were sigificatly youger tha those who respoded to oly oe survey roud. This may reflect studets behavior - older studets are likely to feel more pressure to focus o their studies ad may therefore be less willig to waste time o survey resposes. Moreover, studets ot participatig i both surveys were more likely to have self-employed parets (i the pre- ad post-survey group) or self-employed frieds (i the post-survey group). However, give that we have some iformatio about o-respodets for both of the two surveys, we ca use a multivariate test whether the likelihood of respodig i the ex ate (ex post) survey is systematically related to characteristics revealed i the secod (first) data collectio. We therefore ra two probit regressios i which we predict respose behavior as a fuctio of sex, age, religio, atioality ad the employmet status of parets ad frieds. Moreover, we icluded scale variables for the studets attitude towards etrepreeurship, the perceived social orms i favor of etrepreeurship, the perceived etrepreeurial selfefficacy, ad the perceived feasibility of a startup project. Both probit regressios cotaied 11 regressors ad were either largely or totally uiformative (p=0.089, =251 i the case of participatio i the post-survey as a fuctio of ex ate data, ad p=0.267, =263 i the case of ex ate participatio as a fuctio of data collected i the secod roud). The margial explaatory power i the ex post survey participatio is due to o-germa participats ad studets with self-employed parets. The o-participatio of these studets is likely to itroduce a coservative (if ay) bias i our results. 5 The subsequet discussio focuses o the matched sample with ex ate ad ex post iformatio from 196 studets. 5.2 Overall Course Assessmet ad Impact o Attitudes ad Skills We ow tur to a first exploratio of the impact of the course. Table 2 summarizes evidece about the ex ate ad ex post assessmets of several classical attitudial measures. First, we use a scale comprised of five items to measure studets attitude towards etrepreeurship. We tested the scale based o the iter-item correlatio. Scale reliability is high for both surveys (Crobach s alpha=0.886 ad i the first ad the secod survey, respectively). To maitai the scale iformatio, we do ot stadardize the two measures. We also 5 The detailed results of these probit regressios are available upo request. 17

20 obtai a scale measure of etrepreeurial self-efficacy based o 20 items (Crobach s alpha ad 0.942), a assessmet of the perceived feasibility of hadlig a startup project (six items, Crobach s alpha ad 0.747) ad fially a measure of perceived social orms. The latter is based o four items askig for a assessmet whether parets, sibligs or frieds thought that the respodets ought to become etrepreeurs. These were trasformed to yield a symmetric scale, which was the multiplied by a weight obtaied i a survey item i which respodets idicated to which extet they cared about the particular opiio. This measure is best cosidered a formative variable sice the social ifluece of parets, sibligs ad frieds may be additive i ature. Table 2: Attitudial Measures ad Assessmets Ex ate S.E. Ex post S.E. Differece p-value Attitude towards etrepreeurship (0.100) (0.110) p = (scale, 5 items) Risk preferece (0.111) p = (scale, 6 items) Etrepreeurial self-efficacy (0.094) (0.096) p = (scale, 20 items) Feasibility of start-up project (0.060) (0.065) p = (scale, 6 items) Perceived social orms (2.178) (2.057) 1.75 p = (weighted sum of 4 items) Note: N=196. Resposes from matched surveys of LMU studets. Table 2 summarizes the mea values of these measures ad their differeces. Oly the perceived feasibility of hadlig a startup project has see a statistically sigificat chage of about 7 percet of its ex ate value. A eve larger chage is apparet i a cofidece measure summarized i Table 3. Ex post studets agree less to the statemet I ca always coclude my projects successfully tha ex ate, ad the chage is margially sigificat (p=0.087). The cofrotatio with a real-world problem may have led to a adjustmet of assessmets. A large ad sigificat improvemet is apparet i the respose to the statemet I kow everythig that is eeded to 18

21 start a ew eterprise. The ex ate average respose to that statemet was betwee do ot agree ad rather ot agree (mea value 2.50) ad shifts to a mea value of 3.87 (betwee rather ot agree ad either agree or disagree ). Table 3: Cofidece Assessmets Ex ate Ex post Differece p-value 1. I ca always coclude my p = projects successfully. 2. I kow everythig that is eeded p < to start a ew eterprise. 3. I am very self-cofidet p = Note: N=196. Resposes measured o ratig scales from 1 to 7 i matched surveys of LMU studets. Moreover, the measure of geeral self-cofidece has rise sigificatly, but much less tha the respose to the etrepreeurship-specific questio. We coclude from these aswers that the traiig has had a sigificat positive effect o studets skills ad self-cofidece, ad that it may have led to a reduced, ad possibly more realistic assessmet of project success. Now we tur to the assessmet of the course. We discuss this here to exclude the possibility that studets disliked the course, leadig them to dislike etrepreeurship. A overall positive assessmet of the course emerges from course evaluatio questios available for 274 studets participatig i the course evaluatio. These are tabulated i Table % (9.1%) percet of the studets agreed (were eutral) to the statemet that they better uderstad the steps that oe has to take to foud a firm. The cooperatio with realworld etrepreeurs yielded a smaller effect. 57.5% (25.1%) agreed (were eutral) that they better uderstad the attitudes, values ad motivatio of etrepreeurs. 6 A improvemet of practical maagemet skills for foudig a firm was cofirmed by 66.8% percet of studets, 19.7% were eutral, 13.5% percet did ot see a improvemet. Asked whether the course has had the effect that I will cosider foudig or takig over a eterprise 41.6% respoded positively, ad 38.3% egatively. 20.1% percet of studets gave a eutral respose. 34.7% 6 The somewhat smaller effect is probably due to the fact that studet teams egaged i cosiderable divisio of labor, ad that oly some studets withi the respective teams directly iteracted with the cooperatig etrepreeurs. 19

22 percets stated that as a effect of the course, they would ted to prefer a employee positio, 41.2% disagreed with that statemet, ad 24.1% were eutral. Table 4: Studets Assessmets of Course Impact Statemet Agreemet to the statemet egative eutral positive The course has had the effect... that I uderstad the attitudes, values 17.5% 25.1% 57.5% ad motivatio of etrepreeurs better.... that I uderstad the steps that oe has 9.5% 9.1% 81.4% to take to foud a firm better.... of improvig my practical maagemet skills 13.5% 19.7% 66.8% for foudig a firm.... of improvig my etworkig skills. 27.0% 26.3% 46.7%... of improvig my skills to recogize 24.8% 22.6% 52.6% busiess ideas.... that I will cosider foudig or takig over 38.3% 20.1% 41.6% a eterprise.... that I will ted to prefer a employee 41.2% 24.1% 34.7% positio. Note: N=196 - data from the ex post survey ad course evaluatio. Data were origially coded o a 1 to 7 ratig scale ad have bee recoded to 1/3=egative, 4=eutral, 5/7=positive. Cross-tabulatig the last two resposes shows that at the ed of the course, about 40% percet of studets idicated that they have etrepreeurial itetios (ad a dislike of a employee positio), ad about 35% have the opposite preferece. 5.3 Chages i Etrepreeurial Itetios Etrepreeurial itetios were surveyed with two items i the questioaires. First, we asked a direct questio Would you like to foud your ow eterprise at some poit? requestig a yes or o-respose. Secod, we asked for a idicatio of agreemet regardig the statemet I ited to foud my ow eterprise withi the ext five to te years with resposes o a seve-poit ratig scale. The results are preseted i Tables 5 ad 6. 20

23 Table 5: Ex ate ad ex post Etrepreeurial Itetios Would you like to foud your ow eterprise at some poit? Ex post respose o yes Total Ex ate o % respose yes % Total % 36.2% 63.8& 100.0% Note: N=274 - data from the ex post survey ad course evaluatio. Table 5 shows that the share of studets idicatig that they wat to foud their ow busiess at some poit has decreased at the coclusio of the course. I the pre-course survey, 71.4% of the 196 studets idicated etrepreeurial itetios. At the coclusio of the course, this share has decreased to 63.8%. The differeces are highly sigificat i a chi-square test (Pearso s chi-squared=71.6, p < 0.001). Table 6: Ex ate ad ex post Etrepreeurial Itetios I ited to start my ow eterprise withi the ext five to te years. Ex post respose Total strogly disagree % disagree % somewhat disagree % Ex ate eutral % respose somewhat agree % agree % strogly agree % Total % 13.3% 15.8% 15.3% 13.3% 17.9% 15.3% 9.2% 100.0% Note: N=196. Resposes from matched surveys of LMU studets. 21

24 Table 6 cotais the results for the more detailed measure of etrepreeurial itetios. Cosistet with the results i Table 5, the average score (iterpretig the scale as metric) has decreased from 4.08 to 3.89 (p=0.069 i a two-tailed test, N=196). However, the distributio itself is quite iformative. The share of eutral resposes has declied from 19.4 to 13.3%. The eutral overall balace i the ex ate survey (40.2 vs. 40.2% with egative vs. positive assessmets) has give way to a slightly more egative result (44.4 vs. 42.3%). These chages are small, but they appear to idicate that the course helps studets to develop a more precise idea of their future plas. The umber of studets with eutral assessmets declies, opiios become stroger. Table 7: Chages i Etrepreeurial Itetio by ex ate Itetio Chage i ex post respose Chage No chage Total strogly disagree % % 16 disagree % % 27 somewhat disagree % % 36 Ex ate eutral % % 38 respose somewhat agree % % 29 agree % % 26 strogly agree % % 24 Total % % 196 Note: N=196. Resposes from matched surveys of LMU studets. This result is also apparet i Table 7 where we cross-tabulate a discrete measure of chages i etrepreeurial itetios with the ex ate itetio. This table shows that studets with strog ex ate opiios were less likely to chage their itetios tha studets with more idifferet itetios. Chages i itetios occur mostly for the group of the udecided, as oe would expect i a world with Bayesia updatig durig the course. If studets update their beliefs about themselves, some of them should also revise opiios that they have held before. Table 8 cotais iterestig evidece regardig this process. I the upper pael of the table, we display which percetage of studets who had idicated a 22