Title: Application of Structural Equation Modelling to Assess the effect of Entrepreneurial Characteristics on Students’ Entrepreneurial Intentions 1 1 1 2 3 1 Saeid Karimi , Harm J.A. Biemans , Thomas Lans , Zahra Arasti , Mohammad Chizari , Martin Mulder 1 Department of Social Sciences, Education and Competence Studies Group, Wageningen University, Wageningen, the Netherlands 2 Faculty of Entrepreneurship, University of Tehran, Tehran, Iran 3 Department of Agricultural Education and Extension, Agricultural College, Tarbiat Modares University, Tehran, Iran
[email protected] Karimi, S., Biemans, H., Lans, T., Arasti, Z., Chizari, M., Mulder, M. (2011, September). Application of Structural Equation Modelling to Assess the Impact of Entrepreneurial Characteristics on Students’ Entrepreneurial Intentions. H. Fulford (Eds.). Proceedings of ECIE 2011,The 6th European Conference on Entrepreneurship and Innovation, Robert Gordon University, Aberdeen, Scotland, UK, pp. 954-967.
Abstract Entrepreneurship is considered to be an important driver for economic growth. Entrepreneurial intention is, based on the literature, suggested to be a predictor of future entrepreneurial behaviour. Entrepreneurial intention is influenced by several factors including entrepreneurial characteristics. Several studies have examined the relationship between entrepreneurial characteristics and success entrepreneurs. However, there is very little research available on personality factors that drive students’ intentions to start a new business. This study investigates the effect of entrepreneurial characteristics of students at Iranian universities on their entrepreneurial intentions. A survey instrument was designed to measure entrepreneurial intentions as dependent variable as well as entrepreneurial characteristics including need for achievement, risk-taking propensity, innovativeness, self-efficacy and need for independence as independent variables. The sample of 346 students included students studying business, agriculture, and engineering at seven established universities at both graduate and undergraduate levels. Structural Equation modelling (SEM) was employed to test causal relationships among independent and dependent variables. The results indicate that entrepreneurial intention is significantly influenced by entrepreneurial self-efficacy and need for achievement. However, risk taking propensity and need for independence. do not have a direct significant impact on students’ entrepreneurial intentions. Furthermore, the results show that the effect innovativeness is mediated by entrepreneurial self-efficacy. The results of the study provide educators, administrators and policy makers inside and outside universities valuable insights with respect to entrepreneurship education. It may serve students better by increasing its focus on entrepreneurial self-efficacy and need for achievement. Keywords: Entrepreneurial intention, Entrepreneurial characteristics, University students, Iran
1. Introduction Due to positive impacts of entrepreneurship such as increase of economic efficacies, bringing innovation to the market, and creation of new jobs (Shane & Venkataraman, 2000), during the past decade most developing countries around the world including Iran have paid more attention to entrepreneurship as a potential, fundamental, solution to various problems facing the country such as lack of improvement in economy, increasing unemployment rates, excessive number of graduates in relation to an inability of the private sector to provide work for the graduates (Karimi et al., 2010). While entrepreneurship has been viewed as crucial to Iran’s economic growth and development, it is surprising that relatively little research has been done on factors that influence individuals’ intention to start a new business in this interesting context. Cognitive approaches have attracted considerable interest recently (Baron 2004). Among them, much attention has been paid to the entrepreneurial intention - the intention to start one’s own business (Autio 1
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et al. 2001; Kolvereid 1996). The entrepreneurial intention is widely recognized as the first critical step in the process of becoming an entrepreneur (e.g., Bird, 1988; Krueger, Reilly, & Carsrud, 2000). Some prior studies have investigated the impact of demographic profile, contextual factors, and personality characteristics on the entrepreneurial intentions of students in the past decades (e.g. Koh, 1996; Wang & Wong, 2004; Nabi and Holden, 2008; Harris and Gibson, 2008). Several scholars state that although fierce criticism in the nineteen nineties (Gartner, 1989), the explaining capacity of personality characteristics should still be considered as critical (Mazzarol et al. 1999; Rauch and Frese 2007; Wagner and Sternberg 2004). Hisrich et al. (2007) point out that due to design and methodological limitations, it is possible that the role of personality characteristics has been underestimated in past entrepreneurship research. Interest in the role of personality characteristics in entrepreneurship process has recently re-emerged after a hiatus of almost 20 years (Zhao et al., 2010). Therefore, today, there is a need to clarify which personality characteristics play the most influential role in shaping the personal decision to start a firm. It is also noteworthy that not much research has been done on personality factors that drive the students’ intention to start up a new business (Luthje & Franke, 2003). In addition, in entrepreneurship research, mediating processes are rarely studied (Rauch and Frese, 2005) and, therefore, it is less clear whether personality characteristics such as innovativeness will have an indirect influence on entrepreneurial intentions through their effect on self-efficacy. It is worthy to note that all studies were conducted in, predominantly in Western countries; no study has so far tried to explain relative contribution of personality factors for students’ entrepreneurial intentions in an Iranian context. Our paper aims at filling this gap. . 2. Entrepreneurial characteristics The results of some recent studies show that entrepreneurial characteristics play an important role in influencing the students’ decision to become entrepreneurs (e.g., Zian et al, 2010; Fini et al, 2009). The literature demonstrates that individuals’ entrepreneurial intention is influenced by several individual characteristics. However, despite the research effort expended on this topic, the evidence is still inconclusive it. Within the literature on this subject there is research that both supports and disapproves the relationship among the characteristics mentioned below (Gurol and Astran, 2006). Moreover, most previous studies have investigated a number of personal characteristics associated with entrepreneurship independently (Tajeddini and Mueller, 2008). Therefore, several authors (Cools and Broeck 2006; Cromie 2000; Gürol and Atsan 2006; Mueller and Goić 2002) argue that identifying a cluster of relevant characteristics may be more useful to assess the entrepreneurial personality than focusing on a single characteristic. In this field research in order to define the entrepreneurial profile of students, we test the predictive value of five characteristics: (i) risk propensity (risk taking),(ii) need for achievement, (iii) need for independence, (iv) innovativeness, and (v) self-efficacy. These characteristics are included in the study since they are the most frequently cited as entrepreneurial characteristics in different studies in the entrepreneurship literature and evidences indicating association between them and entrepreneurship have been widely documented (Koh, 1996; Gurol and Astan, 2006). 2.1. Propensity to take risk Risk taking is usually defined either as a probability function or as an individual disposition towards risk (Rauch and Frese 2007). In other words, risk propensity can be defined as a personality trait involving the willingness to pursue decisions or courses of action involving uncertainty regarding success or failure outcomes (Jackson, 1994). Results of various studies are not conclusive on relationship between risk propensity and entrepreneurial intentions. Gerry et al. (2008) stated that risk taking significantly influence students’ interest in and motivation for starting their own business. The findings of Gurel et al., (2010) and Yusof et al. (2007) indicated that there is a statistically significant relationship between propensity to take risks and students’ entrepreneurial intention. However, Douglas and Fritzsimmons (2007, 2008) and Busenitz & Barney (1997) found that risk taking is not related to entrepreneurial intention. We thus propose that: Hypothesis1: Risk propensity will influence students’ entrepreneurial intentions positively.
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Electronic copy available at: http://ssrn.com/abstract=2152932
2.2. Need for achievement Need for achievement can be defined as “behavior towards competition with a standard of excellence” (McClelland, 1953). In other words. need for achievement refers to expectations of doing something better or faster than anybody else or better than the person’s own earlier accomplishments (Hansemark, 2003). In entrepreneurship context, “need for achievement” refers to the perceived results and outcomes of creating a new business which significantly influence one’s propensity to take the challenges and responsibilities of starting and growing a new business (Hansemark, 1998; McClelland, 1961). Some studies indicated that need for achievement is one the strongest predictor of entrepreneurial behaviors ( McClelland, 1961; Pillis and Reardon, 2007; Babb and Babb, 1992). The study results of Gorul and Astan (2006) showed that need for achievement is found to be higher in entrepreneurially inclined students, as compared to entrepreneurially non-inclined students. In line with this, the following hypothesis is developed: Hypothesis2: Need for achievement will influence students’ entrepreneurial intentions positively. 2.3. Need for independence Need for independence can be defined as the need to do and say as one likes despite conventional expectations (Caird, 1991:181). Need for independence belongs to the most frequently stated reasons for becoming self-employed (Kolvereid, 1996a). According to Nieman et al. (2003, 30), many individuals leave their traditional jobs to become entrepreneurs. They are tired of working for somebody else and therefore establish their own venture. Entrepreneurs do not like to be tied to rules and regulations. They want to work independently and be their “own boss”. Douglas and Shepherd (2002) studied business alumni of an Australian university to determine factors influencing intentions to start a business. They suggested that need for independence is an important factor affecting career decisions and the intention to start a business. Kuratko et al., (1997) found that need for independence is a highly important determinant of the intention to start a business. This suggests the following hypotheses: Hypothesis3: Need for independence will influence students’ entrepreneurial intentions positively. 2. 4. Entrepreneurial self-efficacy Self-efficacy, or self-confidence in a given domain (e.g. entrepreneurship), is based on individuals’ selfperceptions of their skills and abilities to accomplish a specific course of action within a given domain or achieve a desired outcome (Bandura, 1997). According to Markham et al. (2002), it is the perceptions of self-efficacy, rather than objective ability that motivate individuals to demonstrate entrepreneurial behavior. Empirical studies in the entrepreneurship literature have found entrepreneurs to have a higher leve of self-efficacy than non-entrepreneurs (e.g. Macko and Tyszka, 2009). Several entrepreneurship theorists have proposed that self-efficacy plays an influential role in the new venture creation process (Boyd and Vozikis, 1994; Scherer et al., 1989). Some studies showed that entrepreneurial self-efficacy can be considered as one of the main personal characteristics which has a significant strong and positive impact on entrepreneurial intention and it is a crucial factor in increasing the likelihood of business startup activity (Krueger et al. 2000; Boyd and Vozikis, 1994; Zhao et al., 2005). Therefore, on the basis of the above discussion, the following hypothesis is elicited: Hypothesis4: Entrepreneurial self-efficacy will influence students’ entrepreneurial intentions positively. 2. 5. Mediating Effects of Entrepreneurial Self-efficacy Although entrepreneurial self-efficacy is often depicted as a direct predictor for entrepreneurial intentions, it can also mediate the effects of other variables ( e.g. Zhao et al., 2005). The model tested in this study considers that self-efficacy can have a mediating role in the relationship between innovativeness and entrepreneurial intentions. Innovativeness relates to perceiving and acting on business activities in new and unique ways (Robinson et al., 1991). As suggested by many scholars (e.g. Schumpeter, 1934; Mitton, 1989; Thomas and Mueller 2000), innovativeness is one the most fundamental aspect of entrepreneurship and an essential entrepreneurial characteristic. Bandura (1986) pointed out that self-efficacy for a specific domain may be influenced by four components, including one’s own psychological characteristics. Winkel et al., (2011) suggest that the relationship between certain personality constructs and one’s intentions can is mediated 3
by self-efficacy (e.g., Nauta, 2004). We, therefore, expect innovativeness to have a direct influence on self-efficacy and an indirect influence on entrepreneurial intentions through entrepreneurial self-efficacy. Having high levels of innovative behaviour will stimulate individuals that they pursue an entrepreneurial career because they feel more confident that they can fulfil the roles and the tasks necessary to succeed in starting up a new business. Therefore: Hypothesis5: Entrepreneurial self-efficacy will mediate the relationship between innovativeness and entrepreneurial intention 3. Research methodology The survey focused on students who took the entrepreneurship courses both undergraduate and post graduate in seven Iranian universities during the academic year 2010-2011. These students were selected due to their enrolment into entrepreneurship courses which provided indication that their career interest is skewed towards entrepreneurship (Zainuddin and Ismail, 2009). A structured questionnaire was designed by the researchers to gather the data required for this research. Four hundred students were following entrepreneurship courses in the selected universities. Thus about 400 questionnaires were distributed. With the approval and cooperation of lecturers, the questionnaires were distributed at the beginning of a session for undergraduates and graduate students. The students were given half an hour to complete the questionnaire. In total, 346 questionnaires were collected indicating a response rate of 87%. 4. Measures The questionnaire made use of a seven point Likert scale (1= strongly disagree to 7= strongly agree) questions to determine entrepreneurial intentions and characteristics. For all the scales, responses were coded in a way that higher scores mean higher entrepreneurial intention and personality traits. Entrepreneurial intention was measured by six items. These items are adopted from Linan (2009). Entrepreneurial self-efficacy was measured by a 4-item self-assessment scale adopted from Zhao et al. (2005). A 4-item measure of risk-taking propensity developed by Gomez-Mejia & Balkin (1989) was used in this study. Seven items from Cassidy and Lynn (1989) as utilized by Dohse and Walter, (2010) were used to measure need for achievement in this study. Need for independence was measured with four items. This measure was adopted from Dohse and Walter (2010). Innovativeness: An eight-item measure of innovativeness from the Jackson Personality Inventory Manual (JPI) as utilized by Mueller and Thomas (2000) was employed in this study. 5. Statistical method The obtained data were then analyzed by using SPSS18 and AMOS18. The research steps and methods included instrument development, an exploratory factor analysis, a confirmatory factor analysis, and a test of a structural model. Structural Equation Modeling (SEM) was used to test the impact of five sets of antecedent factors, namely entrepreneurial self-efficacy, propensity to take risk, need for achievement, need for independence, and innovativeness, on the intention of students to become an entrepreneur. SEM is a method widely used in the behavioural sciences during the last 15 years (Shook et al., 2004). It has the ability to estimate simultaneously several multiple regressions that may be interdependent (Blaikie, 2003). For the present study, the use of SEM is pertinent as it helps estimate a series of separate, but interdependent, multiple regression equations simultaneously for modeling students’ intention to new venture creation. 6. Analysis and results 6.1. Demographics of the participating students The sample consisted of 266 undergraduate students (%76.9) and 80 graduate students (%23.1). In general terms, the sample was integrated by 40% of agriculture engineering, 33% of business, 17% of humanity science and 10% of computer engineering. Based on the survey, female respondents represented %61.3 of the total respondents while male respondents included %38.7 of the sample. In the case of age distribution, the majority of the students were between 21-25 years of age (82.1%) and the
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average their age was 22.61 years old. Majority of the students (78%) were not having prior working experience. 6.2. Exploratory Factor Analysis An Exploratory Factor Analysis (EFA) was used to reduce the items to a smaller, more manageable set of underlying factors.To examine the suitability of the data for EFA, Kaiser Mayer-Olkin (KMO) measure of sampling adequacy and Bartlett test of sphericity were used. A high value of KMO measure of sampling adequacy (0.838), highly significant Bartlett test of sphericity (chi-square: 3229.408; Significance: p 1.96), and all standardized factor loading should be more than .50 (Janssen et al., 2008). Table 3 shows that all items exceed the critical ratio at the 0.05 level of significance and all loading are more than 0.5. The range of the critical ratio is 7.737 to 13.237. Both the standardized factor loading and critical ratio indicate good convergent validity. Table 3: Factor loading, construct reliability and AVE for the proposed model P Construct Latent variable Items Standardized T-value Reliability Factor (CR) Loading Entrepreneurial Y1 .564 .83 intention Y2 .707 10.604
