A Founding Penalty: Evidence from an Audit Study on Gender, Entrepreneurship, and Future Employment

Abstract

There is both widespread interest in encouraging entrepreneurship and universal recognition that the vast majority of these founders will fail, which raises an important unanswered question: What happens to ex-founders when they apply for jobs? Whereas existing research has identified many factors that facilitate movement out of an established organization and into entrepreneurship, far less attention has been devoted to understanding what transpires during the return journey—most notably, how employers evaluate entrepreneurial experience at the point of hire. We propose that employers penalize job candidates with a history of founding a new venture because they believe them to be worse fits and less committed employees than comparable candidates without founding experience. We further predict that the discount for having been an entrepreneur will diminish when other stereotypes about the candidate, particularly those based on gender, will contradict the negative beliefs about ex-founders. We test our proposition using a résumé-based audit and an experimental survey. The audit reveals that founding significantly reduces the likelihood that an employer interviews a male candidate, but there is no comparable penalty for female ex-founders. The experimental survey confirms the gendered nature of the founding penalty and provides evidence that it results from employers’ concerns that founders are less committed and worse organizational fits than nonfounders. Critically, the survey also indicates that these concerns are mitigated for women, helping to explain why they suffer no equivalent founding penalty.