Principal Topic

Research comparing values of entrepreneurs and corporate managers across different national backgrounds concludes that values of entrepreneurs tend to be similar. In contrast, “ethnic entrepreneurship literature” maintains that ethnic background significantly influences entrepreneurial conduct of the venture. This theme is consistent with “top management team [TMT]” literature, which argues that the organization is a reflection of its top executives.

Prior research concludes that TMT characteristics do make a difference to the strategic choices management teams make. However, team diversity does not seem to directly and significantly correlate with firm performance. Team diversity does seem to be associated with managerial processes [e.g., group consensus], which in turn influences performance. Thus research on top management team diversity strongly implies that ethnicity would have no effect on strategy or venture performance. Therefore, the study presented in this paper tests the null hypothesis that ethnicity does not have any significant effect on the strategic intent of new ventures.

Method

In analyzing the data of over 200 Internet ventures that have gone public within the last three years, we identified 28 [approximately 14 per cent] ventures that have one or more founding team members with ethnic background, i.e., U.S. immigrants of Hispanic, Asian, Southeast Asian, or Middle Eastern origin. Each of the 28 new Internet ventures was then paired with another new Internet venture according two criteria: there were no ethnic team members and it followed the same or a similar business model as the new venture with ethnic team members. Pair-wise analysis of strategic intent of the ventures was completed using the following measures of strategic intent: financial condition of the venture at the time of IPO, its capital structure, time taken from founding to going public, intended use of proceeds from the public offering, and allocation of resources to marketing, research, and general and administrative purposes.

Results and Implications

The results suggest that the presence of team members with ethnic background does not seem to significantly impact the strategic intent of new Internet ventures. Compared to ventures that do not have ethnic team members, ventures with ethnic teams do not seem to act with greater speed in going public; nor is their financial condition at the time of IPO significantly different. They do not seem to engage in riskier behavior, nor are they aggressive in investing resources to build marketing, research, or administrative strengths of the ventures. Ventures with ethnic team members were however more aggressive as to their debt structure. These results affirm that high-tech entrepreneurs from different ethnic background are more alike than different.

CONTACT: Rajeswararao S. Chaganti, 201D Speakman Hall, Innovation and Entrepreneurship Institute, The Fox School of Business and Management, Temple University, 1810 North Broad Street, Philadelphia, Pa, 19122; (T) 215-204-5675; Chaganti@sbm.temple.edu