The influence of network peer pressure on entrepreneurial intentions

Table of contents

1 Abstract

2 Introduction

3 Main part
3.1 Term definition
3.2 Research question
3.3 Theoretical background
3.4 Derived propositions
3.5 Method
3.5.1 Independent variable: network at CDTM
3.5.2 The chosen case studies
3.6 Results

4 Conclusion
4.1 Discussion
4.2 Limitations & Future Research

5 References

1 Abstract

Purpose: The aim of this paper is to examine the relationship between network, peer pressure and entrepreneurial intentions. The impact of network peer pressure is investigated using the example of the entrepreneurship study program at the Center for Digital Technology and Management (CDTM) in Munich. The research is conducted as part of the seminar „Entrepreneurial networks and family businesses“ at TUM, Munich.

Approach: This paper follows a qualitative case study design, well-suited in early stages of research or when a fresh perspective is needed like here in the case of observing peer pressure effects in a different context as done before. Data sources were semi structured interviews and a literature review.

Findings: Whereas effects of peer pressure have been seen rather negatively in previous literature, the results of this study shows that in the case of the observed network CDTM a lot of positively perceived peer support could be noticed, inspiring entrepreneurial intentions and easing the founding process.

Contributions: The results of this paper could be of interest for both practicioners and scientists. By researching about the influence of entrepreneurial education, practical implications could be derived and future research on the effects of peer pressure on entrepreneurial intentions (two concepts which have not been put into context so far) might be inspired.

Keywords: Network, peer pressure, entrepreneurship, entrepreneurial intentions

Paper type: Seminar paper

2 Introduction

Social influences according to Asch (1955) shape every person, they influence behaviors and beliefs and everyone experiences their power regularly. The tendency towards conformity in our society is so strong that also intelligent and self-determined young people can feel the profound and influencing peer pressure effects that groups exert on them. Authors show that behaving in a conform way within our close network is part of human nature (Cialdini & Goldstein, 2004; Zhao, Seibert, & Lumpkin, 2010).

The phenomena of peer pressure and social influence is predominantly researched among adolescents in a school performance context (Black, 2002; Clasen & Brown, 1985; Santor, Messervey, & Kusumakar, 2000), implying mostly pure negative consequences, like a tendency towards risky behavior like substance abuse (Gardner & Steinberg, 2005; Santor et al., 2000). But how does it differ for young adults placed in the high achiever network of entrepreneurship study programs? And could social pressure in the context of entrepreneurship education^[1] even turn out positively? Could it prompt individuals to found their own start up?

This paper sets its focus on a particular relationship: putting peer pressure in the context of entrepreneurial education, its networks and the resulting entrepreneurial intentions of university students, as this form of social influence has not yet received much attention in the entrepreneurship literature. It aims at answering the following research question: “In which way does peer pressure deriving from a person’s social network influence his/her entrepreneurial intentions?” The add-on entrepreneurship study program at the Center for Digital Technology and Management in Munich (in the following referred to as CDTM) hereby forms the independent variable and an example for a network established through entrepreneurial education.

After defining the terms used, the paper in detail explains its goals and research question, derived propositions, as well as the underlying status quo and gaps of literature. Further on, the methodology is elaborated and finally, the results are presented and allocated, followed by a conclusion and outlook for future research.

3 Main part

3.1 Term definition

This research looks at the interaction between three different phenomena and puts them into context: Networks, peer pressure and entrepreneurial intentions. For the further discussion of this paper, all terms are explained in the following to establish a common base of understanding.

Networks: Borgatti and Halgin (2011, p. 1169) define networks as „...a set of actors or nodes along with a set of ties of a specified type (such as friendship) that link them. The ties interconnect through shared end points to form paths that indirectly link nodes.” The observed network CDTM and its particular characteristics will be described in the methodology part of this paper.

Peer pressure: The phenomena of peer pressure or in a more subtle form peer influence might cause us to change our behavior to meet the expectations of others (Burns & Darling, 2002). It is a feeling of pressure which might cause us to “do something or to keep from doing something else, no matter if you personally want to or not” (Clasen & Brown, 1985, p. 458) having majorities influencing our individual decision making (van Leeuwen, Kendal, Tennie, & Haun, 2015).

Entrepreneurial intentions: Eckhardt and Shane (2003, p. 336) define entrepreneurship “...as the discovery, evaluation, and exploitation of future goods and services (...)“, a process which also involves the study of opportunities. If those opportunities are recognized, entrepreneurial intentions may arise, defined by Pillis and Reardon (2007, p. 383) as “the intention to start a new business”.

3.2 Research question

The already mentioned research question posed in the course of this paper is trying to put those three constructs into context:

„ In which way does peer pressure deriving from a person’s social network influence his/her entrepreneurial intentions?”

The question aims at better understanding the relationship of a possible peer pressure stemming from the social network (in this case the network formed during and through entrepreneurial education) and the entrepreneurial intentions of students. It also wants to find out, if peer pressure in this case is perceived rather negatively or positively.

3.3 Theoretical background

How does this research question tie into the ongoing academic debate? In literature there are various constructs linking closely to peer pressure and social influence. A meta-analysis by Zhao et al. (2010) finds a small but significant correlation between entrepreneurship education and entrepreneurial intentions. An especially interesting point of their analysis is the construct of in-group collectivism - “the degree to which individuals express pride, loyalty and cohesiveness in their organizations or families” (House, Hanges, Javidan, Dorfman, & Gupta, 2004, p. 12). In-group collectivism furthermore reinforces the consensus within the group as it generates connectedness and relationships with others (Liñán & Chen, 2009). When entrepreneurship is taught within an environment of high in-group collectivism, greater entrepreneurial intentions can be expected (Zhao et al., 2010).

This thought links to the component social norms which forms part of the theory of planned behavior established by Ajzen (1991). The psychological theory is aiming to predict human behavior according to an individual’s beliefs. The mentioned construct of social norms encompasses what important people in the person’s life think about him/her performing a particular behavior (e.g. becoming an entrepreneur) and to which extent the person wants to comply with the expectations of others and is longing for their support (Krueger Jr, Reilly, & Carsrud, 2000). In this context entrepreneurs often seek legitimacy from their peers to reduce perceived risk of their planned actions (Hoang & Antoncic, 2003). Furthermore Carter, Gartner, Shaver, and Gatewood (2003) identify receiving recognition from one’s family, friends, and the community as one out of six dimension of reasons that individuals give for starting businesses. Anderson and Jack (2000) argue that this search for recognition and status among peer groups (being an entrepreneur is often seen as prestigious) influences the entrepreneurial outcome. Cialdini and Goldstein (2004) add that by aiming for conformity with their peers, people seek to receive the social approval of others and improve their relationships.

Besides social reasons, networks in the form of entrepreneurial peer groups also yield practical benefits for entrepreneurial outcome: They provide access to resources, information and a competitive advantage without capital investment (Gulati, 1999; Slotte-Kock & Coviello, 2010). Relationships can result in helpful advice, as well as a signaling effect for the aspiring entrepreneur (e.g. when partnering up with an already well-known company) (Hoang & Antoncic, 2003).

Which research gap can be identified? The form of peer pressure described in this paper has not yet received much attention in the entrepreneurship literature. A lot of literature implies negative consequences yielding from giving in to peer group pressure, e.g. a tendency towards risky behavior like substance abuse (Gardner & Steinberg, 2005; Santor et al., 2000) or even delinquent actions (Keenan, Loeber, Zhang, Stouthamer-Loeber, & van Kammen, 1995), especially when it comes to young people. The huge majority of research is focusing on peer groups among adolescents (Black, 2002; Clasen & Brown, 1985; Santor et al., 2000) resulting in a lot of studies about the influence of peer pressure on school performance (Ide, Parkerson, Haertel, & Walberg, 1981; Santor et al., 2000). Further work is observing peer effects and how they can influence the probability of becoming an entrepreneur through workplace peers (Nanda & Sørensen, 2010) or neighborhood networks (Giannetti & Simonov, 2009).

What is missing so far is a focus on young adults taking part in entrepreneurial education programs and which role peer pressure plays in this context. This paper wants to critically consider social pressure triggered by close peer groups, which might result in individuals founding companies primarily to behave in a conform way with the network. Here Zaheer, Gözübüyük, and Milanov (2010) indicate future researchers to also consider possible trade-offs of network membership. Falck, Heblich, and Luedemann (2012) on the other hand are of the opinion that an entrepreneurial peer group has a positive effect on an individual’s entrepreneurial intentions. They furthermore point out that the role the close network plays in the formation of entrepreneurial intentions until now is considerably less prominent in the literature. Also Krueger Jr et al. (2000) indicate that only few studies address social values and norms provided by the network.

3.4 Derived propositions

For these reasons the paper aims at placing peer pressure in the new context of entrepreneurial education and carefully elaborating on its positive and negative consequences for entrepreneurial intentions. As a result, the following three propositions are deducted and further elaborated on during the course of this paper:

P1: Within a close network of entrepreneurship education programs students are more likely to found a company.

P2: The peer influence coming from the network makes students feel pressured to behave in a conform way and forms part of their motivation to found a company.

P3: The peer influence coming from the network encourages students positively to found a company.

3.5 Method

A case study design was selected to shed light on the research question in the context of entrepreneurship education at the CDTM. Theory developed from case study research according to Eisenhardt (1989) is likely to provide novelty, testability, and empirical validity, which arise from the intimate linkage with empirical evidence. It is particularly well suited in early stages of research or when a fresh perspective is needed like here in the case of observing peer pressure effects in a different context as done before.

Next to an extensive literature review, an important data source are semistructured interviews. The following paragraphs explain the independent variable network at CDTM and the chosen two case studies.

3.5.1 Independent variable: network at CDTM

The network, students gain through taking part in the additional entrepreneurship study program at the CDTM will form the independent variable of this research. The interdisciplinary, three semester add-on study program forms part of the Elite Network of Bavaria and is a joint institution of Technische Universität München and Ludwig-Maximilians-Universität. 25 students from various study backgrounds and countries are accepted each semester and trained in innovation, product development and entrepreneurship during practical projects with industry partners. Today one third of all students found their own company during or after finishing their studies inlcuding successful examples like the companies Stylight and Freeletics (CDTM, 2016).

The CDTM hereby constitutes both - a collective and competitive network - and as a result a very influential peer group, even referred to as „CDTM family“ by its members. The CDTM can furthermore be characterized and allocated as follows according to the three elements of networks (Hoang & Antoncic, 2003):

- Network content, as the nature of content exchanged between actors:

Content that is exchanged via networks is for example, information, idea sparring, access to investors and advise (Hoang & Yi, 2015). The CDTM through its strong and helpful alumni network and established relationships with industry partners facilitates the exchange of this content (CDTM, 2016).

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^[1] Entrepreneurship education builds the skills and knowlegde about and for entrepreneurship via education programs at school and post-school age (Kelley, Singer, & Herrington, 2016).