The Salience of Entrepreneurship: Evidence from Online Business

We examine the decision to become an entrepreneur in the context of online business. Using data on entrepreneurs from a large e-commerce marketplace in China, we find that individuals are more likely to start online businesses after observing the salient success of nearby stores. Leveraging the platform’s store rating system and detailed geographic information in rural China, we show that an upgrade in a local store’s rating leads to a significant increase in new store entries nearby. This effect diminishes with physical distance and intensifies with the salience of the upgrade. However, these entry decisions appear to be suboptimal; entrants driven by local upgrade events underperform in sales and are more likely to exit, especially during downturns in overall market conditions. Our findings are consistent with salience-based theories of decision making, in which individuals overweight highly visible local information.

This paper was accepted by Lin William Cong, finance.

Funding: C. Lin acknowledges financial support from the National Natural Science Foundation of China [Project 72192841] and the Research Grant Council of the Hong Kong SAR, China [Project T35-710/20-R]. S. Liu acknowledges financial support from the Research Grant Council of the Hong Kong SAR, China [Project 12503324].

Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.04409.