Sequential Homophily in Founding Teams and Gender Disparity in Entrepreneurship

Abstract

A large body of organizational research has studied gender inequality in the context of established organizations. Recent studies, however, have examined gender inequality in new ventures by looking at the antecedents and outcomes of female entrepreneurship. Yet entrepreneurship is rarely a solo endeavor, and with whom female entrepreneurs found new ventures is critical to their success. Thus, this paper presents founding team composition as a source of gender disparity in entrepreneurship. I examine how an institutional change that lowers barriers to entrepreneurship increases team-level homogeneity and unintentionally contributes to the gender disparity in entrepreneurial quality. I utilize a deregulation on the minimum required founding team size in the Korean legal industry. The findings suggest that homogeneity in founding teams increases after the deregulation because of sequential homophily in co-founder recruitment – entrepreneurs preference to first recruit more similar others and then reach out to less similar others. Furthermore, due to the strong field-level correlation between gender and human capital attributes in the Korean legal industry, founding team quality is particularly undermined for women than men after the deregulation. To support these claims, I analyze 586 law firms founded by 2,572 lawyers in Korea between 2005 and 2014.