Rise in trust of institutions led to boost in entrepreneurial intent, especially among STEM undergraduates

Many factors go into the decision of whether to become an entrepreneur. One component that hasn’t received much academic scrutiny is potential entrepreneurs’ trust in institutions. Yong Suk Lee, assistant professor of technology, economy and global affairs at the University of Notre Dame’s Keough School of Global Affairs, studied how former South Korean President Park Geun-hye’s 2016 impeachment due to corruption and abuse of power affected people’s trust in government institutions.

“We find that the impeachment ruling increased people’s trust in government, and increased trust in government is associated with an increase in entrepreneurial intent,” Lee and his co-author Charles Eesley at Stanford University wrote in their recently published paper in the journal Organization Science. “High levels of corruption and rent-seeking in the government may deter talented people from taking risks and investing in potentially productive entrepreneurial activities. Corruption and rent-seeking may reduce the expected returns from entrepreneurship and increase uncertainty. Increased trust in the institutions of government could therefore increase the entrepreneurial intent of potentially productive entrepreneurs, especially those that engage in high-risk and high-investment entrepreneurship.”

Park, the first female president of South Korea, had a longtime connection to her aide Choi Soon-sil, the child of an infamous cult leader. Some characterized their relationship as comparable to that of Rasputin and Russian Czar Nicholas Romanov. Park was accused of granting Choi and her family special favors and of creating fake foundations to accommodate extortion. Millions of South Koreans took to the streets to demand her removal as president, and the National Assembly voted in line with the people. Ultimately, the Constitutional Court unanimously upheld the impeachment. In the end, Park was sentenced to 24 years in prison and fined nearly $18 million after being found guilty of coercion and abuse of power.

Lee and his colleague were able to use this real-life scandal as a kind of natural experiment to gauge trust. The team surveyed 2,000 random individuals in South Korea between 20 and 60 years of age and an additional 1,000 college students who intended to enter the job market soon after graduation. In the end, more than 2,700 of those contacted completed and submitted the survey with an almost even split between male and female respondents.

In their pre-impeachment survey, Lee and Eesley found that 31.34 percent of respondents had the intention of starting a business in the next five years. The researchers asked specifically about trust in different entities and people including government, politicians, civil servants, the Supreme Court, the Constitutional Court, prosecutors, police, media and chaebols (large conglomerates). On average, people’s entrepreneurial intent did not change post-impeachment. However, they found that intent increased for those whose trust in the government increased after the impeachment.

Lee has previously studied entrepreneurship potential among Asian Americans and non-American Asians studying in the US. He found that, among Stanford alumni, Asian Americans have a higher rate of entrepreneurship than white Americans. However, non-American Asians have a substantially lower (by about 12 percentage points) startup rate than Asian Americans.

“I had this overarching question: Who becomes entrepreneurs? At Stanford, entrepreneurship is big, with a relatively high share of entrepreneurial students of Asian heritage. The world is buzzing and trying to find out how entrepreneurship works in Silicon Valley,” Lee said. “One thing that’s pretty common in East Asia is that talented people go into very safe jobs—for example, in the government or as doctors or lawyers. There’s more hesitancy against entrepreneurship compared to the US.”

This drove Lee to want to examine which fields at South Korean academic institutions foster the most entrepreneurial intention. Lee and Eesley hypothesized that the benefits to entrepreneurship would need to be substantially higher for STEM (science, technology, engineering and math) majors to consider entrepreneurship given the opportunity costs and better, often high-paying options outside of entrepreneurship. Correspondingly, trust in government institutions must be higher; otherwise, such individuals are likely to perceive the returns to entrepreneurship as too uncertain. The researchers found this to be true, especially among STEM majors at prominent universities.

“The relationship between trust in government and entrepreneurial intent is significantly stronger for individuals with science, technology, engineering and math degrees from top universities,” the researchers wrote. “Whereas prior literature at the intersection of institutions and entrepreneurship theorizes that institutional changes result in greater levels of entrepreneurship, relatively little work focuses on how institutions shape the characteristics of individuals becoming entrepreneurs.”

With yet another regime change underway in South Korea, opinions and motivations have likely changed. Lee and Eesley will potentially launch another survey, and they are conducting related research in China.

Originally published at news.nd.edu on April 6, 2022.

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