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The
The propensity to propensity to
business startup business
startup
Evidence from Global Entrepreneurship
Monitor (GEM) data in Saudi Arabia 263
Abdul Rahim Abu Bakar
Received 13 November 2016
Marketing Department, Prince Sultan University, Riyadh, Saudi Arabia Revised 16 March 2017
Accepted 31 March 2017
Syed Zamberi Ahmad
College of Business Administration, Management Department,
Abu Dhabi University, Abu Dhabi, United Arab Emirates
Norman S. Wright
Management Department, Utah Valley University, Orem, Utah, USA, and
Hazbo Skoko
School of Accounting and Finance, Charles Sturt University, Bathurst, Australia

Abstract
Purpose – The purpose of this study is to assess the determining factors of entrepreneurial business startup
in Saudi Arabia from an eclectic perspective.
Design/methodology/approach – Based on Global Entrepreneurship Monitor data of 2000 Saudi
Arabian respondents, the study analyzes a multitude of individual factors which are classified into four
groups: financial resources; social legitimacy; entrepreneurial personality; and entrepreneurial competencies.
Gender and education are moderating variables influencing the relationship, whereas age is a control variable
using binary logistic regression technique.
Findings – Out of ten hypotheses, only four hypotheses, namely, income, fear of failure, perception of high
status and knowledge of other entrepreneurs, have a significant relationship with the possibility of a business
startup.
Originality/value – Implications of these findings and directions for future research are discussed.
Keywords Entrepreneurialism, Global Entrepreneurship Monitor (GEM), Entrepreneurship,
Kingdom of Saudi Arabia, Regression model
Paper type Research paper

Introduction
The impact of entrepreneurship on wealth creation, employment opportunities and
economic growth have been confirmed by an increasing number of researchers in recent
years (Carree and Thurik 2003; Acs et al., 2008; Ahmad and Xavier, 2012; Xavier et al.,
2013). The practice of entrepreneurship emerges from the formation of entrepreneurial
opportunities and the realization of entrepreneurial capacities, which lead to new
business creation. Although copious amounts have been written theoretically and Journal of Entrepreneurship in
Emerging Economies
descriptively on how entrepreneurship affects the economy, there is dearth of empirical Vol. 9 No. 3, 2017
pp. 263-285
evidence that analyses the determinants of firm creation in developing countries. This is © Emerald Publishing Limited
2053-4604
a significant gap as entrepreneurial intentions differ between developing and developed DOI 10.1108/JEEE-11-2016-0049
JEEE countries (Iakovleva et al., 2011).With the exceptions of few studies that focused on the
9,3 Middle East (Ahmad, 2011), most studies examining the individual’s perceptions of
entrepreneurship have focused on the developed countries of Western markets [Krueger
et al., 2000 (USA); Guerrero et al., 2008 (Spain); Koh, 1995 (Hong Kong); Tan et al., 1996
(Singapore); Audretsch, 2002 (Canada); Crant, 1996 (USA); Kolvereid, 1996 (Norway);
Tkachev and Kolvereid, 1999 (Russia); Veciana et al., 2005 (Puerto Rico and Catalonia)].
264 Thomas and Mueller (2000) argue that the study of entrepreneurship should be expanded
to international markets to investigate the conditions and characteristics that encourage
entrepreneurial activities in various countries and regions. Understanding of
entrepreneurship development in developing countries would allow policy makers to use
this knowledge to formulate policies that are tailor-made for the development of the
nations of developing economies.

Saudi Arabia context

Saudi Arabia is among those developing countries that have a fast-growing economy. It is
one of the world’s 25 largest economies and the largest economy in the Middle East and
North Africa (MENA) region with per-capita income forecast to rise from US$25,000 in 2012
to US$33,500 by 2020. Saudi Arabia remains an economy driven by extractive activity
though efforts at diversification have created greater a higher growth rate in non-oil
industries over the past few years. While figures vary from year to year, somewhere close to
50 per cent of GDP is driven by the oil industry with almost 90 per cent of government
revenues and exports coming from the same industry (Oxford Business Group, 2007, 2015).
From an entrepreneurial perspective, the country ranks 13th out of 183 economies in
“ease of starting a business” according to World Bank’s Doing Business 2010 data. Based on
2013 data, the Kingdom ranks second to the United Arab Emirates in ease of doing business
within the MENA. Thus, it is reasonable to infer that entrepreneurship enjoys a high level of
support in Saudi Arabia. Initiatives such as the Saudi Arabian National Entrepreneurship
Center (NEC), an institution created to empower the young to be successful entrepreneurs,
help to promote entrepreneurship within the country.
Despite the recognition and emphasis on entrepreneurship in the country, few studies
have been done focusing on entrepreneurship within the Kingdom. The NEC did
commission a Global Entrepreneurship Monitor (GEM) study in cooperation with the
Centennial Fund and Alfaisal University in 2009 to explore entrepreneurship activities in
Saudi Arabia. The GEM database has been increasingly utilized in academic research
(Bergmann et al., 2014; Ramos-Rodriguez et al., 2015). Apart from that recent studies have
paid particular attention to female entrepreneurs finding that they are starting business at a
higher rate than in the past and seem to do so with greater confidence and support from
family members while continuing to face many challenges in access to financing, male-
oriented social norms and a lack of training and mentoring (Danish and Smith, 2012;
Ahmad, 2011). Another group of entrepreneurs receiving some attention has been scientists
engaged in entrepreneurial activity with research finding that younger scientists with
greater human capital are initiating new businesses at higher rates than their older
colleagues with less human capital (Alshumaimri et al., 2012). Other studies focus on the role
of Islam in entrepreneurial activities (Kayed and Hassan, 2010) and testing the market
orientation-performance link within the Saudi context (Bhuian and Habib, 2004).
Overall, however, there continues to be a relative dearth of research on the factors that
influence new business startups among adults in Saudi Arabia. This study hence seeks to
address that gap.
 The objective of the current paper is to study the factors that influence individuals to The
take decisions to become entrepreneurs. In other words, the paper aims to explore and propensity to
explain individuals’ propensity to create a business startup. In the GEM data collection, this
business
is defined as a “nascent entrepreneur”. The triggers of the propensity to start a business
venture cannot, however, be studied using only objective variables (age, gender, income, startup
etc.). Other, more subjective, influences play a role in this process such as individual
motivations and perceptions of the cultural, political, demographic and environment 265
(Audretsch, 2002). Therefore, individual personality and competencies cannot be isolated
and thus this study adds individuals’ attitudes, perceptions, competencies and personal
attributes to the analysis. This approach is consistent with studies done by previous
scholars (Arenius and Minniti, 2005; Camelo-Ordaz et al., 2016) who combine demographic
with perceptual variables related to the entrepreneur. The entrepreneurial perception
variables which reflect the entrepreneurial personality and competencies are adapted from
the work of Tsai et al. (2016).
The paper is structured as follows: the next section describes the theoretical framework
for this study and formulates various hypotheses regarding the decision to become an
entrepreneur. Thereafter, the methodology used in the study is outlined. The subsequent
section provides results and a discussion of the research. The paper ends by stating a
number of conclusions and recommendations for practice and future study.

Theoretical background and hypotheses

The diversity of disciplines studying the determinants for the business startup phenomenon
(economics, business management, sociology, psychology, etc.) and the large number of
paradigms adopted, indicate that consensus has not arisen. All suffer from some limitations.
This means that the phenomenon should be studied from an eclectic perspective because the
emergence of entrepreneurship is too complex an event to be explained by a single
perspective of analysis, whether economic, social or institutional. Thus, the current work
combines various theoretical perspectives, considering their numerous dimensions to
explain the determinants of individuals’ propensity to start up a business venture. In this
way, this theoretical framework has attempted to overcome some limitations observed in
certain entrepreneurial models that offered a partial view of the process of business creation.
The independent variables examined in this study for their effect on the decision to start a
new business are classified into four groups:
(1) financial resources;
(2) social legitimacy;
(3) entrepreneurial personality; and
(4) entrepreneurial competencies.

Gender and education are moderating variables influencing the relationship, whereas age is
a control variable.

Financial resources
Previous studies have indicated that the main source of startup financing is the personal
savings of the business’s founder (Bygrave, 2003). This highlights that entrepreneurs do not
wish to commit themselves with financial obligation by borrowing from the bank (Kim et al.,
2006). Consequently, the source of the business capital would come from family and friends
apart from the personal savings accumulated from current or previous employment. In this
JEEE study, financial resources comprise household income and work status. The two factors
9,3 contributed toward the source of startup financing.
Household income. According to a household portfolio theory, some of the most
important determinants of household investments in risky assets are household financial
wealth and income (Gollier, 2002; Guiso et al., 2003). The probability of individuals
becoming entrepreneurs is found to be positively associated with their personal net wealth
266 and secure household income (Evans and Leighton, 1989). Personal net wealth and
household income may facilitate the transition to entrepreneurship because individuals
possessing wealth – personal or family wealth and income – do not necessary need to get
funding from banks or other agencies and can self-finance the startup process (Kim et al.,
2006). High income levels allow individuals to distribute their wealth in a wider range of
investments, including riskier ones (Maula et al., 2005). In line with these arguments,
investing a part of the household income in a business startup is a risky investment, so this
study will test the following hypothesis:
H1. The higher the household income made by individuals, the higher the propensity
for business startup in Saudi Arabia.
Working status. From a demographic perspective, researchers have generally argued that
individuals who are employed are more likely to establish a business venture than
unemployed individuals (Arenius and Minniti, 2005). This can be a result of both having the
expertise and financing to launch a new venture. Another form of entrepreneurship –
necessity-based entrepreneurship, results from individuals starting business as other
employment opportunities are either absent or unsatisfactory (Reynolds et al., 2003). Global
assessments indicate that two-thirds of entrepreneurs self-classify as opportunity
motivated, whereas one-third self-classify as necessity motivated (Reynolds et al., 2002). To
date, Saudi Arabia has not necessarily had a large group of citizens who have lacked basic
necessities due to a generous distribution of oil revenues to meet basic shelter, food,
education and health-care needs. In view of this state of affairs, it is proposed that the skill
sets developed and income earned in employment allow the employed to both identify and
take advantage of entrepreneurial opportunities at a higher rate than their unemployed
colleagues. The following hypothesis is therefore proposed:
H2. Current employment is positively related to the propensity for business startup in
Saudi Arabia.

Social legitimacy
Legitimacy is “a generalised perception or assumption that the actions of an entity are
desirable, proper, or appropriate within some socially constructed system of norms, values,
beliefs and definitions” (Suchman, 1995, p. 574). Establishing entrepreneurial legitimacy is
argued as mainly a process of gaining legitimacy, as an individual is faced with promoting
new activities to gain validity as an entrepreneur. The theory of planned behavior (Ajzen,
1991) argues that a favorable or unfavorable attitude toward a particular behavior is
influenced by social norms that either encourage or discourage the behavior. This is even
more likely to be the case in a collectivistic culture such as Saudi Arabia (Markus and
Kitayama, 2003; Oyserman and Lee, 2008). In other words, the expectation of their close
circles and the motivation to comply with such expectations is stronger in the collective
society and influence their intention to become an entrepreneur (Ahmad et al., 2014; Begley
and Tan, 2001). Such factors include whether the individual perceives that being an
entrepreneur is an attractive profession and whether the individual perceives that people
think successful entrepreneurs have a high social status and prestige. Again, as this is a The
perceptual variable, one would expect the relationship to hold despite varying social propensity to
perceptions across countries. In summary, the following hypotheses are proposed: business
H3. The perception that society regards being an entrepreneur as an attractive startup
profession is positively related to the propensity to business startup in Saudi
Arabia.
267
H4. In Saudi Arabia, the perception that successful entrepreneurs gain high social
status and prestige is positively related to the propensity for business startup.

Entrepreneurial personality
Examining individual perceptions of entrepreneurship like perceived fear of failure and
knowledge of other entrepreneurs or role model is important because these factors has a
significant influence toward the intention to start a business. Fear of failure, for instance,
has a strong negative relationship with entrepreneurial entry (Arenius and Minniti, 2005;
Stuetzer et al., 2014). Meanwhile, contacts to entrepreneurs may reduce information
ambiguity attached to entrepreneurship and heighten the interest among non-entrepreneurs
(Wyrwich et al., 2016). Several studies have found that role models influence entrepreneurs
in their decisions of becoming an entrepreneur (Arenius and Minniti, 2005). In addition, by
knowing and observing successful entrepreneurs, it helps entrepreneurs to sort out the
resources and activities needed for starting the business and at the same time boost
individual self-confidence (Sorenson and Audia, 2000). As such, Baron (2000) argued that
role models have the ability to induce entrepreneurial competencies or self-efficacy. In this
study, entrepreneurial personality comprises of fear of failure and knowledge of other
entrepreneurs.
Fear of failure. The theory of planned behavior holds that individuals’ fear of failure
leads to the perception that they are unable to control the behavior required to venture
into business (Ajzen, 1991). This generates an unfavorable attitude toward such
behavior. The absence of this fear would eliminate the perception of inability to control
the situation and hence the unfavorable attitude toward the behavior (Gilmore et al.,
2004). Being entrepreneurial and venturing into new fields requires taking a certain
degree of risk (Schumpeter, 1934). According to the classical decision theory, risk is
defined as the variation in the distribution of possible outcomes, probabilities and
associated subjective values (March and Shapira, 1987). Among the main factors
differentiating entrepreneurs from employed workers was the uncertainty and the risk
taken by the former (Entrialgo et al., 2000; Thomas and Mueller, 2000). Various studies
claim no significant difference between an entrepreneur and a non-entrepreneur (Babb
and Babb, 1992; Palich and Bagby, 1995). However, Begley (1995) found the risk-taking
propensity as the only trait which differentiates founders and non-founders. In the
literature on entrepreneurship, entrepreneurs are generally characterized as having a
greater propensity to take risks than other groups (Cromie, 2000; Thomas and Mueller,
2000). Again, while the risk of failure may vary from country to country, the perceptual
nature of this variable suggests that the relationship should hold within a single country.
This leads to the following hypothesis:
H5. The higher the fear of failure, the lower the propensity for business startup in Saudi
Arabia.
JEEE Knowledge of other entrepreneurs. Previous research suggests that personally knowing
9,3 other entrepreneurs should generate positive attitudes toward entrepreneurs in general
(Anderson, 2008; Hoang and Antoncic, 2003). A number of studies document that
entrepreneurs consistently use knowledge of other entrepreneurs to get ideas and gather
information to recognize entrepreneurial opportunities (Smeltzer et al., 1991; Aaboen et al.,
2013). Considering the role theory (Veciana, 2007), individuals who know other
268 entrepreneurs may hear about facts that facilitate firm creation. The argument is that the
“development and the related likelihood of discovering entrepreneurial opportunities and
increasing the willingness to start a new firm is strongly influenced by positive examples,
so-called role models” (Fornahl, 2003, p. 50). From the network theory perspective, by
establishing and maintaining a network within an entrepreneurial society, an individual can
access support, information and other resources by tapping into the network (Baron and
Shane, 2008). Networking relationships could provide a stronger platform on which the
entrepreneur can build the business to reach results greater than those achieved by efforts
made in isolation (Hoang and Antoncic, 2003). Throughout the Arab region, networks or
wasta (the term used to refer to connections or networks) are a significant force in all aspects
of decision-making and thus play a very important role in many aspects of careers and
business development (Cunningham and Sarayah, 1993; Tlaiss and Kauser, 2011). These
arguments lead to the following hypothesis:
H6. In Saudi Arabia, knowing other entrepreneurs increases the propensity for business
startup.

Entrepreneurial competencies
Numerous scholars have argued that the factors representing entrepreneurial competencies
or efficacies influence the decision of an individual to start a new business (Arenius and
Minniti, 2005). Nevertheless, the factors representing the construct differ from each study
(Camelo-Ordaz et al., 2016; McGee et al., 2009; Urban, 2012). In this study, entrepreneurial
competencies or efficacy are represented by perception of opportunities and confidence in
one’s skills. Previous studies have demonstrated that individuals with high entrepreneurial
self-efficacy [which is an individual’s belief about their capability to utilize resources and
activities that are crucial in performing the specific tasks of an entrepreneur (Ballout, 2009)],
perceive more of opportunities than risks in the environment because they believe in their
ability to influence the achievement of goals (Urban, 2012).
Perception of opportunities. According to the theory of planned behavior, individuals’
attitudes influence their behavior (Ajzen, 1991). Kahneman (2003) suggested that all
behavior is seen as the simultaneous product of the operation of both intuitive and rational
systems. The entrepreneurial behavior is viewed as the creation of a new organization to
pursue an opportunity (Starr and Bygrave, 1991), which is also the product of both intuitive
and rational systems of entrepreneurs. Entrepreneurs are distinguished by their ability to
perceive and exploit opportunities overlooked by others (Kirzner, 1985; Schumpeter, 1942).
The Saudi context would not contradict this relationship. This leads, therefore, to the
following hypothesis:
H7. In Saudi Arabia, the greater the individual perception of business opportunities the
higher the propensity for business startup.
Confidence in one’s skills. Perceptions of entrepreneurial skills indicate how confident
respondents are in their possession of an adequate level of certain skills related to
entrepreneurship. In the process of starting an enterprise and to successfully run a business,
an entrepreneur needs to identify potentially profitable opportunities, assemble human and The
financial resources, launch a new venture, manage its growth and build a viable business propensity to
(Baron and Shane, 2008). Because this task has so many dimensions, an entrepreneur needs
to have a broad variety of skills (Lazear, 2004). He has to be competent in many different
business
aspects and should have the ability to play various managerial and non-managerial roles startup
(such as manager, accountant, salesperson, chief engineer, etc.) in the process of founding a
firm (Lazear 2004, 2005). Possessing these skills could make individuals feel more able to
start a firm (Denoble et al., 1999). While the existing research cites findings from outside of 269
Saudi Arabia, these perceptions should maintain their relationship across countries leading
to a similar relationship in the Kingdom. The following hypothesis captures that
relationship:
H8. In Saudi Arabia, confidence in one’s skills is positively related to the propensity for
business startup.
Moderating variables. Gender.Díaz-García and Jiménez-Moreno (2010) suggested that
gender can influence the independent variables toward entrepreneurial intentions and
therefore, this may influence indirectly toward entrepreneurial intention. This can be
exemplified where in some studies after going through an entrepreneurial education; the
respondents regardless of their gender expressed a less enthusiastic intention to start a
business (Oosterbeek et al., 2010). Meanwhile, in other studies, a positive and significant
relationship was observed between entrepreneurial education and entrepreneurial intention
among male students through self-employment although not females (Walter et al., 2013).
This is also evident where there are scarce literature explaining the gender differences
(Trevelyan, 2011) in the entrepreneurial intention based on perceptual factors such as
entrepreneurial competencies or personalities (Koellinger et al., 2013; Markman et al., 2005).
On the same note, there is hardly any significant work that comparatively analyzes whether
the influence of these antecedents on the different entrepreneurial intention reported by men
and women is modified once the individuals started a business. Therefore, following
Szidonia et al. (2017) and Karimi et al. (2013), this study adopted gender as a moderating
factor influencing the relationship between the independent factors and entrepreneurial
propensity to start a business.
Generally, men and women do not appear to have significant psychological differences
although their entrepreneurial objectives and management styles do diverge (Langowitz
and Minniti, 2007). Contextual and historical variables such as legislation and the culture of
a particular country, however, may discourage a particular gender to be involved in
business (Ahl, 2006). In Saudi Arabia, men continue to dominate power structures,
education, finance and travel (Hamad, 2005; Ahmad, 2011). Hence, only 6 per cent of women
are engaged in early stage entrepreneurial activities compared to 12 per cent of males
(Global Entrepreneurship Research Association, 2013). Several studies give further support
to the idea that gender roles have an impact on business outcomes for male and female
entrepreneurs and this is evident in representative samples of businesses and within specific
business niches (Ahmad et al., 2014; Du Rietz and Henrekson, 2000). Anna et al. (2000) and
Ahmad (2011) argued that studies in the international context has proved that gender also
plays a role in business performance, insofar as it influences the self-perception of women
entrepreneurs and their abilities to realize business growth given the desirability society
attaches to business success. In spite of some positive regulatory changes, in practice,
government officials in the country often continue to implement old laws in this area which
restrict women’s ability to manage their own businesses (Alturki and Braswell, 2010). These
findings are supported in the Saudi context in the work of Danish and Smith (2012) who
JEEE indicate that institutional barriers to female entrepreneurship continue to exist including the
9,3 requirement of a male representation in the establishment of a new venture. Thus, this study
examines the moderating roles of gender toward the propensity of business start-up:
H9. The positive effect of the independent variables on the propensity of business start-
up is stronger among men than among women.

270 Educational level. Individuals’ personality traits have been shown to influence their
intentions to start a business (Mueller and Thomas, 2001). However, some of these studies
do not consider the moderating effect of higher education when investigating the
relationship between the personality traits and their entrepreneurial intentions (Ertuna and
Gurel, 2011). Robinson and Sexton (1994) for instance found that higher education increases
the probability of becoming self-employed. They argued that through education, it enables
individuals to identify business opportunities in addition to equip themselves with the
necessary skills to start a business. Simililarly, Arenius and De Clercq (2005) corroborated
the argument where their study found that there is positive correlation between education
level and opportunity recognition.
Formal education frequently produces non-linear effects in the probability of becoming
an entrepreneur (Davidsson and Honig, 2003; Evans and Leighton, 1989). Some studies
suggest that highly educated individuals are more likely to establish new ventures (Bates,
1990), whereas other studies detect an inverse relationship between educational attainment
and firm formation (Storey, 1994). This may be due to the distinction between necessity-
based and opportunity-based entrepreneurship. Despite the fact that the relationship
between education and entrepreneurship is mixed (Arenius and Minniti, 2005; Blanchflower,
2004), it is proposed that higher levels of education would be more likely to be associated
with entrepreneurial endeavors in a society like Saudi Arabia where opportunity rather than
necessity appears to drive business startup. This variable may serve as a proxy for both
financial and human capital but would result in the following hypothesis:
H10. The positive effect of the independent variables on the propensity of business
start-up is stronger among higher level of education.
Control variables. Age. Many studies examine the demographic profile of individuals as part
of the entrepreneurial analysis. The most popular components are age (Szivas, 2001), gender
(Minniti and Nardone, 2007), income status (Koellinger, 2008) and educational attainment
(Dolinsky et al., 1993). According to several studies, the dominant age of individuals to
become entrepreneurs varies and is in the category of middle-age and older, that is, from 25
to 50 years (Ahmad and Xavier, 2012; Avcikurt, 2003), 30 to 45 years (Ahmad, 2005) and 45
years and older (Szivas, 2001; Getz and Carlsen, 2000). Age is a proxy variable for personal
wealth – the older a person is, the higher the potential period to accumulate wealth.
However, Reynolds et al. (2003) and Blanchflower (2004) found entrepreneurs tend to be
relatively young with the highest propensity of entrepreneurship occurring in the range of
25 to 34 years. This is consistent with the previously mentioned study within the Saudi
Arabia context indicating that science-based entrepreneurship is more probable among
younger scientists (Alshumaimri et al., 2012). Therefore, given the uncertainty of previous
findings combined with indications from a single study in Saudi Arabia, this study
considered it appropriate to control age and follows the approach by Camelo-Ordaz et al.
(2016). The relationship between each variable is illustrated in Figure 1 describing the
study’s research model.
The data used in this analysis are taken from the research project of the GEM, a well-
known international survey of entrepreneurial activities (Tsai et al., 2016) which focuses on
 The
propensity to
Financial Resources Gender business
Income
Occupation startup

Social Legitimacy
271
Attractive career choice
Social status

Age Decision to start

Entrepreneurial Personality new business
Fear of failure
Know other entrepreneurs

Entrepreneurial Competencies
Opportunity perception
Confidence in one’s skill Figure 1.
Education Factors influencing
new business start-up
in Saudi Arabia

the extent of the difference in entrepreneurial activities carried out in 2009 in the Kingdom of
Saudi Arabia. This is the latest year and the only available data for which GEM data was
collected. The GEM project has facilitated the process of measuring entrepreneurial
activities in many countries (Schott, 2008) with each participating nation an Adult
Population Survey comprising about 2,000 respondents using a stratified sampling
technique. These respondents aged 18 to 64 are asked a variety of questions regarding their
engagement in and attitude toward entrepreneurship (Klyver, 2008). All the GEM
respondents in this country’s sample are Saudis. Based on all the procedures, the final
number of usable responses from this study was 2000.
Measures. Dependent variable: the decision to start up a new business.
The dependent variable in this study is the decision to start up a new business, where 0
indicates the decision NOT to create a business and 1 is the decision to start a new venture.
Based on Arenius and Minniti (2005), we adopted the {BSTART} item ‘Are you, alone or
with others, currently trying to start a new business, including any self-employment or
selling any goods or services to others?’ as the dependent variable:
Independent variables:

(1) Financial resources:

Household income {XXHHINC}: Respondents were asked to provide
information about their household income, counting all wages, salaries,
pensions and other incomes that they generated. The categories used are below
SR4,000 (US$1,066), SR4,000-SR7,000 (US$1,867), SR7,001-SR12,000 (US$1, 867-
3,200), SR12, 001 to SR15, 000 (US$3, 200-4,000) and above SR15,000 (US$4, 000)
per month. However, for the purpose of consistency in the analysis, the data
JEEE were later recoded into binary representing 0 as below average (less than SR7,
9,3 000) and 1 as above average. To highlight the descriptive nature of the sample,
the initial categories of income were presented instead of the binary categories.

Working status {OCCU}: Respondents were asked to provide their employment
status at the time of survey. The original data comprise 1 as “working full-
time”, 2 as “working part-time” and 3 as “not working”. Similar to income, the
272 data were later recoded into binary to 0 as “Not working” and 1 as “working”.
(2) Social legitimacy:

Attractive career choice {NBGOODC}: Dichotomous variable being equal to 1 if
the respondent responds affirmatively to the question: “In my country, most
people consider starting a new business a desirable career of choice” and 0
otherwise.

Social status {NBSTATUS}: A dichotomous variable being equal to 1 if the
respondent responds affirmatively to the question: “In my country, those
successful at starting a new business have a high level of status and respect”
and 0 otherwise.
(3) Entrepreneurial personality:

Fear of failure {FEARFAIL}: A dichotomous variable being equal to 1 if the
respondent responds affirmatively to the question: “Fear of failure would
prevent you from starting a business” and 0 otherwise.

Knowing other entrepreneurs {KNOWENT}: Dichotomous variable equal to 1
if the respondent responds affirmatively to the question: “Do you know
someone personally who started a business in the past 2 years?” and 0
otherwise.
(4) Entrepreneurial competencies:

Opportunity perception {OPPORT}: It is measured using a dichotomous
variable taking value 1 if the respondent responds affirmatively to the question:
“In the next six months there will be good opportunities to startup new
businesses in the area where you live” and 0 otherwise.

Confidence in one’s skills {SUSKILL}: A dichotomous variable equal to 1 if the
respondent responds affirmatively to the question: “You have the knowledge,
skill and experience required to start a new business” and 0 otherwise.
Moderating variables.

Gender {GENDER}: Respondents were asked to provide their gender –
a dichotomous variable taking value 0 for males and 1 for females.

Educational level {XXREDUC}: The respondents were asked to state the
highest level of education they had attained. For the purpose of consistency in
analyzing using binary logistic regression, the education category was coded
into 0 as “no or limited education” and 1 as “formally educated”.

Control variable.

Age {AGE7C}: Respondents were asked to indicate the range that best
describes their age at the time of survey. The age categories are categorical
where 1,017 denotes under 18, 1,824 is between the age of 18 and 24, 2,534 is
 between 25 and 34, 3,544 is between 35 and 44, 4,554 – between 45 and 54, The
5,564 – between 55 and 64 and finally 6,599 is above 65 years old. propensity to
Data analysis. Specification. Given the nature of the research questions and available business
data – evaluating the influence of a series of independent variables on a dichotomous startup
dependent variable – the appropriate data analysis is the binary logistic regression
model.
Verification. This paper verified the model using the likelihood ratio test, which verifies 273
the statistical significance of all the model coefficients.

Results
Initially, descriptive statistics was run on the sample. Table I illustrates the profile of the
sample.
The respondents comprise a relatively larger number of males as compared to females.
This is considered normal as Saudi Arabia is a male-dominated society and due to cultural
restrictions, it can be difficult to obtain responses from females. The sample is equivalent
with the country ratio of male to female at 1.05. In terms of age bracket, the study managed
to obtain an equal representation of the respondents from all ages with a slightly more
representation from the “productive age” group (25-44 years old). The age distribution of the
sample is also representable to the national age distribution (United Nations, 2012). In terms
of household income, the sample is skewed toward the monthly income bracket of SR15, 000
(US$4, 000). These figures correlate with the education level where those who are formally

Profile Frequency (n = 2000) (%)

Gender
Male 1230 61.50
Female 770 38.5
Age
Below 13 0.7
18-24 290 14.5
25-34 790 39.5
34-44 509 25.5
45-54 226 11.3
55-64 66 3.3
Above 65 7 0.4
Missing 99 5.0
Monthly Income: (Saudi Riyal [SR])
Below 4,000 (US$1,066) 103 5.5
4,000-7,000 (US$1,066-1,867) 133 7.1
7,001-12, 000 (US$1,867-3,200) 116 6.2
12, 001-15, 000 (US$3,200-4,000) 109 5.8
Above 15,000 (US$4,000) 1,250 66.4
Education
No or limited education 215 10.8
Formally educated 1,785 89.3
Work status Table I.
Working 1,271 63.6 Profile of the
Not working 729 36.5 respondents
JEEE educated dominated the group and 64 per cent of the respondents are working full time. The
9,3 source of income and income distribution in the sample corresponds with the figures
provided by Euromonitor (2014) where 59 per cent of the income is through employment and
the annual household income for Saudi Arabia in 2009 is equivalent to SR11, 928 (US$3, 181)
per month. The amount has eventually increased to SR13, 385 (US$3, 569) in 2012.
A correlation matrix for the variables was computed and is presented at the end of the
274 text in Table II. Eight of the ten predictor variables have a relatively strong correlation ( r <
0.01) with the business startup measure. Table II shows that male respondents are more
likely to start up a business than female respondents ( r = 0.095), whereas working
respondents are more likely to qualify as entrepreneurs than their non-working counterparts
( r = 0.063). In terms of education, it is observed that those who are more educated are more
likely to start a business. In terms of social desirability, both variables are correlated with
business startup. Finally, another important relationship is entrepreneurial personality
which demonstrates a relationship with new business venture.
In the theory section, ten hypotheses are derived from the influence of the various
variables toward the entrepreneurial business startup within the Saudi Arabian population.
Because our dependent variable is binary, we analyze our data using binomial logistic
regression model. The binomial logistic regression estimates the likelihood of an event
happening which, in our case, is starting a business. Before we proceed with the analysis, a
preliminary analysis was conducted to determine that multicollinearity was not an issue.
The results showed that the multicollinearity test was satisfactory because the highest VIF
was 3.196 and the highest Condition Index was 11.8. A condition index greater than 15
indicates a possible problem and index greater than 30 suggests a serious problem with
collinearity. Subsequently, we assessed the goodness of fit of the models using the Omnibus
test (Sig. level), Cox and Snell Pseudo R2, Nagelkerke Pseudo R2, Hosmer–Lemeshow test
(Sig. level) and the rate of correct classifications. The results of the goodness-of-fit statistics
scores are showed in Table III.
The findings in Table III depict that the Omnibus test is significant (p < 0.001), denoting
acceptance of the hypothesis that b coefficients are different from zero. The test gives an
overall indication that the model is performing well. Nevertheless, the variables considered
here only explain a limited fraction of the propensity to start a new business (pseudo R2
statistics). To complement this test, the Hosmer–Lemeshow test is the most reliable test of
model fit available in SPSS. In this test, poor fit is indicated by a significance value less than
0.05 which was not reached in this case.
The Cox and Snell R2 and the Nagelkerke R2 values provide an indication of the amount
of variation in the independent variable explained by the model. These are described as
pseudo R2 statistics. In this analysis, Cox and Snell Pseudo R2 test demonstrates that the
model is significant.
The logistic regression results for the model are shown in Table IV below.
In this model, a single variable from only four categories is significant. From the
analysis, there was not enough evidence to show that gender and education moderate the
relationship between the independent variables toward the respondent’s intention to start a
business. Within the antecedent factors, income was shown to influence positively the
probability of the respondent to start a business. The perception that successful
entrepreneurs gain high social status and prestige was also significantly and positively
related to new business start-up. In the area of perceptions of the environment as well as
one’s own personal traits, fear of failure is negatively and significantly linked to propensity
to start a new business (0.656 significant at the 0.10 level). Finally, from the social capital
perspective, knowing someone who has started a business in the past two years is
 1 2 3 4 5 6 7 8 9 10 11 12

1 Age 1
2 Income 0.013 1
3 Employment 0.063** 0.004 1
4 Desirable career 0.068** 0.003 0.018 1
5 High status 0.059** 0.003 0.042 0.219** 1
6 Fear of failure 0.066** 0.030 0.065** 0.122** 0.092** 1
7 Knowing other entrepreneur. 0.062** 0.025 0.240** 0.037 0.048* 0.180** 1
8 Opportunity perception 0.057* 0.066** 0.033 0.038 0.013 0.078** 0.110* 1
9 Entrepreneur skills 0.077** 0.023 0.207** 0.070** 0.027 0.194** 0.029 0.254** 1
10 Gender 00.095** 0.031 0.818** 0.008 0.052* 0.046* 0.270** 0.026 0.205** 1
11 Education level 0.249** 0.090** 0.227** 0.029 0.012 0.025 0.114** 0.018 0.057* 0.187** 1
12 Business startup 0.020 0.042 0.141** 0.038 0.036 0.039 0.182** 0.024 0.026 0.149** 0.048* 1

Notes: **Correlation is significant at the 0.01 level (two-tailed); *correlation is significant at the 0.05 level (two-tailed)

all the constructs

Correlation table of
275
propensity to

Table II.
startup
business
The
JEEE significantly and positively related to the propensity to start a business (1.298 significant at
9,3 the 0.01 level).
Based on the equation of the model and coefficients derived from the analysis, the
equation was developed using Microsoft Excel. Initially, the accuracy of the equation was
verified with the output from SPSS. Upon confirming the accuracy of the equation, the
variables of the independent variables were manipulated to determine the probability of an
276 event – the probability of starting a new business. The results corroborated the findings of
the factors that influenced new business start-up in Saudi Arabia. Based on the scores, the
highest probability of starting up a new business comprises of an individual with high
income, who believes that successful entrepreneurs gain high social status and prestige,
undeterred by fear of failure and has connections with other businessmen. Figure 2
illustrates the results of the probability of starting a business based on the manipulation of
the independent factors.

Discussion
Attempting to understand which factors lead individuals to start a business in Saudi Arabia
is a complex task as demonstrated by the findings. Only four out of ten hypotheses in this
study prove to be significant, whereas the other six did not. Overall, the study shows that
entrepreneurship in Saudi Arabia is more likely among high income individuals with lower
levels of fear of failure, view entrepreneurship as high status among the community and are
also embedded in social circles characterized by other entrepreneurs.

Test Final model

Omnibus test (Sig. level) 0.000

Cox and Snell Pseudo R2 0.054
Table III. Nagelkerke Pseudo R2 0.154
Goodness-of-fit Hosmer–Lemeshow test (Sig. level) 0.086
statistics Percentage correct 94.3

B S.E. Wald Sig. Exp (B)

Age 0.000 0.000 0.814 0.367 1.000

Income 0.739 0.407 3.291 0.070* 2.093
Occupation 0.702 0.527 1.774 0.183 2.019
Attractive career choice 0.288 0.269 1.144 0.285 0.750
High social status 0.676 0.359 3.458 0.060* 0.509
Fear of failure 0.656 0.267 6.038 0.014** 0.519
Know other entrepreneur 1.298 0.224 33.623 0.000*** 3.661
Future opportunities 0.008 0.234 0.001 0.972 1.008
Entrepreneurial skills 0.100 0.315 0.100 0.752 0.905
Gender 1.176 1.036 0.029 0.865 0.839
Education 0.419 0.614 0.464 0.496 1.520
Table IV. Gender  Education 1.109 1.019 1.185 0.276 0.330
Logistic regressions Constant 3.425 1.015 11.398 0.001 0.033
on entrepreneurial
intention Notes: ***Significant at p < 0.01; **significant at p < 0.05; *significant at p < 0.10
Age
1
Income
1
occu
1 1
Atracareer Histatus
1
fearfail
1
knowetr
1
opport
1
suskill
1
gender
1
Edu
1 1
gender_x_ Constant
1 The
0.000 0.739 0.702 –0.288 –0.676 –0.656 1.298 0.008 –0.100 –0.176 0.419
edu
–1.109 –3.425
propensity to
–0.000104 0.738557 0.702383 –0.28769 –0.67589 –0.65583 1.297622 0.00816 –0.09966 –0.17613 0.418551 –1.10874 –3.42523129 business
Labels
startup
1017 = <18
1824 = 18-24
2534 = 25-34
3544 = 35-44
4554 = 45-54 0 = Below a 0 = No job 0 = Not ar 0 = Low stat 0 = No fear 0 = Don’t kn0 = No oppo 0 = No skill 0 = Male 0 = No Edu
277
5564 = 55-64 1 = >Above 1 = Working1 = Aracv1 = High soc 1 = Fear of 1 = Know 1 = Some 1 = Have 1=Female 1 = Formal
6599 = >65 Career status failure someone potenal skills edu

Age Income occu Atracareer Histatus fearfail knowetr opport suskill gender Edu gender_x_ Odds Prob event
edu
1 1824 0 0 0 0 1 0 0 0 1 0 0 –4.4474 0.0116
2 1824 0 0 0 0 1 0 0 0 0 0 1 –5.3800 0.0046
3 1824 1 0 0 0 1 0 0 0 0 0 1 –4.6414 0.0096
4 1824 0 0 0 0 1 0 0 0 0 0 1 –5.3800 0.0046
5 1824 0 0 0 0 0 0 0 0 0 0 1 –4.7241 0.0088
6 1824 0 0 0 1 0 0 0 0 0 0 1 –5.4000 0.0045
7 2534 1 1 1 1 0 1 1 1 0 1 1 –2.6961 0.0632 Figure 2.
8 2534 1 1 1 1 0 1 1 1 1 1 1 –2.8723 0.0535 Probability of
9 2534 1 1 1 1 0 1 1 1 0 0 1 –3.1147 0.0425
10 3544 1 1 1 1 0 1 1 1 0 1 1 –2.8014 0.0572 starting a business
11
12
4554
4554
1
1
1
1
1
1
1
1
0
1
1
1
1
1
1
1
0
0
1
1
1
1
–2.9068
–3.5626
0.0518
0.0276
based on the research
13 4554 1 1 1 1 0 1 1 1 1 1 1 –3.0829 0.0438 model
14 5564 1 1 1 1 1 1 1 1 0 1 1 –3.6679 0.0249

Financial resources – income

The results of the analysis reflect the financing pattern of entrepreneurs in most developing
countries where internal finance (income) is the major source of finance to start a business
(Lingelbach et al., 2005). Bygrave (2003) argued that entrepreneurs in emerging markets rely
heavily on informal sources such income, personal loans from families and friends to start
their businesses where these sources provided between 87 per cent to 100 per cent of the
outside capital raised by entrepreneurs. On the same note, based on a study conducted by
Gallup poll (Badal and Ott, 2015), about two-thirds of prospective entrepreneurs (68 per cent)
see the lack of adequate personal savings as a hindrance to startup a new business venture.
In the case of Saudi Arabia, potential entrepreneurs are able to save startup capital from
their salaries where well-paid government positions are a major source of employment. The
results of the study also support the findings of GEM 2016 Global study where TEA rates
generally rise with level of annual household income which means that adults in higher-
income households are more likely to be involved in early-stage entrepreneurial activity.

Fear of failure
In the area of perceptions of the environment as well as one’s own personal traits, the current
study found a negative relationship between fear of failure and the likelihood of starting a
business in Saudi Arabia. This is consistent with numerous studies in other countries
(Thomas and Mueller, 2000). Weber and Milliman (1997) suggest that an increased
perception of the probability of failure reduces entrepreneurial incentives by increasing the
perceived risks of starting a business. One could speculate that the population is generally
being prudent or cautious about the prospect of starting a business. In a comparative study
of GEM data (2009-2012) across the Middle East, it was found that Saudi Arabia ranks
second behind Yemen as the highest rate for “fear of failure” as compared to other countries
such as UAE Jordan, Iran, Turkey, Egypt with Syria having the lowest rate (Rosinaite,
2013). This might be the plausible reason why Saudi Arabia has one of the lowest rates of
nascent entrepreneurship in the MENA region (GEM, 2010).
JEEE Fear of failure has implications for future research of value to policy makers concerned
9,3 with a diversification strategy based on entrepreneurship. Elliot and McGregor (2001)
argued that fear of failure may not simply be the inverse of hope of success (in this case new
business creation). Beyond financial implications, failure in entrepreneurial activity can also
have social and psychological implications. From a policy perspective, understanding the
fear failure officials can either reduce the risk of failure or the fear of failure. While social
278 mores may be difficult to change, bankruptcy laws can, for example, be altered to mitigate
some of the harsher implications of failure. Further, additional training opportunities can
help reduce both the fear of failure and the potential for business failure. By altering the
success/failure perception and probability, additional entrepreneurial activity may be
encouraged.

Social legitimacy – high status

The finding of this study is in conformance of the results of Stevenson et al. (2010) study.
Their study which represent GEM for the MENA region in 2009 showed that a higher
proportion of adults in the region agree that those successful at starting a new business have
a higher level of status and respect than average for GEM countries (except in Algeria).
Yemen was rated first among all countries on the proportion of the adult population who
consider entrepreneurship a good career choice, believe successful entrepreneurs have high
status and respect and often see stories in the media about successful new businesses.
Therefore, it was observed that the media play a larger role in promoting entrepreneurship
in some countries than in others. On a larger perspective, across 62 economies around the
world, more than two-thirds of the adult population believes that entrepreneurs are well-
regarded and enjoy high status within their societies (GEM, 2016).

Entrepreneurial network
Finally, research shows that knowing other entrepreneurs is positively and significantly
related to starting a business. The positive influence of this variable can be attributed to the
fact that role models and being part of networks affect opportunity recognition (Singh,
2000), entrepreneurial orientation (Ripolles and Blesa, 2005) and the vocational decision to
become an entrepreneur (Davidsson and Honig, 2003). The resources an entrepreneur
obtains from the network are encompassing and they include elements such as information
(Burt, 1992), advice (Christensen and Klyver, 2006) and legitimacy (Shane and Cable, 2002).
Krueger et al. (2000) further argued that access to information and resources through
knowing existing entrepreneurs may also positively influence self-efficacy and perceived
feasibility in relation to starting a business. As such, it is apparent that our findings are
relevant with past studies in other countries (Davidsson and Honig, 2003; Huang et al., 2013).
In the context of the Middle East culture, wasta, the term used to refer to social
networks or connections (Cunningham and Sarayah, 1993), is an important element as it
permeates the culture of all Arab countries (Tlaiss and Kauser, 2011) and is a force in
every significant decision (Hutchings and Weir, 2006; Whiteoak et al., 2006).
Opportunities are often made available to an individual depending on how networked he
is (Kathawala et al., 2012). Individuals with substantial wealth or with influential
occupational roles in either private or public institutions use wasta connections
extensively to get things done (Cunningham and Sarayah, 1993). While there is a dearth
of research done on wasta (Malline 2007), the findings of the study should act as catalysts
for more studies to look into this area. Therefore, it is likely that wasta, like guanxi, which
is pervasive in Chinese business and social activities (Michailova and Worm, 2003)
determine access to potentially valuable resources (Vissa, 2011; Arenius and Minniti, The
2005) that supplements the role modeling of entrepreneurial activity. propensity to
business
Conclusions and future research
While confirming that some of the indicators of likelihood to start new ventures in more
startup
developed countries seem to hold in the Saudi Arabia context, other relationships were not
significant. These include age, education, current employment, opportunity perception,
social attractiveness, perceived entrepreneurial skills. Some variables such as social
279
attractiveness may be explained through cultural homogeneity and others such as age,
education and being employed may suffer from contrasting effects such as having enough
wealth to start a business but not the necessity of starting a business as might be associated
with income and employment. The personal perception questions, however, are less easily
ignored. Why individuals who perceive opportunity or perceive that they have
entrepreneurial skills are not more likely to start a business is puzzling and inconsistent
with the literature. Perhaps, the strong influence of knowing an entrepreneur or the
influence of wasta in Saudi Arabia is so strong and prevalent that perceive opportunity or
perceive entrepreneurial skills is secondary in starting a business. This is plausible because
a pervasive problem throughout the region is clientelism – which is a form of wasta – where
decisions are made on the form of personal connections or nepotism favoring family or clan
members (Rubin, 2012, p. 149).
Despite the considerable role of wasta in the decision-making process [Arab Human
Development Report (AHDR), 2005; Cunningham and Sarayah, 1993; Hutchings and Weir,
2006], only a small body of literature has analyzed the impact of using it on new business
startup. Tlaiss and Kauser (2011) argued that gaining a systematic understanding of wasta
in the Arab world is a worthwhile objective given that wasta is an important component of
Middle Eastern culture. Therefore, future studies should look at how ways in which wasta
influences the likelihood of starting a business whether from a financial, human capitals or
opportunity perspective.
Lingelbach et al. (2005) stated that while entrepreneurial opportunities are broader in
developing countries, limited personal and family savings and an absence of financial
innovation severely limits the growth prospects of promising startups in this region. The
authors argued that if the odds of a new enterprise surviving its first five years are less than
50 per cent, it may not be rational for an entrepreneur to commit financial resources to a new
firm. Hence, that may explain why income is one of the main sources of capital for new
business startup. However, in the area of personal finance linkage to new firm formation,
there is lack of literature concerning how income influences the probability of individuals to
start a business especially in developing countries. In the Middle East culture were family
connections or clans is important attributes of the social culture, intra-familial financial
linkages is a critical area for future empirical research, given that access to finance continues
to be cited as an important barrier to new firm formation.
Methodologically, the measurement item for this study is a single-item measure which is
common in previous studies especially in larger national population surveys (Ahmad et al.,
2014; Kwon and Arenius, 2010). The data, however, limit the possibility of a more rigorous
analysis such as structural equations modeling. It is also not possible to examine the data to
determine causal relationships between the independent and dependent variables.
Therefore, it is hoped that future work should include a multi-item measurement and,
perhaps, subjective measurements as well.
Overall, our study suggests that income, fear of failure, perception that successful
entrepreneurs gain high social status and knowing other entrepreneurs are important
JEEE factors impacting the decision to start a new business. It is hoped that future work will begin
9,3 to explore more deeply the ways in which these factors impact that decision. Such deepened
understanding has the potential to lead to better policy and practice in encouraging startup
ventures while also contributing to their eventual success.

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Further reading
Smeltzer, L. and Fann, G. (1989), “Gender differences in external networks of small business owners/
managers”, Journal of Small Business Management, Vol. 27 No. 2, pp. 25-32.

Corresponding author
Syed Zamberi Ahmad can be contacted at: [email protected]

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