Failing role models and the formation of fear of entrepreneurial failure: A study of regional peer effects in German regions

Abstract

Entrepreneurial role models influence decisions to start firms. This effect is even stronger if peers and observers live in the same region. However, most studies remain silent about the role of entrepreneurial failure for the direction of role modeling. Failed role models can trigger a deterrence of entrepreneurship in others of the same region. We hypothesize that observing successful entrepreneurs reduces fear of failure, while observing business failure increases fear of failure. By using data on regional entries and exits, we find considerable support for our hypothesis and contribute to literature on regional entrepreneurship.