FOY.S Thesis - Submitted to Honors Council 26 April 2012

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SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT

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SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, AND ENTREPRENEURIAL INTENT: EMPIRICAL EVIDENCE FROM A RUSSIAN CONTEXT
Shirah E. Foy

A thesis project submitted to the Honors Council in partial fulfillment of the requirements for the degree Bachelor of Business Administration Belmont University 2012

____________________________ Tutor ___________________________ Committee Member ___________________________ Committee Member

Date __________

Date __________

Date __________

Accepted for the Honors Council: _________________________ Devon Boan, Director The Honors Program Date ___________

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT

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ACKNOWLEDGMENTS To my mom, Sheila, who listened to each new crisis and always had an encouraging word. To my dad, Eric, whose exclamations of pride and amazement at my every new discovery have constantly motivated me. Your compliments are more than I deserve, but they make me feel so special. There's nothing like being the little girl of a proud father. A special shout-out to Joshua Radin, whose rhythm, tone and timbre accompanied me throughout every step of the writing process (and kept me sane during long, long nights). To Alex, the bilingual economist whose translation assistance I could not have done without. To Tatyana K. at the U.S. Consulate in St. Petersburg, Russia, who put me in contact with all the right people and spent hours proofreading my survey. To Olga and Gleb, the young Russian entrepreneurs whose story brought this project to life for me. To Christian, the charts and graphs guru who so patiently helped me increase my mathematical literacy. To my committee members, Dr. Velikova and Dr. Schafer, your insight and expertise has significantly increased the caliber of this final product. And lastly, but certainly not least - a big thank you to my thesis advisor Dr. Mark Schenkel. Your guidance has been instrumental in the completion of this project. Thank you for giving me a chance, for dedicating so much of your time to walking me through my first major research undertaking, and for setting the bar high. You're rather stingy in doling out the gold stars, but I covet every one I've managed to get.

Everyone, your encouragement and support have made this project enjoyable as well as a formative learning experience.

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ABSTRACT Researchers, practitioners, and policy makers have become increasingly interested in the nature of entrepreneurial activity in part because two decades of restructuring in Russia's economic and political environments has resulted in the appearance of a structurally more capitalist system. However, Russia's social milieu remains rooted in collectivist tradition. Despite this growing interest, there is evidence to suggest this transition remains incomplete and that the formation of entrepreneurial intentions may be different in Russia from those traditionally depicted in the West. This study looks at the roles of social capital and personal financial capital in the classic entrepreneurial intentions model (EIM). Our findings suggest that pro-entrepreneurial social norms in the proximal environment are more positively associated with the perceived desirability of entrepreneurial activity than institutional incentives, but that government and institutional incentives are significantly and positively associated with perceived feasibility. We find that personal financial capital (PFC) independently predicts both desirability and feasibility, and is a significant moderator for social norms on feasibility but not on desirability. Collectively, this evidence suggests that the power of PFC to positively influence the formation of intent extends only as far as the potential entrepreneurs whose social norms favor the pursuit of entrepreneurial activity.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT CHAPTER I. INTRODUCTION 1.1 Introduction Russia started its transition from a socialist planned economy to a capitalist market economy (Aslund, 1995), beginning with Gorbachev’s perestroika and glasnost’ initiatives in the late 1980s and continuing with the dissolution of the Soviet Union in 1991. Though private entrepreneurship was legalized in 19901 (Aslund, 1995; 2007), there still exist many challenges and deterrents to self-

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employment (including those stemming from a lack of infrastructure, political instability, a transitional economy, and a social milieu that was, for seventy years, indoctrinated to steer clear of the “evils” of capitalism and entrepreneurship (Aslund, 2007; Procaccia, 2007)). Despite this, young people in present day Russia are becoming increasingly aware of a growing number of incentives for entrepreneurial activity which have emerged since private enterprise became a legal pursuit (OPORA, 2012). External incentives for the development of entrepreneurial intent in Russia are largely financial in nature. In the last two decades, USAID alone has poured over $2.6 billion into economic development projects in Russia (USAID, 2009). Microsoft has already invested $410,000 among six Russian IT start-ups, and in 2010 Microsoft CEO Steve Ballmer pledged $100 million to be distributed among Russian IT start-ups over a ten-year period (Razumovskaya, 2011). The globalization of capital markets has introduced new opportunity for Russians to acquire the funding needed to start a business. In addition to foreign investment in the form of venture capital grants (e.g. Microsoft's investment), smaller business loans are made available through small- and medium-enterprise (SME)-focused micro-finance initiatives such as USAID (2007), Finca (2012), and the Consumer Credit Union
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Anders Aslund, expert on the transition from the USSR's socialist economy to Russia's capitalist model, writes: “The Russian Law on Enterprises and Entrepreneurial Activity was adopted on December 25, 1990, and allowed for all kinds of enterprises. Their legal forms included individual entrepreneurship, sole proprietorship, general partnership, limited partnership, and joint stock companies” (1995, p. 224).

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT 'Economic Partnership' based in Russia (IAMFI, 2012). In a region where start-ups are "unbankable"

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by traditional standards (Bossoutrot, 2005), and small business loans are unheard of, the introduction of micro-lending may add to a potential entrepreneur's savings, increasing the feasibility of starting a business. Predicting the start-up of entrepreneurial ventures is significant for both public and private investors who incur considerable risk in making such significant investments in Russia during this transitional period. Intentions models have been shown to be excellent predictors of entrepreneurial behavior (Bird, 1988; Katz & Gartner, 1988; Krueger, Reilly & Carsrud, 2000). However, the transferability of current intentions models to diverse cultural contexts remains in question. For example, there is reason to believe that, in the context of Russia's recent and ongoing economic-socialpolitical transition, models of intent may not apply in the same way as in the West.2 One reason for this is the developing diversification of financial capital sources for Russian entrepreneurs (Bossoutrot, 2005; USAID, 2009). This growing number and variety of financial capital sources has started to make seed capital more accessible, something which has been found to contribute to the feasibility of starting a business in prior research (Dunn & Holtz Eakin, 2000; Reitan, 1997). Perceptions of feasibility have, in turn, been shown to play a significant role in predicting the intention to start a business (Krueger, 1993; Fitzsimmons & Douglas, 2011). Equally important to the formation of entrepreneurial intent is the desirability of starting the business (Linan & Santos, 2007). Past research suggests desirability depends largely on the entrepreneur's perceived social norms (Krueger, 1993; Elfving, Brännback, & Carsrud, 2009). In the present context it happens that just as the financial capital situation is in transition, so too has Russia’s social milieu witnessed considerable upheaval and change (Aslund, 1995; 2007; Procaccia, 2007).
Although we believe the distinction between “East vs.West” might be arbitrary and falsely generalize principles in many concepts, we recognize that intentions literature has been predominately developed in what is often referred to as the West.
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SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Two decades of restructuring in Russia's economic, political and social environments suggests implications for entrepreneurial feasibility and desirability (Aslund, 1995; 2007). Russian college

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students represent the first generation of potential entrepreneurs (since the dissolution of the USSR) for whom entrepreneurship has been a legal activity since birth or early childhood. This generation of young Russians has access to more sources of financial capital and has been subjected to more diverse, pro-capitalist views than any other generation in recent history – factors which might intuitively be expected to influence perceptions of the feasibility and desirability of entrepreneurship. This thesis looks at social norms as a reflection of prospective entrepreneurs' dual-dimensional environment (Alexander, Giesen, Münch, & Smelser, 1987). The first dimension is the proximal environment, and refers to social capital in relationships with individuals that the subject has identified as important to their business decisions. The second dimension is the extended environment, and refers to more distal influences such as the media, political and social institutions, and cultural norms and values. 1.2 Theoretical Basis for the Research: Why Study Intentions? Empirical evidence from socio-psychological research suggests that intentions are the best predictor of planned behavior. This is especially the case when the behavior in question is difficult to observe, rare, or involves unpredictable time lags (Krueger et al., 2000). Because launching a venture requires a considerable amount of planning and takes time to develop, entrepreneurship is a primary example of the type of behavior (Bird, 1988; Katz and Gartner, 1988) to which intention models may be effectively applied. Their usefulness in comprehending the formation of entrepreneurial intent provides a “coherent, parsimonious, highly-generalizable, and robust theoretical framework for understanding and prediction” (Krueger, Reilly & Carsrud, 2000, p. 411). Thus, extant research suggests intentions are important to the study of entrepreneurship because they predict entrepreneurial

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT behavior (Krueger, Reilly, & Carsrud, 2000) and allow us to better understand the entrepreneurial activity in and of itself (Azjen, 1987; 1991). The socio-economic problems which entrepreneurship is believed to help alleviate (e.g. unemployment, low standards of living caused by low incomes and limited access to education and

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healthcare) are significant in areas where the majority of intentions research originates – i.e. developed countries, such as the United States, Sweden, Finland, and elsewhere in Western Europe – but such foundational issues are equally important in Eastern Europe, Africa, Asia, and South America, where economies have been characterized as emerging and transitional. Only in recent years have studies started to emerge which investigate entrepreneurial intentions among populations in developing economies (including comparative studies across both developed and developing countries). Such studies have looked at populations in South Africa (Fatoki, 2010), Pakistan (Azhar, Javaid, Rehman & Hyder, 2010), Nigeria (Okafor, 2011), and Russia (Iakovleva & Kolvereid, 2008), among others. The usefulness of intentions models, especially a contextually-based model such as the one developed in this thesis, is found in its potential to be used to best direct and allocate resources dedicated to encouraging and providing effective incentives and support for potential entrepreneurs. 1.3 Contributions of the Research Studies exist which relate social capital directly to entrepreneurship (Batjargal, 2003; Davidsson & Honig, 2003; Greve & Salaff, 2003; Marshall & Oliver, 2005; Liao & Welsch, 2005; Linan & Santos, 2007). Major theories on the formation of entrepreneurial intent acknowledge social norms as playing a role - even a substantial role - in the formation process (Azjen, 1982; Davidsson, 1991; Kolvereid, 1996; Reitan, 1997; Shepherd & Douglas, 1997; Tkachev & Kolvereid, 1999). Few studies, however, investigate the nature of the role social capital plays in forming social norms and how this affects the formation of entrepreneurial intent (e.g. Liao & Welsch, 2005).

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Most studies of social capital pertaining to entrepreneurs focus on the flow of goods and information; there is a gap in the literature regarding network members' influence in terms of social norms and values (Shapero, 1982; Krueger et al., 2000). Network modeling is not a component of the study, but the issue is addressed in differentiating the influence of extended and proximal entities in terms of social norms and values. Whereas a multi-country empirical study is beyond the scope of this thesis, Russia’s unique transitional society at the crossroads of Europe and Asia, where social norms differ radically from the Western societies in which the majority of intentions research has been done, contributes to a growing number of studies which have emerged to fill this gap in the literature.

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SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT CHAPTER II. LITERATURE REVIEW 2.1 Introduction to the Literature Review The literature review section of this thesis first introduces the concept of entrepreneurial intent

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and the classic entrepreneurial intentions model (EIM) that serves as the foundation of the study. Then, a survey of the literature concerning Russia's transitional society and economy provides contextual guidance. Finally, a discussion of the evolution of personal financial capital and social norms before and during Russia's transition leads to the main research questions. 2.2 Entrepreneurial Intentions 2.2.1 What is entrepreneurship? Stevenson (1983) defines entrepreneurship as the bringing together of resources in order to create wealth. Kuratko and Hodgetts (2007) and Krueger, Reilly and Carsrud (2000) include in their definition of entrepreneurship the mind-set that requires seeking opportunities, taking risks beyond security, and having the tenacity to transform an idea into reality. Thus, entrepreneurship can be seen as the process of an individual combining his or her own knowledge, skills, and abilities with the resources in his or her environment to create wealth through the production of a new product or service. Given this process-based definition of entrepreneurship, it comes as no surprise that a field of research has emerged based on the formation of entrepreneurial intentions. 2.2.2 What is entrepreneurial intent? Entrepreneurial intent is defined as the establishment of a goal to engage in entrepreneurial behavior, such as starting a business venture (Krueger, 1993). The "very relevant role" of intent in the decision to start a new firm is increasingly acknowledged and emphasized in the literature (Linan & Chen, 2009, p. 593). Studies surrounding intent have focused on the role of political-legal (Griffiths,

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Kickul, & Carsrud, 2009), educational (Moutray, 2008), sociocultural (Tierney & Farmer, 2002),

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psychological (Lee, Florida & Acs, 2004), and demographic factors in the formation of entrepreneurial intentions. Desirability and feasibility are generally accepted as the two principal predictors of entrepreneurial intentions (Azjen, 1991; Krueger, 1993; Krueger & Brazeal, 1994; Krueger et al., 2000; Linan & Santos, 2007; Elfving, Brännback, & Carsrud, 2009; Griffiths, Kickul & Carsrud, 2009). Linan & Santos (2007) provide these definitions of the constructs: • Perceived desirability. This measures the degree of attraction an individual perceives toward a specific behavior, such as becoming an entrepreneur (p.445). • Perceived feasibility. This measures an individual's perception regarding their own capacity to carry out a specific behavior (i.e. becoming an entrepreneur) (p. 445), taking into account personal knowledge, skills, and abilities, as well as external forces in their environment. Although intentions clearly have implications for entrepreneurial activity, our focus in this thesis is on the formation of intent, not the resulting activity per se. 2.2.3 An Intentions Model Derived From Three Philosophies The study of entrepreneurial intentions is roughly three decades old. Since the early 1980s the study of entrepreneurial intentions has emerged as a distinct field in the literature. Albert Shapero, one of the pioneering researchers in the discipline, started to probe the idea of modeling the formation of entrepreneurial intent in his landmark 1982 publication: The Social Dimensions of Entrepreneurship. Following Shapero, three main philosophies have guided the development of literature pertaining to the formation of organizations and nascent firms. The first philosophy revolves around the idea that it is the person – a prospective entrepreneur's collective knowledge, skills, and abilities resulting from their education, training and experience, referred to as human capital - which largely determines whether and

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT how the organization is formed (Becker, 1993). The second philosophy takes the focus off the person and puts it on the situation: emphasizing exogenous factors in the environment and activities of existing firms and institutions as the primary determinant of entrepreneurial events (Liao & Welsch

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2005). The third philosophy focuses on process – "the behavior and events that lead to the creation of a new venture" (Liao & Welsch 2005, p. 348) – embodied in behavioral intentions models which look at the formation of intent as a process influenced by various factors (e.g. Shapero, 1982; Azjen, 1991; Krueger, 1993). This thesis draws on each of these three philosophies via a joint investigation of human capital (the person and his attitudes) and social norms and personal financial capital (the situation) in the context of the entrepreneurial intentions model (EIM) (the process); we view the formation of entrepreneurial intentions as the process of situational factors influencing individuals. In doing so, we base our research on what Elfving, Brännback, & Carsrud (2009) present as “the classic entrepreneurial intentions model” (Figure 1) adapted from Shapero (1982), Krueger (1993), Krueger & Brazeal (1994), and Krueger et al. (2000). Figure 1 – The Classic Entrepreneurial Intentions Model

Perceived Social Norms Exogenous Factors

Perceived Desirability

Intent Perceived Self-efficacy Perceived Feasibility

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The idea behind this theoretical EIM approach is that once attitudes, situations and events which commonly precede entrepreneurs' decisions to start a business have been identified, a predictive model can then be tested, and, if supported, these antecedents can be seen as predictors of the formation of entrepreneurial intentions. Though the EIM leaves room for cultural differences in the perceived social norms variable (Elfving et al., 2009), its flexibility extends only to the structural boundaries of the one and only version of this model (i.e. significant variations of the model have not been offered for specific regions, economies, or temporal contexts (short-term vs. long-term intentions)). A twelve-country study has led some researchers believe that the model will hold in all cultural contexts (Engle et al., 2008). Elfving, Brännback, & Carsrud theoretically challenged the one-model-fits-all approach in their 2009 paper titled, “Toward a Contextual Intentions Model,” but did not provide empirical evidence or specific examples of contextual differences. Several studies call for further research into the matter (e.g. Kolvereid, 1996; Engle et al., 2008; Griffiths, Kickul & Carsrud, 2009; Iakovleva, Kolvereid & Stephan, 2011). 2.3 Russia in Transition 2.3.1 Studying Entrepreneurial Intent in the Context of Russia’s Transitional Government & Economy Russia is an interesting region in which to study entrepreneurial intent because of its history of hostility towards entrepreneurship, its recent period of political and economic growth and transition, and its current unique economic and entrepreneurial environment. Russia is considered a transitional economy because private enterprise was only recently legalized in 1990 (Aslund, 1995; 2007). Before this, a thriving black market was the outlet for individuals with entrepreneurial aspirations (Melvin, 1991), but private enterprise was officially prohibited under the regime of the Soviet Union which came into power in 1917 (Kickul, Gundry, & Iakovleva, 2007).

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Starting with the last Soviet leader Mikhail Gorbachev's perestroika and glasnost' (literal

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translation: "restructuring" and "opening") initiatives in 1985, Russia took its first steps away from the Soviet command economy and toward a more free market economy. Gorbachev's successor Boris Yeltsin implemented drastic deregulation and mass privatization. By the time Russia's capitalist revolution was complete, some experts were impressed with Russia's ability to build a dynamic market economy in only seven years (Aslund, 2007). Others, such as regional expert Uriel Procaccia (2007), maintain a much more subdued view of the former Soviet nation's economic progress: More than a decade after Perestroika and Glasnost, the Russian economy is still faltering; democracy is shaky; the securities markets are still a farce; privatization turned itself into a kleptocracy; and contract, the major foundation of all private law and all capitalistic institutions, is still unfathomable to the large bulk of the Russian nation... (p. xi). Free market principles struggle to take hold in Russia, in part, arguably because throughout more than a half-century under Soviet rule, the Soviet government condemned the pursuit of financial capital and material wealth. The Soviet model was presented to citizens as a system built on the principle that state-owned business entities would best ensure a fair sharing of the workload and distribution of goods and profits, thereby justifying a complete takeover of private companies. This history of strict centralized government control has led to numerous current impediments to entrepreneurial development and culture in Russia, including limited access to resources and institutional financing, bureaucracy, red tape, excessive taxation, a lack of government support, and weak law enforcement (Zhuplev, Kiesner & Zadovsky, 2004). However, not all blame for Russia's current struggle with entrepreneurship can be placed in the hands of Soviet leaders. Looking back, far beyond the Soviet years, one finds that the region has historically lacked the economic and social infrastructure and values that have allowed free market economies to develop so rapidly in the West.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT (Q1) Does the Russian context support the EIM (Azjen, 1991; Krueger, 1993; 2000; Elfving, Brännback & Carsrud, 2009) of perceived desirability and perceived feasibility as predictors of intent? 2.3.2 Personal Financial Capital Property rights are arguably fundamental to entrepreneurship (Aslund, 1995) because “they

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ensure that physical objects can be turned into capital” (Henrekson & Stenkula, 2010, p. 620), which in turn comprises any combination of cash and assets (Deardorff, 2010) including stocks, bonds, and shares that store wealth or can be used in transactions to transfer wealth. A lack of property rights in Russia has inhibited the formation of entrepreneurial intent in the past and continues to discourage it in the present. Though it is certain that private transactions were conducted within the realm of the informal economy (often called the “unofficial economy,” “underground” or “black” markets) under Soviet rule (Melvin, 1991), studies which have attempted to measure the informal economy (e.g. Johnson, Kaufmann & Schleifer, 1997; Johnson, Kaufmann & Zoido-Lobaton, 1998; Schneider & Enste, 2000) remain separate in the literature from those which study entrepreneurship and entrepreneurial intent in a legal context. Theory on entrepreneurial intent has been built primarily around productive entrepreneurial activity (e.g. Aidis & Estrin, 2006) rather than entrepreneurial activity which takes place outside legal boundaries and is termed unproductive or destructive (Baumöl, 1990; Desai & Acs, 2007). According to the formal and operational definitions of entrepreneurship as it is used in the literature,3 entrepreneurial individuals functioning in the USSR/Russia prior to the legalization of
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Hjorth and Stayaert (2005) explain that illegal behavior makes no appearance in theories of entrepreneurship. “Even though William Baumol (1990; 2002) showed that entrepreneurial activity can be identified in a number of contexts and function in destructive and unproductive ways, the theoretical development in the field still seems to be defined through the nexus of law and the market, even though neither can be viewed as necessary restrictions on human (economic) behavior” (Hjorth & Stayaert , 2005, p. 145).

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT entrepreneurship in 19904 may not be considered entrepreneurs. So then, entrepreneurship, from the perspective of activity within legal boundaries that it is approached in this study, has only recently developed in Russia with the advent of personal property rights in 1990 (Aslund, 1995). A prospective entrepreneur's ability to own property and his perception of the security of his

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property directly influence the perceived and actual feasibility of his venture. Booth (2005) argues that, "The lack of definition and enforcement of property rights is perhaps the key economic problem in underdeveloped countries" (p. 20). Russian antipathy toward contracts and property rights reaches back far beyond the twentieth-century Socialist regime – as far back even as the tenth century,5 posits Procaccia (2007). At the base of this centuries-long resistance to the employment of contracts are six cultural values and characteristics inherent to Russian culture that reflects a “conspicuous neglect” of humanism, indifference toward individualism, resistance to authority, discouragement for valuing wealth, a legal system favoring strong central authority over reason and experience, and a preference for imagery over the written word (Procaccia, 2007). Despite the public's general passiveness toward contractual arrangements, Soviet repudiation of private property, and the government's snubbing of contracts, many believe that "it is only a matter of time until the old lore vanishes, making room, in its retreat, for the revival of secure property rights and of contracts" (Procaccia, 2007, p. 5). Brzeski (2005) agrees, asserting that with time and generational change, the communist influence in Russia is bound to weaken (p. 3). Communist influence in Russia may well decline over time, but Procaccia (2007) firmly opposes the optimistic prediction that an appreciation for contracts and private property will magically materialize; in his view "this interpretation of history is both short-sighted and misleading [because] the Russian antipathy to
That is, excepting a small minority of entrepreneurs permitted to experiment with the capitalist system under Mikhail Gorbachev's perestroika and glasnost' beginning in the late 1980s (Aslund, 1995). 5 Procaccia (2007) does acknowledge brief periods of economic prosperity in the Russian territory; however he assures readers that these periods lasted a few decades at most and points out that there is no evidence that either commercial contracts or future promises were used in exchanges between merchants and traders.
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SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT contracts is much more deeply ingrained. It reflects a set of values that are as ancient as Christian Russia itself and has its roots way back in the tenth century" (2007, p. 5-6). Procaccia's skepticism about a sudden embrace of contracts and familiarity with private property is reasonable, given the

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historical entrenchment of the old philosophy, but he is perhaps overly skeptical about the possibility of such developments ever taking place, because new ideas do develop and we have evidence of other economies that have achieved a transition from communist planned economy models to free market capitalist systems (e.g. South Korea, Hong Kong, Taiwan and Singapore). Progress is being made gradually, but there are a few key challenges along the way. Despite enormous economic efforts to transform Russia into a flourishing market economy, there were (and continue to be), eight major political-legal road blocks to this restructuring. Procaccia (2007) offers four; we add an additional four. First is the general unfamiliarity with contract law. Second, there is not only an unfamiliarity, but a pervasive disinterest with employing or engaging in contracts. Third, should the government take an interest in developing functional contractual law, "there really is no common language in Russia; the elite understand the words of Russian in a different way from how other people understand them6" (Moore, 2005, p. 45). A fourth problem has been the Russian state's failure to enforce broken contracts. Fifth, a commonly cited impediment to the development of private enterprise within Russia's struggling market economy is the limited availability of capital (Bossoutrot, 2005; Aslund, 2007; Procaccia, 2007). This may be due in part to another rampant problem: The presence of displaced communists (politicians, etc.) who do not aim to restore "the old, failed communist economic systems,"

Russia is not alone in facing the challenge of writing economic policy and law that is understood and fulfills its designated function nation-wide; even less stratified societies witness dialectical differences between classes, generations, and other demographic profiles. For example, the “Queen’s English,” predominant with Britain’s upper class, differs greatly from farmers in the countryside; China struggles with a population divided by Mandarin and Cantonese dialects; and citizens in Germany’s southern Bavaria region understand the language quite differently from those in Berlin.

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SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT but instead are focused on staying in power via re-election and through the acquisition of as much private property as possible in the process of privatization (Sirc, 2005, p. 4). In other words, these are communists turned opportunists, who, having accepted the defeat of the Soviet government under which their financial success was somewhat guaranteed, seek methods of securing their social status and fortune through the mass acquisition of resources. Unfortunately, "the communist private owners are not potential entrepreneurs but party bureaucrats" (Sirc, 2005, p. 5).

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Sixth, because of various issues with the banking system (e.g. staggeringly high default rates of interenterprise debt and laws that allow companies to levy interest fees directly against the bank account of their debtors), "many enterprises [choose] to conduct money transactions outside of the banking system" (Procaccia, 2007, p. 4). Seventh, those who do wish to seek bank capital to fund their nascent and growing firms are hard-pressed to obtain it. Small business loans are virtually impossible to secure, especially for entrepreneurs who "lack adequate collateral and credit history” – thereby "making them 'unbankable' in the mainstream financial sector" (Bossoutrot, 2005, p. 1). Venture capital funds are not well developed, nor are foreign investors commonly involved with small business. Entrepreneurs, therefore, have only personal assets to draw from, often seeking funding from family and friends. And eighth, corruption within the Russian government and collusive relationships between government officials and the country's oligarchs continue to eliminate opportunities for fair competition, thereby discouraging potential entrepreneurs by ruining their prospects of developing and maintaining competitive advantage. Russia ranks 143rd (of 179 countries) in both the Heritage Foundation's 2011 Index of Economic Freedom and Transparency International's Corruption Perceptions Index 2011 – a dismal position, despite a one-point increase in the "Freedom from Corruption" category from 2010-2011. One corruption report estimates that "some 10% of total revenues in small- and middle-size businesses are taken by corruption" – a number that is drastically

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT increased during the start-up period in which an entrepreneur must obtain business licenses (Levin & Satarov, 2000, p. 115). A non-profit company called 21st Century Technologies estimated that

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entrepreneurs across Russia spend a collective US$500 million each month on bribes to officials (Levin and Satarov, 2000). Corruption has been found to discourage entrepreneurial intent (Griffiths, Kickul & Carsrud, 2009). Each of these eight obstacles inhibiting Russia's full transition to a market economy are significant to this study because they add to the difficulty of obtaining and maintaining personal financial capital. At the same time, the possession of personal financial capital, leveraged well, has the ability to mitigate many of the issues prospective entrepreneurs would face while engaging in entrepreneurial activity. We use the term “personal financial capital” (PFC) to designate the financial capital held by an individual entrepreneur. For prospective entrepreneurs, managing a significant amount of their own capital and being able to deal in cash would diminish the need for a bank, allow for bribes to be paid to government officials as needed, and provide flexibility to buy or exchange favors with friends or other businessmen in mutually beneficial arrangements. Personal financial capital falls under the category of situational factors in the intentions literature. Shapero (1975, 1982) and Rajiman (2001) concluded that situational factors such as financial capital are a major contributor to the formation of entrepreneurial intentions in a non-Russian context. Similarly, Reynolds, Carter, Gartner, Greene, and Fox (2002) found that in America higher personal incomes indicate a higher likelihood of being involved in an entrepreneurial event. With both real private consumption and real GDP growing steadily in Russia since 2000 (minus the setback of the 2008 financial crisis) (Economist Intelligence Unit, 2011), salaries and disposable income are also climbing, creating new lifestyle and economic norms for this generation of young people in Russia. Investments by foreign and domestic entities (Bossoutrot, 2005; USAID, 2009; Razumovskaya, 2011)

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT provide prospective entrepreneurs in Russia increasing access to seed capital. The changing role of personal financial capital in Russia’s transitional economy prompts the first research question for this thesis: (Q2) How does personal financial capital affect the formation of entrepreneurial intentions among prospective young entrepreneurs in Russia? 2.3.3 Social Norms

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A well-rounded discussion of Russia’s current entrepreneurial context requires an assessment of not only the economic issues surrounding the feasibility of starting a business in Russia, but also sociocultural norms and values which play a part in determining attitudes towards entrepreneurship (Krueger, 1993). Social norms are a set of commonly acknowledged acceptable and desirable behaviors (Elfving et al., 2009) shaped by external factors in one's social milieu. An individual's perceived social norms can be attributed to interactions within two milieux, the smaller of which being a community of family, friends, colleagues, and others with whom he interacts on a daily basis – the proximal environment, and the more broad milieu consisting of society at large – the extended environment. Included in the extended environment are cultural traditions and mores, and institutions such as government, religion, and schools. This approach to social environments is synonymous with the macroscopic and microscopic perspectives on sociology7 (Alexander, Giesen, Münch, & Smelser, 1987). Interactions with both environments are governed by social networks, which traditionally have operated very differently in socially collectivist planned economies such as Russia and China than in those societies governed by capitalism. Under communism social networks,
For a more detailed description of the macro and micro environments recognized in sociology literature, see The Macro-Micro Link by Alexander, Giesen, Münch, & Smelser (1987). For the purposes of this study the terms “extended” and “proximal,” have been used, respectively, to better capture the sense of an individual's proximity – both physically and perceptually – to each environment.
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SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT including Russia’s social networking system called blat8, were a key access point to public resources

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(Michailova & Worm, 2003). In a society where everyone expected a share of public goods, and when there often wasn't enough to go around, the ability to leverage personal relationships with people who had government and other connections was crucial. However, transition has brought about behavioral differences in Russians' use of networks: “We have observed a shift of the spheres where blat is needed and used, a shift from physical resources and assets to information flows and services" (Michailova & Worm, 2003, p. 517). The politics and sociology of post-communism suggest that, "With the legal system in flux, and the courts stacked with communist nominees, the uncertainties of going into legitimate business [were] likely to discourage many. Only the well-connected could count on succeeding" (Brzeski 2005, p.2). Connections are still important, but it is no longer foreign goods and favors which dominate blat transactions, but rather information and connections to others with information. Transitional countries which have been thrown into imbalance harbor an uncertainty in the extended environment which increases the importance of the proximal environment (Aslund, 2007). This focus on the proximal environment, in turn, emphasizes differences in the structure and function of networks in traditional socialist versus capitalist societies, making perceived social norms contextually sensitive. The sociological theory of Pierre Bourdieu (1984) – developed around social capital and the judgment of taste amidst changes in 20th-century France – comments on societies in transition. Bourdieu observes that, in a dynamic, transitioning culture, the members of the old group distinguish themselves from newcomers by rejecting the qualities of ambition and upward mobility (1984, p. 6061). This supports that older generations in Russia feel compelled – not only by habit or a sense of nostalgia but also as a sociological response to change – to hold on to their Soviet, anti-wealth, anti8

Ledeneva (1998) defines blat as “a term which appeared in the Soviet Union to denote the use of informal agreements, exchanges of services, connections, Party contacts, or black market deals to achieve results or get ahead.”

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT entrepreneurial mentality. Traditionally strong intergenerational ties, illustrated by the heavy involvement of parents and grandparents in Russian family life (Murgulets, 2010), contribute to the phenomena of Russian youth who have “one leg in the past, and hence partly accept the traditional values associated with Soviet cultural tradition, and [the other leg] in the present, going in a new direction” (Williams, Chuprov, & Zubok, 2003, p. 203).

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The unique, transitional socio-cultural context in which Russia’s current youth has been raised prompts the third research question for this thesis: (Q3) How do perceived social norms affect the formation of entrepreneurial intentions among prospective young entrepreneurs in Russia? 2.3.4 The Intersection of Economic & Social Norms in 21st Century Russia With the succession of Vladimir Putin as president of the Russian Federation in 2000, Russia has achieved a "reasonably free market economy9" but suffers from an increasingly authoritarian government whose policies are bound to infringe on the ease and ability to form businesses (Aslund, 2007). With Putin came more stability, but his promises to “eliminate the oligarchs as a class” and to hold all businessmen at “an equal distance” have incurred little change (Treisman, 2002, p. 3). Instead, it is no secret that Putin himself is involved in lucrative deals with his favorite business tycoons. Nevertheless, a Wall Street Journal article published in December, 2011 was titled "Putin Seeks to Lure Entrepreneurs," and featured the Prime Minister kicking off his 2012 presidential campaign with probusiness and anti-corruption pledges (Mauldin, 2011).

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Aslund (2007) posits that a “reasonably free market economy” has been achieved in Russia because critical market reforms were implemented by President Boris Yeltsin and the Yegor Gaidar team (architects of the new market economy). Aslund describes the winter of 1991-1992 as a critical window of opportunity during which the government unleashed reforms that were “sufficiently radical to render them irreversible but insufficiently so for an early return to economic growth” (Peterson Institute, n.d., p. 1).

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Russia's transition from a Soviet command economy toward a free market has been hindered by many obstacles, including an antipathy toward the use of contracts and centuries-long deprivation of private property rights which predates communist rule and underlies Russia's current struggle with the adoption of a capitalist economic model. Soviet negativity toward entrepreneurship and myriad related issues including a broken banking system, the state's failure to enforce contracts, power-hungry communist statesmen turned oligarchs, ethnic- and class-based linguistic obfuscation, widespread corruption, and a general aversion to the uncertainties associated with starting a business have augmented the challenges of economic development and prevented entrepreneurs from thriving throughout the past two decades, despite the fact that Russians were legally granted the right to launch a private enterprise in 1992 (Aslund, 1995). For these reasons, scholars have described Russia as having undergone an "incomplete transition to a capitalist structure" (Hagestad & Herlofson, 2007, p. 7). It is out of the widespread implications that transition has had for Russia’s political-legaleconomic and socio-cultural environments that the final research question for this thesis emerges: (Q4) How does the interaction of perceived social norms and personal financial capital affect the formation of entrepreneurial intentions among prospective young entrepreneurs in Russia?

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT
CHAPTER III. DEVELOPMENT OF THE THEORETICAL MODEL

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3.1 Introduction The development of the theoretical model for this study entails first a review of the classic entrepreneurial intentions model (EIM). Following is a summary of significant advancements in the literature concerning each of the variables in the EIM relevant to this study. Variables are discussed in the context of a transitional Russia, and finally, hypotheses are presented. 3.2 The Conceptual Model 3.2.1 Theoretical Basis The EIM was chosen as the theoretical foundation for this study because it remains one of the most influential models in the entrepreneurial intentions literature, and because its proven integrity has earned it the reputation as the sole model of entrepreneurial intentions which has been empirically tested to such an extent that it can be viewed as reliable and useful (Elfving et al., 2009, p. 23). Some modifications have been made to the EIM in developing the conceptual model for this thesis. A side-by-side comparison of the two models is presented and modifications are explained in the following sections. Figure 2 – The Classic Entrepreneurial Intentions Model
Perceived Social Norms Exogenous Factors Perceived Desirability

Intent Perceived Self-efficacy Perceived Feasibility

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Figure 3 – Conceptual Model

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Personal Financial Capital

Perceived Desirability

Intent Perceived Social Norms Perceived Feasibility

3.2.2 Personal Financial Capital in the Conceptual Model Bossoutrot (2005), Aslund (2007), and Procaccia (2007) observe that a significant impediment to the development of private enterprise within Russia's struggling market economy is the limited availability of capital. In America access to financial capital, specifically the accumulation of personal financial capital, indicated a higher likelihood of being involved in an entrepreneurial event (Reynolds, Carter, Gartner, Greene, and Fox, 2002). With access to financial capital gradually increasing in Russia via venture capitalists (Razumovskaya, 2011), humanitarian efforts (USAID, 2009), and microfinancing initiatives (Bossoutrot, 2005), one possibility is that personal financial capital plays a more prominent role than its EIM categorization as an “exogenous factor” (i.e. a factor beyond the scope of the model). Past research (e.g. Shapero, 1975; 1982 and Rajiman, 2001) has found that financial capital is a major contributor to the formation of entrepreneurial intentions. In Russia, where factors such as those discussed in section 2.3.2 (widespread antipathy toward and unfamiliarity with contracts, limited supply of financial capital, lack of infrastructure in banking, and extraordinarily high fees and interest rates associated with loans) make the process of obtaining financial capital especially difficult, the context suggests that the presence of PFC may significantly increase perceptions of desirability (less

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hassle involved with finding financial capital may make it a more pleasant experience) and feasibility (PFC reduces the uncertainty associated with acquiring seed capital). Accordingly, PFC has been moved from a position where it is postulated to influence desirability and feasibility indirectly – through social norms and self-efficacy – to a position in the conceptual model where it is proposed to directly influence perceptions of desirability and feasibility. 3.2.3 Social Norms in the Conceptual Model It has been established that social norms are a set of commonly acknowledged beliefs about acceptable and desirable behaviors (Elfving et al., 2009). In other words, social norms dictate “normal” behavior. Perceptions of social norms are shaped by social capital (Halpern, 2005, Liao & Welsch, 2005) which is generated in two environments (Alexander, Giesen, Münch, & Smelser, 1987). Two Environments. The first of the two environments is the proximal environment, which comprises family members, friends, colleagues and others with whom an individual interacts on a daily basis. The second, more distal environment is the extended environment, which comprises societal influences on a larger scale: cultural traditions and mores as well as religious, government and educational institutions. There are many reasons to distinguish between perceived social norms derived from the proximal and extended environments. First, research has been done in the field of business ethics to support that significant others in the proximal environment (e.g. managers, supervisors, coworkers, and even subordinates) who influence an employee's work group "have more daily impact on [the] employee's decisions than any other factor in the decision-making framework" (Ferrell, Fraedrich, & Ferrell, 2008, p. 140). This principle of behavioral science which emphasizes the importance of the proximal environment is not unique to the field of ethics, but is relevant to other phenomena which rely on intentional decisions, such as ones to pursue entrepreneurial activity.

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There are some reasons to distinguish between perceived social norms in the two environments which are specific to the Russian context. Elfving et al. (2009) propose that social norms in the extended environment influence individuals differently than social norms in their proximal environments, and that the balance of extended-proximal influence varies across cultures, making it a context-specific issue. One reason for this is that in some countries or cultures, “the impact of family may be greater than in others” (Elfving et al., 2009, p. 26). Russian culture bears witness to a long history of close intergenerational ties within Russian families (Murgulets, 2010). This adds a strong temporal aspect to the proximal environment: Antiquated norms held by family members may also reside in institutions in the extended environment, but they are likely to impact individuals in a different way given the relative strength of ties (a concept which will be fully explained in the next pages). For example, the communist legacy of complex bureaucracy bound up in the Russian government contributes to an individual's norms differently from a grandparent's repeated warnings of his inability to obtain a business license due to the sheer number of bureaus to be visited and forms approved, along with stories of businesses seized and/or sabotaged by the state after becoming somewhat successful. The same general factor (i.e. the state's unfriendliness toward small business) is translated to the proximal and extended environments and therefore manifested in perceived social norms through very different channels. Four decades of extensive research into social mobility, stemming from Blau & Duncan's (1967) status attainment model, has shown that rates of recruitment into self-employment depend heavily upon the occupations of one's parents (Kim, Aldrich & Keister, 2006). This supports the argument that relationships in an individual's proximal environment are significant in predicting social norms and - by extension of the EIM - entrepreneurial intentions.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT A second reason to distinguish between the proximal and extended environments is tied to the transitional status of Russia's society. Bahry, Whitt, and Wilson (2003) discuss the distrust in transitional societies – associated with governments, institutions, and people – which results from authoritarian governments long breeding social atomization, protectionism, and corruption. This

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distrust is especially strong in post-communist countries (Bahry et al., 2003), where Mishler, Rose, and Smith (1998) found that trust in institutions and people is much lower than in Western Europe. Though Russians harbor an emphasized distrust in their extended environment, the opposite can be said for their proximal environment; Gibson (2001) found that though they display a "generalized distrust of institutions and of strangers," Russians have high levels of "in-group" trust. The "in-group" was defined as family, friends, and others in their own ethnic group. With the exception of ethnic group, the Gibson's "in-group" describes the proximal environment. The third reason this study lends itself to the separation of proximal and extended environments is also tied to the nature of the transitional period in Russian society. Historically Russia's extended environment has not been conducive to the proliferation of entrepreneurial activity, but changes appear to be gradually taking place; views of entrepreneurship may be changing organically – originating with individuals, or perhaps one or more institutions have begun to influence Russians’ perceived social norms through the promotion of entrepreneurship and it is important to be able to measure and attribute such changes to either environmental paradigm. A conceptual model which expands the influence of social norms. Social norms may predict not only desirability, but feasibility as well. The reality of an individual's environment is certainly the dominating factor in determining actual feasibility of a business idea. However, in a behavioral intentions model, it is not the actuality of the environmental factors which count, but rather it is the individual's perceptions of those factors which determine perceived feasibility (Reitan, 1997). Having

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT already discussed the role that norms play in shaping perceptions of desirability – via the thoughts, beliefs, and values of individuals in the proximal environment and institutions in the extended

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environment, we extend the principle to show how social norms also shape perceptions of feasibility – via the individual's evaluation of information and resources available in both the proximal and extended environments. Perceived feasibility is affected by societal transitions which bring change to the structure of networks – networks which, in Russia, are key access points to both private and public information and resources (Michailova & Worm, 2003). Social norms concerning the value of information and resources that a prospective entrepreneur can expect to access through these networks, as well as those concerning relationships and common ways of thinking may, intuitively, affect his assessment of the feasibility of pursuing entrepreneurial activity. The conceptual model reflects this expected expanded influence of perceived social norms, previously used by Kennedy, Drennan, Renfrow & Watson (2003). A multidimensional approach to social capital. As noted previously, perceptions of social norms are shaped by social capital (Halpern, 2005, Liao & Welsch, 2005). A certain ambiguity surrounds the definition of "social capital” because, in part, socially-constructed variables are very interdependent. One widely cited definition from Nahapiet & Ghoshel (1998) presents social capital as "the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit" (p. 243). Liao and Welsch (2005) applied this definition to the formation of entrepreneurial intentions and venture creation, but not before using it to demonstrate what they feel has been a unidimensional approach to social capital by researchers who place much emphasis on the structural component. Avoiding this nearsighted view of a complex concept which may have resulted in the oversimplification of the role of social capital in venture creation (Liao & Welsch, 2005), perceived social norms are presented in this study not as the

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT result of mutually exclusive forms of social capital, but rather as a reflection of three integral dimensions of social capital.

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Structural capital. The structure of a network is the dimension of social capital that is perhaps the most commonly cited in the entrepreneurship literature. The concept originated with Granovetter's (1973) theory that actions are embedded in the structure of the actor's network. It can be thought of as the pattern of connections or "impersonal configuration of linkages" in a network (Nahapiet & Ghoshal, 1998, p. 244). It is through these connections that social influence and ideas flow (Borgatti et al., 2009), and through which entrepreneurs are able to access information, resources and support that are critical to venture formation and development (Liao & Welsch, 2005, p. 349). Relational capital. This dimension of social capital encompasses an individual's personal relations which have been developed over time and through various and repeated interactions (Granovetter, 1992). It concerns the kinds of personal relationships which have been developed, focusing on relational characteristics such as respect, trust, truthfulness and friendliness (Liao & Welsch, 2005). Individuals may be swayed in their career decisions by relational capital because “It is through these ongoing personal relationships that individuals are able to achieve such social motives as sociability, approval, and prestige" (Nahapiet & Ghoshal, 1998, p. 244). Close relations with other entrepreneurs and the experiences within those relationships will impact an individual's perception of entrepreneurship – be it positively or negatively. A child whose father ran his own business and was constantly preoccupied with business matters may view the business as an entity which stood in the way of his relationship with his father, therefore deriving a negative view of entrepreneurship from relational capital. Conversely, a teenage girl may view her older sisters start a business together, bringing them closer together and bringing in extra spending money. The girl may look at her sisters' new clothes and how well they get along together, and want to

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT join the business or start her own, thereby deriving a positive view of entrepreneurship from the relational capital flowing from her sisters. Cognitive capital. Cognitive capital transmits values, beliefs, and attitudes through relationships (Liñan & Santos, 2007), relying on shared language and codes (Arrow, 1974; Cicourel,

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1973; Monteverde, 1995), and shared narratives (Orr, 1990). The cognitive dimension of social capital is based on resources that allow individuals (or groups, organizations, etc.) to share interpretations, representations, and systems of meaning (Cicourel, 1973; Nahapiet & Ghoshal, 1998). Its "subjective and intangible nature" (Liñan & Santos, 2007, p. 446) can make it difficult to define concisely, yet Liao & Welsch (2005) overcome this and label cognitive capital as simply "shared norms." Though cognitive capital can be viewed as a proxy for social norms in a general sense, other factors (including other dimensions of social capital) contribute to an individual's perceived social norms. For instance, structural capital conveys to the individual the "normal" structure of linkages between people. Relational capital establishes the norms for relating to and interacting with those people. And cognitive capital – the beliefs and attitudes of those other people – may influence the individual according to the strength of each tie. In doing so, these three dimensions of social capital come full circle. Table 1 presents a comparative summary of structural, relational, and cognitive capital. Table 1 - Three Dimensions of Social Capital Structural Information Resources Impersonal Connections Relational Trust Respect Friendliness / Sociability Approval/ Acceptance Prestige Cognitive Values Beliefs Attitudes

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This tri-dimensional approach was first identified by Nahapiet and Ghoshel (1998). It was studied in the United States by Liao and Welsch (2005) and has also recently been used by Okafor (2011), who studied entrepreneurs in Nigeria. Strong and Weak Ties. The concept of varying levels of trust based on relational proximity leads to Granovetter's (1973) method of categorizing social relationships by the strength of their ties. Within social networks ties may be strong, weak or absent. Strong ties are relationships in which the entrepreneur has full confidence that the other will follow through. Weak ties, on the other hand, involve little emotional investment and are only casual, superficial relationships (Krueger, 2002). "The strength of a tie is a (probably linear) combination of the amount of time, the emotional intensity, the intimacy (mutual confiding), and the reciprocal services which characterize that tie" (Granovetter, 1973, p. 1361). An individual's proximal environment, then, being full of significant others with whom she interacts on a daily basis, will consist of strong ties. On the other hand, ties – to the degree that they exist – in the extended environment, will be weaker. The relative strength of ties in the proximal environment suggest that an individual’s perceived social norms may be more heavily influenced by proximal norms than by norms in the extended environment. 3.2.4 Interaction in the Conceptual Model Studies have looked at the role of influential factors such as personal financial capital in the formation of entrepreneurial intent (Dunn & Holtz Eakin, 2000; Reynolds et al., 2002; Kim, Aldrich & Keister, 2006). Other studies have looked at the role of social capital in the formation of entrepreneurial intent (Krueger, 1993; Davidsson & Honig, 2003; Greve & Salaff, 2003; Liao & Welsch, 2005; Linan & Santos, 2007; Okafor, 2011). However, few studies specifically address the interaction between personal financial capital and social norms in this process (e.g. Marshall & Oliver,

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2005) – and none of these in the context of Russia or other transitional economies. Moving PFC onto the same level as social norms in the conceptual model allows for testing the interaction between these two variables in predicting perceptions of desirability and feasibility in the formation of intentions. 3.3 Specification of Hypotheses 3.3.1 Perceived Desirability & Perceived Feasibility on Intent The literature suggests that perceived desirability and perceived feasibility strongly predict entrepreneurial intentions (Shapero, 1982; Krueger, 1993; Krueger & Brazeal, 1994; Krueger et al., 2000). As noted, much of the literature has developed in a non-Russian context. However, given the seeming universal behavioral nature of intention formation around such characteristics as desirability and feasibility, there is no reason to believe that the model of perceived desirability and perceived feasibility as predictors of intent will be any different in the Russian context. (H1) Perceived desirability will be positively related to entrepreneurial intent. (H2) Perceived feasibility will be positively related to entrepreneurial intent. 3.3.3 Personal Financial Capital on Perceived Desirability & Perceived Feasibility Reynolds, Carter, Gartner, Greene, and Fox (2002) found that in America higher personal incomes indicate a higher likelihood of being involved in an entrepreneurial event. The fall of communism and introduction of free-market principles since the early 1990s provided Russians with property rights and have allowed for individuals to accumulate personal financial capital (Aslund, 2007). Findings suggest that the augmentation of personal financial capital positively impacts empowerment (Mayoux, 2001) and self-esteem (Zhang, 2009), which is strongly correlated with

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT happiness (Baumeister, Campbell, Krueger, & Vohs, 2003). In turn, empowerment, self-esteem, and

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happiness enhance positive feelings that are associated with increased willingness to take risk (Isen & Patrick, 1983). The changing role of personal financial capital in Russia’s transitional economy, in as much as it enhances positive feelings while reducing the importance of risk, suggests that situational factors such as personal financial capital may enhance the ability to predict entrepreneurial intent. (H3) Personal financial capital will be positively related to the perceived desirability of starting a business. It has been shown that financial capital affects perceptions of feasibility of starting a business in non-Russian contexts (Rajiman, 2001). Financial capital is especially important for the prospective entrepreneur in Russia who faces pervasive corruption (Heritage Foundation, 2011; Transparency International, 2011) – often rampant during the start-up period (Levin & Satarov, 2000) – which has been found to discourage entrepreneurial intent (Griffiths, Kickul & Carsrud, 2009). Such importance may account for why others suggest Russian entrepreneurs' seed capital tends to originate with individuals in their proximal environment (Bossoutrot, 2005). It also suggests that prospective entrepreneurs in Russia who possess personal financial capital may not need to rely so much on the provision of financial capital by network members (who may or may not be willing to provide it). In short, the collective evidence suggests that personal financial capital strengthens an entrepreneur's perceptions feasibility directly. (H4) Personal financial capital will be positively related to the perceived feasibility of starting a business. 3.3.4 Social Norms on Perceived Desirability & Perceived Feasibility Research has shown that social norms predict the perceived desirability of entrepreneurship in twelve developing and developed countries (Engle et al., 2008). Procaccia (2007) posits that anti-

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entrepreneurial social norms have dissuaded potential entrepreneurs in Russia in the past. And, though Russia's current youth has grown up in an economic system more free than communism, such antientrepreneurial norms linger in Russian society as social norms lag behind changes in the politicallegal-economic environment (Williams, Chuprov & Zubok, 2003), contributing to Russia's "incomplete transition to a capitalist structure" (Hagestad & Herlofson, 2007, p. 7). An individual's perceptions are "dependent on the social context and on what can be regarded as personally desirable" within a certain milieu (Elfving et al., 2009, p. 25). To the extent that cultures and societies vary, so do the kinds of behavior considered worthy of a reward. The norms which have been found to most significantly influence individuals' intentions and decisions are those perceived through daily interactions with family, friends, and colleagues (Ferrell, Fraedrich, & Ferrell, 2008). This is perhaps due to the fact that these structural relationships reflect strong familial bonding ties, or ties that are highly relational in nature, not easily severed, and influence cognitive patterns. (H5) [a] The proximal structural capital dimension of social norms will be positively related to the perceived desirability of starting a business. (H5) [b] The extended relational capital dimension of social norms will be positively related to the perceived desirability of starting a business. (H5) [c] The extended cognitive capital dimension of social norms will be positively related to the perceived desirability of starting a business.

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Russians rely heavily on personal networks for access to information and resources (Michailova & Worm, 2003). But prospective entrepreneurs seeking information and resources to form a venture may only extract the needed resources from members of their network who have positive attitudes toward entrepreneurship. Granovetter's (1983) strength of weak ties theory suggests that our acquaintances (weak ties) are less likely to be socially involved with one another than our close friends (strong ties), and so add value by linking us to other networks – thereby expanding our personal network and facilitating the flow of information and other resources. The strength of weak ties theory is especially important to discussion on Russia because of the way Russians use networks: They are frequently used not for personal gain, but rather to help friends or acquaintances (Michailova & Worm, 2003). Because acquiring seed capital and resources for a new venture are so dependent on network interactions (and less dependent on outside influences, e.g. banking institutions, venture capitalists, outside investors) (Bossoutrot, 2005), the proximal environment is expected to significantly predict perceived feasibility. (H6) [a] The proximal structural capital dimension of social norms will be positively related to the perceived feasibility of starting a business. (H6) [b] The extended relational capital dimension of social norms will be positively related to the perceived feasibility of starting a business. With the advent of the market economy in Russia, common thoughts and beliefs about entrepreneurship are changing. Though social norms have lagged behind market reforms (Williams, Chuprov, & Zubok, 2003), gradual changes in Russian values, attitudes and beliefs reflect an increasing interest in personal success, leadership, and respect. This change suggests that the extended cognitive

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT capital dimension of perceived social norms may have a greater effect on entrepreneurial intentions because entrepreneurship is a vehicle for attaining personal success, positions of leadership, and increased respect in the community. (H6) [c] The extended cognitive capital dimension of social norms will be positively related to the perceived feasibility of starting a business. 3.3.5 Interaction between PFC and Social Norms in the Intentions Model

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Though the social norms of a proximal network – which have been shown to heavily influence behavior (Kim, Aldrich & Keister, 2006; Ferrell, Fraedrich, & Ferrell, 2008) – may directly influence entrepreneurial intentions, the presence of personal financial capital which the prospective entrepreneur is willing to invest in her potential venture may provide the opportunity for prospective young entrepreneurs to pursue entrepreneurial activity without straining important relationships. This is because PFC would fill the universal need for seed capital which Russian entrepreneurs have traditionally sought from family and friends in their proximal network (Bossoutrot, 2005). In the “new Russia,” as post-Soviet Russia is often called, social status is closely tied to material possessions and other displays of wealth (Hedrick, 1991). Because of new Russians’ preoccupation with accumulating and displaying wealth, it is possible that PFC may also act as a proxy for other status-elevating characteristics (such as career prestige, fame, etc.). Though antientrepreneurial norms in the extended environment may threaten to diminish the status of a prospective entrepreneur, it is possible that a high PFC may automatically earn him a certain social status, allowing him to ignore the norms that someone less financially endowed would respect in order to maintain his rank in society. A comparable example in an American context is the perception (and oftentimes the

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reality) that rich people don’t have to follow the same rules as everyone else10 (Alessio, 2011). In other words, PFC may liberate prospective young entrepreneurs from the restraints of perceived social norms in their extended environment. (H7) [a] Personal financial capital will moderate the relationship between the proximal structural capital dimension of social norms and perceived desirability such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived desirability of starting a business. (H7) [b] Personal financial capital will moderate the relationship between the extended relational capital dimension of social norms and perceived desirability such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived desirability of starting a business. (H7) [c] Personal financial capital will moderate the relationship between the extended cognitive capital dimension of social norms and perceived desirability such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived desirability of starting a business.
Alessio (2011) writes: “Average citizens are responsible for existing social order on a daily basis…On the average, people raised in wealthy families have a socialization that is substantially different from the rest of the population…A belief in being better than others opens the door to a belief in the privilege of violating the social norms of the larger nation-state or community…” (p. 171).
10

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Since personal financial capital reduces the resources that a prospective entrepreneur must

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acquire through his proximal and extended networks, even if the social norms which he perceives in his network are anti-entrepreneurial, he may still perceive entrepreneurial activity as feasible based on his own ability to contribute financial resources to the venture. In the proximal environment, whence entrepreneurial seed capital has traditionally come (Bossoutrot, 2005), anti-entrepreneurial norms may reflect that family and friends would be unwilling to contribute the financial capital needed to start a business. But a prospective entrepreneur’s PFC could mitigate this threat to feasibility. On the other hand, pro-entrepreneurial norms in the proximal environment form a support base for the entrepreneur and imply that family and friends may be willing to contribute time, information or resources toward starting the business (Panel Study for Entrepreneurial Dynamics, 2004). Such a situation positively influences perceptions of feasibility, and PFC could serve to enhance these. In both situations there is a strong argument that PFC may moderate the relationship between perceived norms in the proximal environment and perceived feasibility. In the extended environment, where social norms in Russia tend to discourage entrepreneurship (Aslund, 2007), PFC provides an alternative to the few banks and investors through whom entrepreneurial seed capital may be available. Feelings of individual empowerment associated with the possession of PFC (Mayoux, 2001) may mitigate the prospective entrepreneur’s doubts about the social conformity of his entrepreneurial intentions and the support he is likely to obtain from the public. A sense of independence provided by higher PFC increases individuals’ willingness to take risk (Isen & Patrick, 1983), something which is highly relevant to the Russian context where institutions in the extended environment (e.g. unstable banking infrastructure, rampant corruption, and an authoritarian government [Aslund, 1995; 2007; Procaccia, 2007]) result in a considerable amount of risk associated with starting a business.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT (H8) [a] Personal financial capital will moderate the relationship between the proximal structural capital dimension of social norms and perceived feasibility such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived feasibility of starting a business. (H8) [b] Personal financial capital will moderate the relationship between the extended relational capital dimension of social norms and perceived feasibility such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived feasibility of starting a business. (H8) [c] Personal financial capital will moderate the relationship between the extended cognitive capital dimension of social norms and perceived feasibility such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived feasibility of starting a business. Table 2 presents a summary of the hypotheses. Table 2 – Summary of Hypotheses
(H1) Perceived desirability will be positively related to entrepreneurial intent. (H2) Perceived feasibility will be positively related to entrepreneurial intent. (H3) Personal financial capital will be positively related to the perceived desirability of starting a business.

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SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT
(H4) Personal financial capital will be positively related to the perceived feasibility of starting a business. (H5) [a] The proximal structural capital dimension of social norms will be positively related to the perceived desirability of starting a business. (H5) [b] The extended relational capital dimension of social norms will be positively related to the perceived desirability of starting a business. (H5) [c] The extended cognitive capital dimension of social norms will be positively related to the perceived desirability of starting a business. (H6) [a] The proximal structural capital dimension of social norms will be positively related to the perceived feasibility of starting a business. (H6) [b] The extended relational capital dimension of social norms will be positively related to the perceived feasibility of starting a business. (H6) [c] The extended cognitive capital dimension of social norms will be positively related to the perceived feasibility of starting a business. (H7) [a] Personal financial capital will moderate the relationship between the proximal structural capital dimension of social norms and perceived desirability such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived desirability of starting a business. (H7) [b] Personal financial capital will moderate the relationship between the extended relational capital dimension of social norms and perceived desirability such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived desirability of starting a business. (H7) [c] Personal financial capital will moderate the relationship between the extended cognitive capital dimension of social norms and perceived desirability such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived desirability of starting a business. (H8) [a] Personal financial capital will moderate the relationship between the proximal structural capital dimension of social norms and perceived feasibility such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived feasibility of starting a business. (H8) [a] Personal financial capital will moderate the relationship between the extended relational capital dimension of social norms and perceived feasibility such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived feasibility of starting a business. (H8) [a] Personal financial capital will moderate the relationship between the extended cognitive capital dimension of social norms and perceived feasibility such that greater personal financial capital mitigates the negative influence and enhances the positive influence of social norms on the perceived feasibility of starting a business.

40

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT CHAPTER IV. RESEARCH METHODOLOGY 4.1 Research Design This research was designed to be a cross-sectional empirical survey study which looks at the

41

relationship between variables that have been shown to be related in extant literature – in contexts other than Russia’s present transitional context. The study was built on multiple linear regression and the underlying analysis of variation within and between groups. Hypotheses were developed around four variables expected to be positively associated with the formation of entrepreneurial intent. The survey was designed originally in English and translated into Russian by the author. The reliability and validity of the translation was checked by two bilingual (English and Russian), native Russian speakers in the international business community. College students were targeted as the sample demographic for two reasons. First, this is a career demarcation point; it is normally during college that students decide which career path to take: Selfemployment or employment in an organization. Second, students currently enrolled in college were born in the late 1980s to early 1990s – precisely the time when Russia’s transition from communism to a more free-market economy began – implying that this segment of the population has experienced the transition at their most formative time in life. Scholars tend to agree that the age group associated with “youth” in both the West and East often ranges from about fifteen to twenty-five years (Blanchflower & Oswald, 1998; Calvcs, 2004; Assaad & Raudi-Fahimi, 2007; Awogbenle & Iwuamadi, 2010). However, Williams, Chuprov and Zubok (2003) argue that this age can be extended up to twenty-nine years in Russia. This study was designed for Russian subjects in the age range of fifteen to twenty-nine years.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT 4.2 Data Collection & Sample

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Data was collected at Nizhny Novgorod Architecture and Civil Engineering State University in Nizhny Novgorod, Russia. A questionnaire was sent to 200 students, ranging from the first year of the undergraduate program to doctoral candidates. The response rate was 52 percent, or 104 subjects. Missing data on personal financial capital reduced the total usable sample of responses from 104 to 90. 4.3 Variables & Measures 4.3.1 Intentions To measure entrepreneurial intentions, respondents were asked to respond to the following question: What is the likelihood that you will start a business within one year? This was measured on a five-point Likert scale (1 = Not at all likely; 5 = Very likely) and drawn from Davidsson (1995). 4.3.2 Perceived Desirability & Perceived Feasibility To measure perceived desirability, respondents were asked to respond to the following question: ‘To what extent are you interested in starting a business?” This was measured on a five-point Likert scale (1 = Not at all interested; 5 = Very interested). To measure perceived feasibility, respondents were asked to answer the following question: "How feasible would it be to start your own business?" This was also measured on a five-point Likert scale (1 = Not at all feasible; 5 = Very feasible). Measures for both desirability and feasibility were drawn from Krueger & Kickul (2006). 4.3.4 Personal Financial Capital To measure PFC, respondents were asked to respond to the following question: "To what extent would you use your own personal financial capital to invest in your own company (assuming you had

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT the intentions to own one)?" This is a new measure, introduced in order to keep parallel form by measuring on a five-point Likert scale (1 = To a very low extent; 5 = To a very high extent). 4.3.5 Social Norms Social Norms were measured through an equally-weighted combination of items reflecting perceptions of the extended environment and perceptions of the proximal environment. For the

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extended environment three items measuring extended relational capital and three measuring extended cognitive capital from Liao & Welsch (2005) were used. A five-point Likert scale was used to evaluate statements pertaining to cognitive and relational capital. For example, a relational capital item was "State and local governments provide good support for those starting new firms." A sample cognitive capital item is "Those with successful businesses get a lot of attention and admiration." The measure for the proximal environment addressed respondents' attitude toward entrepreneurship based on their perceptions of the experiences of family, kin, and close friends that own or run businesses (a structuralrelational measure used in the Panel Study for Entrepreneurial Dynamics). Elfving et al. (2009) posit that the social norm measure is a function of the normative beliefs of important people in an individual's network, weighted by the individual's motivation to comply with each normative belief (p.25). Instead of using this dual-part measure in which the researcher creates the social norm variable based on the normative beliefs of a third party weighted by motivation to comply, more straightforward measurements were used which allowed the respondent to express his or her perceived social norms. This method is better suited to the present study because its focus on perceptions over situational fact is better aligned with the perceived social norms variable in the intentions model.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT 4.3.6 Control Variables Age (in years) and nationality (categorically) as well as level of education completed were controlled for in the study. The following Table 3 presents a summary of the measures used in this study: Table 3 – Summary of Measures
Construct Intentions Perceived Desirability Perceived Feasibility Personal Financial Capital Measurement Item: What is the likelihood that you will start a business within one year? To what extent are you interested in starting a business? How feasible would it be for you to start your own business? To what extent would you use your personal financial capital to invest in your own company (assuming you had the intentions to own one)?

44

Social Norms Proximal Structural Capital From observing family, kin, and close friends with their own businesses, what is your overall impression of running a business as a career? To what extent do you agree with the following statements? 1) State and local governments provide good support for those starting new firms. 2) Banks and other investors go out of their way to help new firms get started. 3) Other community groups provide good support for those starting new firms. Extended Cognitive Capital To what extent do you agree with the following statements? 1) Those with successful businesses get a lot of attention and admiration. 2) There are many examples of well-respected people who made a success of themselves starting new businesses. 3) Most of the leaders in this community are

Extended Relational Capital

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT
people who own businesses.

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4.6 Data Analysis Prior to analyzing, items were aggregated into single-construct measures. Principle component analysis was employed to be sure items loaded on corresponding constructs and did not cross-load on others. Linear regression analysis was then used to test relationships in the model. The standard approach to testing moderation (Baron & Kenny, 1986) was followed for tests of interaction between personal financial capital and social capital.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT CHAPTER V. RESULTS 5.1 Introduction This chapter presents the results of statistical analyses in terms of the individual hypotheses included in the theoretical development. It follows the structure of the theoretical model presented in Chapter Three by first presenting the results of main effects hypotheses. The results of perceived desirability and perceived feasibility on intentions are presented, then the results of personal are presented. Next, statistical analyses of social capital factors reflecting social norms are discussed. Finally, the results of statistical analyses addressing the additional moderation questions of this investigation are presented, followed by a summary of the results and some concluding remarks. 5.2 Desirability and Feasibility We first tested desirability and feasibility on intentions to determine if the Russian context supports the standard model (Azjen, 1991; Elfving, Brännback, & Carsrud, 2009) of perceived

46

desirability and perceived feasibility as the predictors of entrepreneurial intent. Table 4 reports multiple linear regressions for these variables on short-term intentions (i.e. intentions to start a business within 1 year). Desirability was highly significantly and positively related to short-term intentions (b = .450, p = .000), explaining 25 percent variance in intentions. Feasibility was significantly and positively related to short-term intentions (b = .220, p < .05). Although not the central focus in this study, nor in the extant literature (Azjen, 1991; Elfving, Brännback, & Carsrud, 2009), use of a standardized beta provides a basis for comparison of the relative influence of variables in the model. This allows for the conclusion that perceived desirability, with a standardized beta = .450, was essentially twice as powerful as perceived feasibility (b = .220) for predicting short-term entrepreneurial intentions. This is an interesting finding and implies questions for future research, discussed in Chapter VI.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Table 4: Results of Linear Regression Analyses Predicting Entrepreneurial Intentionsa Model 1 Intent 0.450** 0.220*

47

Predictor Variable Desirability Feasibility

Model F value Nagelkerke R2
a

24.667** 0.340

n = 90. Standardized regression coefficients are shown. p < .10; * p < .05; ** p < .01



5.3 Personal Financial Capital Is personal financial capital positively related to perceived desirability? To perceived feasibility? Results in Tables 5 and 6 suggest they are. Specifically, Table 5, Model 1 shows that personal financial capital was significantly and positively related to desirability (b = .380, p = .000), explaining 13.4 percent of the variance in perceived desirability. Similarly, Table 6, Model 1 shows that personal financial capital was also significantly and positively related to perceived feasibility (b = .586, p = .000), explaining 34.3 percent variance in perceived feasibility. Thus personal financial capital is a significant, positive factor in the formation of perceptions of desirability and feasibility, both of which are positively related to entrepreneurial intentions among prospective young entrepreneurs in Russia. Consequently, support is found for H3 and H4.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Table 5: Results of Linear Regression Analyses Predicting Perceived Desirabilitya Main Effects
Model 1 Model 2 Social Norms

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Interaction
Model 3

Predictor Variable Personal Financial Capital (PFC) Perceived Social Norms Proximal Structural Capital Extended Relational Capital Extended Cognitive Capital PFC x Proximal Capital PFC x Extended Relational Capital PFC x Extended Cognitive Capital Model F value Nagelkerke R2
a

PFC

0.380**

0.113

0.476** 0.064 -0.015

0.632* 0.155 -0.428 -0.482 -0.098 0.705

14.651** 0.134

8.968** 0.206

4.410** 0.217

n = 90. Standardized regression coefficients are shown. p < .10; * p < .05; ** p < .01



5.4 Social Norms Are perceived social norms positively related to perceived desirability? To perceived feasibility? Tables 5 and 6 suggest they are. The conceptual model proposes that three dimensions of social capital (proximal structural, extended relational, and extended cognitive), are reflected in perceived social norms. In order to test the conceptual model, we employ linear regression to determine whether or not

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT social norms perceived in each environment are significantly and positively related to perceived desirability or perceived feasibility. Social Norms on Desirability. H5(a) proposes that social norms perceived in the proximal

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environment are positively related to perceived desirability. This hypothesis is supported by results in Table 5, Model 2, which shows that, of the three dimensions of social capital which were measured, only proximal capital was found to be significantly and positively related to perceived desirability (b = .476, p = .000), explaining 20.6 percent of variance in desirability. Extended relational capital and extended cognitive were both insignificant in predicting desirability. Social Norms on Feasibility. H6(a) proposes that social norms perceived in the proximal environment are positively related to perceived feasibility. Findings support this hypothesis. Specifically, Table 6, Model 2 shows that, of the three dimensions of social capital which were measured, only proximal capital was found to be significantly and positively related to feasibility (b = .522, p = .000), explaining 24 percent of variance in perceived feasibility. Extended relational capital and extended cognitive were both insignificant in predicting feasibility. Thus, findings support H6(a), but H6(b) and H6(c) are not supported. Only social norms perceived in subjects’ proximal environment were found to significantly affect perceptions of desirability and feasibility, both factors which have been found (in Table 4) to be positively related to the formation of entrepreneurial intentions among prospective young entrepreneurs in Russia. 5.5 Results of Moderation Testing Does personal financial capital moderate the relationship between perceived social norms and perceived desirability? Between perceived social norms and perceived feasibility? Tables 5 and 6

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suggest that the answers to these questions are different. In tests for moderation, variables were entered into the model following the method laid out by Baron and Kenny (1986): Main effects were first Table 6: Results of Linear Regression Analyses Predicting Perceived Feasibilitya Main Effects
Model 1 Model 2 Social Norms

Interaction
Model 3

Predictor Variable Personal Financial Capital (PFC) Perceived Social Norms Proximal Capital (Structural) Extended Relational Capital Extended Cognitive Capital PFC x Proximal Capital PFC x Extended Relational Capital PFC x Extended Cognitive Capital Model F value Nagelkerke R2 n = 90. Standardized regression coefficients are shown.
† a

PFC

0.586**

0.783 †

0.522** 0.020 -0.034

0.792** 0.387 -0.594 * -0.895 † -0.486 0.854

44.472** 0.343

10.563 0.240

10.081** 0.428

p < .10; * p < .05; ** p < .01

tested (using a regression coefficient) to establish linear causal relationships in which perceived desirability (PD) predicts intent and perceived feasibility (PF) predicts intent. Then interaction variables were created for PFC and each dimension of social capital reflected in social norms (PFC x

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT Proximal Capital; PFC x Extended Relational Capital; PFC x Extended Cognitive Capital). Finally,

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these interaction variables were entered into the linear regression model to measure the social norms to PD causal relationship and social norms to PF causal relationship for different values of PFC. Table 5, Model 3 shows that PFC did not moderate any dimension of perceived social norms in the relationship between perceived social norms and perceived desirability. Neither H7(a), H7(b), nor H7(c) were supported. Table 6, Model 3 shows that proximal capital was the sole dimension of social norms for which PFC significantly moderated the relationship between perceived social norms and perceived feasibility (b = -0.895, p = .080). This is in line with our findings (Table 6, Model 2) in testing for main effects, that only the proximal capital dimension of perceived social norms was positively related to perceived feasibility. In other words, a variable C cannot have a moderating effect when a relationship between A and B does not exist. The beta coefficient (-0.0895) for PFC moderating proximal capital on perceived feasibility suggests that this is a negative relationship. This means that as PFC to invest in a business increases, influence of proximal capital on perceived feasibility diminishes. Therefore, though a moderating relationship was found for proximal capital on perceived feasibility, H8(a) was not supported. H8(b) and H8(c) were also not supported. Therefore present findings suggest that the interaction between perceived social norms and PFC does not affect perceived desirability among prospective young Russian entrepreneurs, but that this interaction of social norms and PFC does affect the way prospective entrepreneurs perceive the feasibility of starting a business. Plot 1 shows, in the form of a data plot, the results of PFC moderating the relationship between the proximal capital dimension of social norms and perceived feasibility. The two groups of points were identified by finding the mean of the moderating variable (PFC) and excluding all data points that fell within one standard deviation of the mean. The remaining points fell into either a high group or a

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT low group. When plotted, the chart visually suggests that a high PFC predicts higher perceptions of feasibility in the relationship between proximal capital and perceived feasibility. Plot 1:

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The histogram below shows the full range of PFC values used in creating Plot 1. All PFC data points with a value of 3 or 4 fell within one standard deviation of the mean, and were therefore dropped from Plot 1. The high PFC group in Plot 1 (triangles) represent a PFC value of 5. The low PFC group (circles) represent a PFC value of 2 or 1.

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT

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5.6 Exploratory Analyses After finding that the Russian context supports the standard model of desirability and feasibility as the two main predictors of intent for short-term intentions, the durability of the model remained in question. Does the same model predict long-term intentions? Though the conceptual model used in this study was built around short-term intentions (intent to engage in entrepreneurial activity within 1 year), data was also collected on subjects’ medium-term intentions (“What is the likelihood that you will start a business within the next 5 years?” [Krueger, 2000]) and long-term intentions (“Do you think you’ll ever start a business?” [Krueger, 1993; 2000]). An exploratory analysis was conducted using these measures to test whether perceptions of desirability and feasibility are positively related to medium and long-term intentions. Table 7 shows the results. In Model 2 it was found that both perceived desirability (b = 0.620, p = .000) and perceived feasibility (b = 0.187, p = 0.028) predict intentions in the medium-term, explaining 53.1 percent of variance in intentions. However, Model 3 shows that in the long-term perceptions of feasibility (p = .962) become insignificant and only perceptions of desirability (b = 0.619, p = .000) are significant in predicting intent. In this case, perceived desirability explains 36.6 percent of the variance in intentions. Therefore, results suggest that the standard model (Azjen, 1991; Krueger, 1993; 2000; Elfving

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT et al., 2009) does hold for medium-term intentions, but does not hold for predicting long-term intentions in the present Russian context.
Table 7: Results of Linear Regression Analyses Predicting Durability of Entrepreneurial Intentionsa

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Model 1 Predictor Variable Desirability Feasibility
Short

Model 2
Medium

Model 3
Long

0.450** 0.220*

0.620** 0.187*

0.619** -0.005

Model F value Nagelkerke R2
a

24.667** 0.340

52.989** 0.531

27.319** 0.366

n = 90. Standardized regression coefficients are shown. p < .10; * p < .05; ** p < .01



SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT CHAPTER VI. DISCUSSION & CONCLUSIONS 6.1 Introduction In this chapter the findings outlined in Chapter V will be discussed in greater detail. It begins

55

with a summary of social capital and personal financial capital findings, and identifies several themes that emerge. Next, the implications of the findings for both theory and practice are discussed. Finally, the limitations of the research are delineated and recommendations for future research are discussed. Some concluding remarks are then offered to close this chapter. 6.2 Discussion of Results 6.2.1 A Summary & Interpretation of the Findings The widely accepted entrepreneurial intentions model (EIM), which proposes desirability and feasibility as the main predictors of intent, was supported in the Russian context for only short-term and medium-term intentions. Present findings suggest that desirability is important for long-term intentions, but perceptions of feasibility are not. Personal financial capital (PFC) independently predicts both desirability and feasibility in highly significant relationships. It is a significant moderator for social norms on feasibility but not on desirability. Kenny (2011) asserts that, “Although classically, moderation implies a weakening of a causal effect, a moderator can amplify or even reverse that effect.” This suggests that prospective entrepreneurs who perceive anti-entrepreneurial social norms may be persuaded by PFC that engaging in entrepreneurial activity is still feasible, even though PFC alone will not persuade them that doing so is desirable. Findings that proximal capital is influential in predicting perceptions of both desirability and feasibility support Hypotheses 5(a) and 6(a), respectively, which propose that daily interactions with

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT family and friends are more influential to the formation of entrepreneurial intentions among prospective young entrepreneurs. Findings which report that personal financial capital moderates only the proximal capital dimension of social norms on perceived feasibility (whereas, as shown in Table 6, Model 2, extended relational and extended cognitive capital were not significantly related to perceived feasibility) reinforce the theme that situational factors in the proximal environment are more significant than the more distal factors in the extended environment when it comes to predicting the formation of entrepreneurial intentions. 6.2.2 Key Themes & Implications for Theory To summarize, several key themes emerge from the present results that have implications for current theory. First, findings that show feasibility as a highly significant factor in predicting short-term

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intentions but insignificant in predicting long-term intentions in Russia suggest that intentions models in general may vary based on temporal orientation. The results of this study produce essentially two different models: One which predicts the formation of short- and medium-term intentions, and another which predicts longer-term intentions (more than five years out). The importance of temporal orientation in this study could be attributed to Russia's transitional context, or perhaps to generational differences (which may, of course, be derived in part from societal upheaval during transition). Second, the present findings have implications for general entrepreneurial intentions research, more broad than the Russian context or even transitional economies: Traditionally the EIM (and its predecessors) have presented social norms as predictor of desirability, with no other role in the intentions model. Findings in this study which support social norms as predictor of both desirability and feasibility demand attention from researchers concerning the comprehensiveness of the role of social norms in the EIM (considering that it is the most widely tested, reliable, useful and accepted

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT

57

model in the entrepreneurship literature (Elfving et al., 2009)). Again, contextual differences might be in play – especially considering the force with which social norms have been enforced in Russia's past – but as the number of social networking groups and events, use of social media, and overall increased desire for connectedness and interpersonal interaction continues to grow in developed countries such as the United States, circumstances warrant the consideration of an intentions model more heavily weighted by social norms. Third, results of this study report that the proximal environment has a more significant influence than the extended environment on entrepreneurial intentions in the Russian context. Subsequent intentions models might reflect this dichotomy in the social norms variable, and resulting dualdimensional social norm constructs may reflect differential effects in other transitional societies. The balance of social influence derived from the proximal and extended environments which contributes to perceived social norms may vary across cultures. Fourth, the prominence of desirability in the intent formation process that is reflected in the results of this study may be characteristic of transitional economies who have long experienced exceedingly difficult obstacles to feasibility. The relative influence of perceived desirability and perceived feasibility could vary according to the ease or difficulty with which each is established among prospective entrepreneurs. When studies investigating such interactions of desirability and feasibility are taken in aggregate, alongside other studies of intentions in transitional and developing countries, patterns may emerge which reflect commonalities in economic, legal, or social structure. 6.2.3 Implications for Practice The results of this study suggest implications for practical methodologies surrounding the perceptions of entrepreneurial activity among populations and the promotion of economic growth via entrepreneurial activity. First, from a public policy perspective, the present findings suggest that by

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT

58

exposing prospective entrepreneurs to sources of financial capital available to them, governments may ameliorate prospective Russian entrepreneurs’ assessments of the feasibility of starting new businesses. Such exposure should target, and will most benefit, prospective entrepreneurs who find entrepreneurial activity desirable, but are trapped in anti-entrepreneurial proximal networks (from where Russian entrepreneurs have traditionally derived seed capital (Bossoutrot, 2005)). Second, from a socio-cultural humanitarian perspective, findings suggest that efforts to promote entrepreneurship among young people in Russia should focus on connecting with individuals rather than mass media campaigns. The present results suggest that public service announcements may not appear to be the most effective way to reach the transitional generation; instead, programming focused on a community level may be more fruitful. Humanitarians with goals for long-term economic development should focus foremost on developing in Russia's youth a desire to engage in entrepreneurial activity. Perceptions of feasibility directly influence entrepreneurial intentions, but the present results suggest perceived feasibility becomes significant only as the intent to engage in entrepreneurial activity is considered within a period of about five years. Over time, the significance of perceptions of feasibility appears to fade. Findings that desirability predicts both short-, medium- and long-term intentions (whereas feasibility is predictive only in the short- and medium-term) have practical implications for educational institutions. They imply that entrepreneurship desirability assessments can be used to identify prospective entrepreneurs in high schools and universities,11 at which point entrepreneurial mentoring programs may begin to work with students toward eventually acquiring the capital required to start a

Given that the surveys and assessments used are not anonymous, as was the survey used in this study. Students may be wary of revealing identifiable information to a foreign researcher asking them to complete an online questionnaire, but it is reasonable to assume that the possibility of collecting identifying information is much more likely on a local and school level. Therefore, this recommendation is geared primarily toward educators, researchers, community leaders and entrepreneurs who have developed relationships with students and plan to continue working with them.

11

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT business and/or moving into one of the business incubators which are now starting to emerge in Russia’s biggest cities (e.g. Innovotel in Moscow and Ingriya in St. Petersburg).

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Present findings indicating that PFC may convince a prospective entrepreneur (with perceptions of anti-entrepreneurial social norms) that entrepreneurial activity is feasible, but not necessarily desirable, suggest that micro-financing should not be used as an incentive to lure otherwise contentedly occupied, geographically dispersed individuals into entrepreneurial activities. In such a situation, the funds are likely to go to waste. Instead of spreading out investments, micro-financing initiatives would be better directed to individuals already interested in engaging in entrepreneurial activity who are located in areas highly concentrated with entrepreneurs. This is in part because social norms in the proximal environment have emerged as the most important predictor of desirability, which in turn best predicts the formation of short- and long-term intentions (which we know often leads to behavior (Bird, 1988; Katz and Gartner, 1988; Krueger et al., 2000). This line of reasoning also suggests that surrounding prospective and nascent young entrepreneurs in Russia with strongly entrepreneurial mentors, educators, and organizations is perhaps the most effective means of encouraging the formation of entrepreneurial intent among this demographic. The types of activities most likely to increase the desirability of entrepreneurial activity are those which engage students in conversations and activities with entrepreneurs who are already in their proximal network, or who may – through frequent interaction – become part of students' proximal networks. 6.3 Research Limitations The low response rate (52 percent) to the questionnaire sent to 200 students reduced this study's sample size to 90 students. The data collected from ninety individuals, concentrated in one university in western Russia, is not representative of the all students in Russia. However, considering that Russia

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT

60

is comprised of more than 150 ethnic groups extending from Europe to Asia, results may, intuitively, be expected to differ. This suggests that caution in interpreting the present findings is warranted. Larger-scale projects such as the one conducted by the Global Entrepreneurship Monitor (GEM) aggregate data from several universities, but the raw data that would be needed to test this thesis' conceptual model is difficult to obtain from GEM, and often not published until years after its collection. A desire for current data prompted the researchers in this study to pursue partnerships with several universities. Unfortunately, difficulty with establishing such partnerships incurred a tradeoff: The data is current but the sample size is minimal. The partnership that was ultimately established was with Nizhny Novgorod Architecture and Civil Engineering State University. Though this sample provided for variety in terms of age and education level (including undergraduate, Master’s, and PhD students), the sample was inherently limited to students in design and engineering industries. A sample reflecting a larger scope of industries and fields could provide a more comprehensive thesis on the formation of entrepreneurial intentions among young prospective entrepreneurs in Russia. Though every evident measure was taken to ensure the validity and reliability of the questionnaire distributed to students, international studies and multi-language projects lend themselves to the possibility of certain things simply getting “lost in translation.” Reasons for this include cultural differences, and the way in which cultures use languages. Often times a literal translation does not suffice. In order to mitigate any misunderstanding of the survey, a comparison of the English and Russian versions was inspected by two bilingual, native Russian speakers. To date, there are no known issues of chronic – or even occasional – misunderstanding of the questionnaire used in this study. 6.4 Future Research Though select research questions have been answered, the inevitably limited scope of this study leaves many more questions unanswered. Present findings prompt even more questions for future

SOCIAL CAPITAL, PERSONAL FINANCIAL CAPITAL, & ENTREPRENEURIAL INTENT research. For example, subsequent studies should investigate whether dual-dimensional social norm constructs reflect differential effects in other transitional societies. Others should address the possibility of temporal (perhaps rather than contextual) models which distinguish formation of short-

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term entrepreneurial intentions from the formation of long-term intentions. The roles of feasibility and desirability should be tested thoroughly in each case. Generational differences which are exaggerated by the sudden changes brought about in transitional societies suggest that the results of this study – specific to prospective young entrepreneurs in Russia – may not hold for earlier generations. The important role of social norms in this study's results suggest that much different results may have been obtained had the researchers focused on an older demographic, specifically one which had attained adulthood prior to the beginnings of transition in the early 1990s and thus had been subjected to a completely different set of social norms during the formative years of youth. Future research might clarify the impact of generational differences with a comparative study of prospective Russian entrepreneurs. A longitudinal study of such scope could tell if generational differences on the formation of entrepreneurial intent reflect the situation (i.e. the environment in which they were raised) or the person (changes in beliefs and attitudes that accompany the aging process). A longitudinal study of this current generation of prospective entrepreneurs in Russia could elucidate the effects of transition over time. 6.5 | Concluding Remarks Transition has changed the economic-political-legal structure of the world's largest country. From outside, Russia's infrastructure may look more like capitalism, but social norms have yet to follow suit. They lag behind (Williams, Chuprov & Zubok, 2003). The bottom line is that transition has fundamentally changed the predictors of entrepreneurial intent that we care about. We study populations recently emerged from or currently amidst transition in order to better understand the

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formation of entrepreneurial intentions during times of future transition. This is especially important if implementing effective incentives for entrepreneurial activity and economic growth is an objective during such future transitional periods. The key to unlocking entrepreneurial growth in Russia is fostering a desire for entrepreneurial activity among young people who will form long-term intentions to start businesses, despite their perceptions of the feasibility of doing so. And the most effective way to foster perceptions of desirability associated with entrepreneurship is to start at home, in the everyday interactions with family and friends. The burden is clearly placed on entrepreneurial-minded leaders of the current generation to mentor and support the entrepreneurial tendencies of the rising generation and those to follow.

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