Research Statement

Research Statement – Charles Eesley (Academic CV)

My research focuses on the influence of the external environment on entrepreneurship. Specifically, I

investigate the types of environments that encourage the founding of high growth, technology-based firms. Although I build on previous literature that explains why entrepreneurs are successful on the basis of individual characteristics, network ties, and strategy, my major contribution is to demonstrate that institutions matter. I show that effective institutional change influences who starts firms, not just how many firms are started.

Studying the implications of institutional change for entrepreneurship is difficult because it requires that institutions vary while other aspects of the environment remain constant. Thus, I have repeatedly studied entrepreneurship in a single country (China, Japan, and the U.S.) before and after a major institutional change that has intentionally or unintentionally altered the landscape for people who seek to found new firms.

My research is divided into three streams: (1) how formal institutions (policies, legal structures and regulations) influence entrepreneurship, (2) how informal institutions (accepted practices and norms) shape entrepreneurial opportunities, (3) how the environments of particular industries influence the success of entrepreneurial teams.

STREAM 1: Formal Institutions and Entrepreneurship

My research in this stream examines how institutional changes influence who becomes an entrepreneur and how successful they are. I focus on three types of institutional change: (a) changes to industrial policy that affect who founds firms and how easy it is for firms to grow, and (b) changes that influence the socialization of individuals. In contrast, prior literature focuses largely on institutional changes that affect barriers to entry (fixed start-up costs).

Institutional Changes that Affect Founding and Growth (China). Prior research typically focuses on how many entrepreneurial firms are created, rather than on who founds firms. My paper, Who has ‘The Right Stuff’? Human Capital, Entrepreneurship and Institutional Change in China, (R&R at Management Science) distinguishes institutional changes that make it easier to start a firm from those that remove obstacles (or barriers) to growth. The findings suggest that both types of institutional change generate more entrepreneurship. Yet, only the latter type of change stimulates the founding of technology-based firms because removing barriers to growth influences the kinds of individuals who successfully start firms. I capitalize on an amendment to the Chinese constitution that lowered barriers to growth by reversing regulations that favored firms with foreign investors, thereby making it easier for domestic entrepreneurs to gather resources and access new markets. This paper won several awards, including the Kauffman Dissertation Fellowship Award (2008), and the Academy of Management BPS Division Best Dissertation Award (2010).

Failure IS an Option: Institutional Barriers to Failure, Bankruptcy and New Firm Performance, (R&R at Management Science, with Robert Eberhart and Kathy Eisenhardt) examines a 2003 reform in Japan that limited the financial liability of entrepreneurs who went bankrupt. After the reform, more elite individuals founded firms with significantly faster growth. The paper demonstrates how barriers to exit can influence who founds firms and the rate at which ventures grow. This paper received a Kauffman Foundation International Research and Policy Roundtable Best Conference paper award, 2012 and appeared in the Academy of Management Best Paper Proceedings in 2012 (only the top 10% of presented papers).

Too Much of a Good Thing: Institutional Change and New Firm Performance (under review at Academy of Management Journal, with Robert Eberhart) examines another Japanese reform that made it easier for firms to go public (have an IPO). We found that after the reform new investment concentrated in the technology industry but that “average” performance of new firms declined. Making IPO’s easier encouraged highly educated individuals to found more firms. These firms had higher growth rates and promised greater opportunities for reward, but they were also riskier ventures.

Across several papers, I built on the concept of barriers to growth by examining institutional changes that shifted the effectiveness of growth strategies. Changing Entrepreneurial Strategies to Developing Capitalist Institutions: A Look at Chinese Technology Entrepreneurs (under review at Strategic Management Journal, with Delin Yang) shows how strategies associated with high performance vary by institutional context. Specifically, reforms that favored free-markets over central planning shifted the advantage from entrepreneurs whose strategy was to build relationships with government officials to those who pursued a strategy of innovation. I also found that science parks protected these new ventures so that they could grow during the reform’s transition period. The paper develops the concept of cocoon institutions that shield young firms during periods of institutional change. For this work and my other papers on China, I won a prestigious and highly selective National Natural Science Foundation of China (NSFC) Research Award for International Young Scientists in 2012.

The discovery that Chinese science parks mattered so much during the transition period motivated me to explore science parks further, because most prior work casts doubt on their usefulness. Networks or Science Park Institutions?: How Ventures Acquire Resources to Innovate in Emerging Economies. (under review at Organization Science with Daniel Armanios, Jizhen Li and Kathy Eisenhardt), finds that science parks supported fundraising and growth, but only for ventures that lacked government ties. In other words, they made it possible for less well-connected people to found firms. These results stand in sharp contrast to prior research which shows that science parks are ineffective in developed economies. In emerging economies, cocoon institutions like science parks are more effective because they expand the set of people who become successful entrepreneurs.

Institutional Changes that Affect the Socialization of Individuals.

One reason that science parks may have been so important in China is that they are extremely flexible institutions that are bound by few rules. Previous research suggests that entrepreneurs benefit from the opposite: clear, transparent rules and regulations. This paper introduces and explores the idea that institutional flexibility may encourage individual choice and entrepreneurship. Educational institutions are an ideal setting to explore flexibility because they play a key role in socializing individuals. In Institutional Flexibility and Training for Entrepreneurship?: Evidence from China (R&R at Organization Science with Delin Yang and Ed Roberts), I examined a reform that made the curricula of Chinese universities more flexible. We found that the flexibility allowed by the educational reform led students to explore interests at the boundaries of fields which, in turn, encouraged more entrepreneurial activity among students and alumni.

A second paper on the socialization of individuals examines a different educational reform. Does Institutional Change in Universities Influence High-Tech Entrepreneurship?: Evidence from China’s Project 985 (under review at Academy of Management Journal with Jamber Li and Delin Yang) shows that educational institutions can change the beliefs and behaviors of entrepreneurs. Project 985 provided funding for a set of universities to build new research centers. We found that graduates of these universities subsequently founded more high-tech ventures, but that entrepreneurs influenced by the reform were not as financially successful as entrepreneurs who founded firms before the reform. This surprising finding may be due to the fact that Project 985 was inconsistent with several aspects of China’s regulatory environment: It lacked laws that protected intellectual property and safeguarded contracts. An important implication is that regulatory changes may alter behavior, but they must be consistent with the broader institutional environment to improve firm performance.   

STREAM 2: Informal Institutions and Entrepreneurship

In an earlier stream of research, I explored how social movements can change informal institutions which, in turn, influence a firm’s strategy, its tendency to innovate, and its effect on the environment. The research makes use of a novel, hand-collected archival database that includes 3,227 firms and 307 stakeholder groups in 602 separate actions from 1971–2003.

Firm Responses to Secondary Stakeholder Action (in Strategic Management Journal, with Michael Lenox), explores the conditions under which environmental groups are effective at pressuring firms to improve their environmental performance. Using resource dependency theory we show that the power, legitimacy and urgency of a movement’s demands influence the odds that firms take action consistent with the demands. The results place boundaries on the extent to which social movements substitute for formal institutions. This paper appeared in the Academy of Management Best Paper Proceedings (only the top 10% of presented papers) in 2005.

After showing that social movement organizations can influence firms to change, I became interested in how a movement’s leaders choose which firms to target. Private Environmental Activism and the Selection and Response of Firm Targets (in Journal of Economics & Management Strategy, with Michael Lenox) built and tested a theoretical model of how social movement organizations target firms, when firms will comply, and how aggressive activists will be. We find evidence that firms are less likely to acquiesce to activists’ demands, the greater their cash reserves and the worse their environmental performance. Larger, more profitable, and advertising intensive firms are more likely to be targeted by activists whereas firms with large cash reserves are less likely to be targeted.

Ironically social movements often target the largest firms in an industry even though they are usually the “cleanest” firms in the industry. Secondary Stakeholder Actions and the Selection of Firm Targets. (R&R at Strategic Management Journal, with Michael Lenox) examines why. We contribute by linking stakeholder characteristics to targeting behavior and show that identity-motivated activists target more visible firms with confrontational tactics, while interest-motivated activists target relatively “dirtier” firms. This paper appeared in the Academy of Management Best Paper Proceedings in 2006 (top 10% of presented papers).

STREAM 3: Industry Environment and Entrepreneurial Performance

Much previous research has focused on how complex, unpredictable environments create a need for heterogeneous skills and less structured organizations. In contrast, my third stream of research examines how industry environments influence which entrepreneurs perform better.

Entrepreneurs from Technology-Based Universities: Evidence from MIT (in Research Policy with David Hsu and Ed Roberts) bridges my first and third streams of research by asking who becomes an entrepreneur and how the mix of entrepreneurs has shifted over time. Unlike most previous research which uses individuals’ characteristics to predict who becomes an entrepreneur, we examine how changes in institutions and industries attract different populations of people to entrepreneurship. While entrepreneurship among graduates of MIT has increased over time, the rate among subpopulations of students has changed in response to changes in university and business environments. Prior work on university-spawned ventures emphasizes faculty spin-offs. In contrast, our study shows that the university itself plays an important role by emphasizing certain industries and academic disciplines rather than others and by changing how students are socialized. We also find that over the years, ventures spawned by MIT have shifted from manufacturing towards services and biotechnology.

That new entrepreneurs have entered different industries over time caused me to wonder whether an industry’s environment affects the relative performance of experienced and inexperienced entrepreneurs. Are You Experienced or Are You Talented?: When Does Innate Talent versus Experience Explain Entrepreneurial Performance? (Strategic Entrepreneurship Journal with Ed Roberts) disentangles talent from experience. Prior work suggests that experience is advantageous. We show that when an industry is disrupted or when a new industry emerges, talent offers a greater advantage than experience. Conversely, talented but inexperienced entrepreneurs do worse in stable industries where experienced founders are able to re-use prior practices. The paper appeared in the Academy of Management Best Paper Proceedings in 2010 (only the top 10% of presented papers).

Previous research indicates that having a functionally diverse founding team enhances the chances of a new venture’s success. Aligning Entrepreneurial Team Composition with Innovation Strategy and Commercialization Environment (2nd round R&R at Strategic Management Journal with David Hsu) shows that it may be a mistake to advocate functional diversity in some environments. Particularly, in cooperative industry environments where incumbents partner with entrepreneurs, a technically focused, all engineer team is superior. This paper received an IEEE International Recent Advances in Technology and Innovation Management Best Conference Paper Award (2011).

Experience, Industry Environment, and How Founding Team Formation Influences Venture Development (R&R at Strategic Entrepreneurship Journal) examines whether the characteristics of an industry also influence how experienced and inexperienced entrepreneurs go about assembling their founding team. The contribution is that more experienced entrepreneurs form teams in a distinct way improving their speed and flexibility, which is more important for performance in more dynamic industries. For this work I received the Kauffman Foundation Research Grant (2011).

Summary. My research explores how various aspect of the environment – formal institutions, informal institutions, and industry contexts – influence new ventures. Most of the literature on entrepreneurship focuses on individuals. I depart from this tradition by situating entrepreneurs and their ventures within environments and by showing that interactions between environments and entrepreneurs matter. Thus, my work bridges theories of entrepreneurship and institutional theory whose views are often in conflict. For example, students of entrepreneurship frequently attribute change to heroic individuals, while institutional theorists portray individuals as being swept up by the tides of institutional change. My work offers a middle ground where entrepreneurship arises through the interplay of institutions and individuals. My agenda is to use institutional theory to increase the quality of entrepreneurship. In particular, I have conducted studies that show that policies that foster high-growth entrepreneurship are different than those that spawn small businesses.

This point has important implications. If we wish to do more than encourage the formation of small businesses, if we also desire to foster technology-based start-ups with the potential for high growth and innovation in certain industries, then it pays to consider which formal and informal institutions we want to encourage or discourage. My research shows that institutional changes can significantly influence the types of firms that are created, who creates them, and how they perform. At the same time, it sounds a caution about too hastily transferring our knowledge of the institutions of developed economies and a Western-centric view of entrepreneurship to other regions of the globe. Rather than offer a single blueprint for success, my work shows that we may be more effective by helping entrepreneurs to understand the multiple levels of and the changes that are occurring within their environments. For example, attention to the institutional context is particularly important when choosing the composition of a founding team or a venture’s strategy.

My research challenges widely accepted ideas about entrepreneurship by highlighting where our taken-for-granted notions are incomplete or misleading. For example, we commonly assume that more entrepreneurship is better. My work shows that lowering entry barriers leads more people to start firms, but that removing obstacles growth encourages the smaller set of entrepreneurs whose firms are more likely to succeed. Similarly, although previous research assumes all entrepreneurs benefit from industry disruptions, my works suggests that capturing the benefits of a disruption requires building a team with the right composition. My studies also call into question the assumption that institutions that make it easier to start firms are unambiguously beneficial, that flexible institutions cause problems for entrepreneurship and that experienced, diverse founding teams are always superior.

My theoretical contributions include introducing into the theory of entrepreneurship the utility of such concepts as institutional barriers to growth, cocoon institutions, and institutional flexibility. I have also shown that institutions do more than simply encourage more entrepreneurs, they also influence who founds new firms, the probability that new firms will grow, the optimal composition of founding teams, and the strategy that firms should employ. By conducting my studies in multiple countries, I have sought to broaden our conception of entrepreneurship and its relationship to public policy beyond the developed economies. I have also contributed methodologically by showing how to measure talent, by using alumni surveys to reduce success bias, and by analyzing multi-industry databases with state-of-the-art statistics (instrumental variables, differences-in-differences) to isolate the influence of industry environments. My approach to using alumni surveys has begun to spread. Scholars at University of Pennsylvania, University of Virginia, University of Tokyo, and the Technion have adopted the survey methods I employed at MIT, Stanford and Tsinghua University in China. I strive to be at the forefront of overcoming challenges to identifying relationships between the environment and entrepreneurship.

Teaching Statement. At Stanford I have had the opportunity to innovate in the classroom. I teach an introductory class on Technology Entrepreneurship to undergraduate engineering students. In this class I aim to distill insights from research and to expose students to entrepreneurial thinking and to frameworks that will be useful regardless of their future career choices. I recently began to record video lectures that enable me to use class time in a more interactive way. Using an online platform, I have also experimented with offering the class to 40,000 students from 150 countries. By giving the students access to a large test market and a source of engaged feedback for their ideas, the online platform accelerates learning and more closely approximates a real world experience in the classroom. Because the online tools provide feedback and data on teaching methods, I have leveraged the online experience to improve the quality of the classes I teach on campus as well. In the future, the online course will also be a source of randomized field experiments and data to further my research agenda globally. I also teach a doctoral seminar on entrepreneurship (emphasizing how entrepreneurship in different regions may have vastly different dynamics), where I aim to train future scholars. I have been a mentor in the Diversifying Academia, Recruiting Excellence (DARE) program to help doctoral students from diverse backgrounds stay in academia.