Are third age entrepreneurs innovative?

Evidence from GEM data

Ana Colovic
Neoma Business School
1 rue du Marchal Juin
76825 Mont Saint Aignan cedex
France
ana.colovic@neoma-bs.fr
Olivier Lamotte
ESG Management School
25 rue Saint-Ambroise
75011 Paris
France
olamotte@esg.fr

Abstract

This article examines the innovativeness of third age entrepreneurs compared to other
categories of entrepreneurs. The empirical study was conducted on a database of 69054
entrepreneurs in 64 countries over the period 2001-2008, drawn from the Global
Entrepreneurship Monitor survey. The results show that older entrepreneurs are less
innovative than younger entrepreneurs, both in terms of product innovation and process
innovation.

Available at SSRN: http://ssrn.com/abstract=2327021

A French version of this paper has been published in Revue Franaise de Gestion, n 227, pp.
127-141, 2012, under the title Entrepreneurs seniors et innovation: Une tude sur donnes
individuelles.
1

Electronic copy available at: http://ssrn.com/abstract=2327021

Introduction

The current demographic aging in Western economies will result in the development of
entrepreneurship of third age individuals (>50 years of age). Two major factors can explain
this evolution (Kautonen et al., 2011). On the one hand, more and more young retirees who
have know-how and financial resources wish to remain economically active in order to
maintain their lifestyle and at the same time preserve their flexibility. On the other hand, an
increasing number of individuals are excluded from the labour market because of their age
and are forced to start their own business in order to have some income. This increase in third
age entrepreneurship is good news for the OECD economies insofar as entrepreneurship leads
to more innovation, productivity gains, or the creation of jobs; and contributes to the growth
and well-being of a country (Acs et al., 2008). Third age entrepreneurship is also a way to
reduce the cost of aging for the countries that face increasing financial constraints (Kibler et
al., 2011). However, the impact of entrepreneurs on the economy is much stronger if these
entrepreneurs create companies that grow and innovate (Stenholm et al., 2013). Yet, research
on third age individuals suggests a lesser capacity for innovation and creativity in that age
category relative to other categories of the population (Bonte et al., 2009).

The topic is important insofar as innovation is one of three components of entrepreneurship,

along proactivity and risk taking, as defined by Miller (1983). This characterization forms the
basis for the definition of entrepreneurial orientation concept underlying a large literature in
strategy and entrepreneurship. Lumpkin and Dess (1996) define the propensity to innovate as
a tendency to initiate and support new ideas, novelty, experimentation and creative processes
that may result in the creation of new products, new services or new technological procedures.
The operationalization of the concept of innovation is based on the studies of Miller and
Friesen (1982) and Covin and Slevin (1989), it focuses on product and process innovations
and integrates both the efforts of innovation and its performance (Lumpkin and Dess, 1996).

The purpose of this paper is to study the innovativeness of third age entrepreneurs. To that
aim, we conduct a literature review that covers different disciplines and we perform an
empirical study on a large sample of data. This research contributes to the improvement of
knowledge on entrepreneurship of older individuals in two ways. First, we highlight a
phenomenon that has been little studied: the propensity to innovate of third age entrepreneurs.
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Electronic copy available at: http://ssrn.com/abstract=2327021

To our knowledge there is no other specific research on this issue, although, due to
demographic change in western societies, the elderly attract increasing attention of
researchers. Second, we propose an empirical study based on a large and international
database, while most of the work on entrepreneurship of seniors relies on qualitative studies
or a particular country. This feature of our research increases the generalizability of the
results.

This article is organized into four parts. The first section is devoted to the literature on the
influence of age on entrepreneurship and in particular on innovative entrepreneurship. It leads
to the formulation of the research hypotheses. The second section describes the database and
the methodology used. The third section is devoted to testing the hypotheses. The fourth
section discusses the main findings, highlights the limitations of the research and future
research directions and proposes recommendations for the support of entrepreneurship of
older individuals.

Age, entrepreneurship and innovation

The relationship between age and entrepreneurship has been the subject of several theoretical
and empirical studies. According to Lvesque and Minniti (2006) age is indeed an inherent
factor that triggers entrepreneurship. Parker (2004) even suggested that age is a factor
influencing the most clearly entrepreneurship. In fact, the factors stimulating or restricting
entrepreneurship tend to change during the life, which implies that the propensity to become
an entrepreneur is determined by age. Thus, the age distribution in a population is one of the
key factors in the creation of new businesses in a country (Lamotte and Colovic, 2013;
Lvesque and Minniti, 2011). Work linking entrepreneurship and age suggests that the
probability of creating ones own business is maximized among relatively young individuals
(Blanchflower, 2004, Lvesque and Minniti, 2006). More specifically, the most recent studies
show an inversed-U relationship between the age of an individual and the decision to start a
business (Bonte et al., 2007). Kihlstrom and Laffont (1979) explain this by the fact that
rational individuals choose to start a business if revenues expected from this activity are at
least equal to those generated by a salary as an employee. Motivation of an individual to
create his/her own company therefore decreases throughout the life (Lvesque and Minniti,
2006). There is thus an age effect suggesting that, with age, starting ones own business
becomes less desirable than being employed, since being employed provides an instant
3

income. This is because age increases the opportunity cost of time: the value given to time is
an increasing function of age. However, gradually as age increases, the value of potential
future revenues decreases. Therefore, older people are less inclined to give their time to
activities that generate returns over time, such as creating a new company (Lvesque and
Minniti, 2006), since time is a scarce resource. There would be an optimal time in the life of
an individual in which risk aversion and the emphasis on time is of a moderate influence. This
period would be the optimal time to become an entrepreneur. In fact the proportion of
individuals who are trying to start a business is the highest among individuals aged 25 to 35
years (Lvesque and Minniti, 2006). Mueller (2006) finds a positive and curvilinear
relationship between age and the desire to start a business, which seems to peak at the age of
41. In sum, although mature individuals are generally more able to create a business than
young individuals, there is less chance that they do so (Curran and Blackburn, 2001).

The literature also shows that the propensity to innovate of entrepreneurs may be affected by
the aging process for physical or cognitive reasons. Gerontological approaches consider that
aging induces an alteration of physical and cognitive abilities (Meyer, 2011). Studies on the
evolution of cognitive abilities during the life of an individual, of which Desjardins and
Warnke (2012) provide a comprehensive review, are particularly interesting for our study.
They show that, in general, cognitive decline can start as early as the age of 20 and it
accelerates from the age of 50 (Hertzog et al., 2008). However, it is necessary to distinguish
between fluid intelligence, which refers to the ability to reason logically and solve problems,
and crystallized intelligence, which is the ability to use skills, knowledge and experience
(Catell, 1971). Fluid intelligence is genetically but also biologically determined and thus tends
to decline from adulthood. However, crystallized intelligence, which is socially and culturally
determined, tends to increase until the age of 55, stabilize up to the age of 75 and then decline
(Baltes, 1993; Desjardins and Warnke, 2012). The decline of fluid intelligence should be
offset, at least until the age of 75, by increased crystallized intelligence. In addition, studies
have shown that the ability of an individual to be creative decreases with age (Ruth and
Birren, 1985) because people are too much influenced by their past experiences, which
reduces their creative abilities. Thus, it appears that some abilities increase with age while
others decline. In addition, physical and cognitive abilities of an individual depend not only
on biological factors but also on behavioural, environmental and social factors (Desjardins
and Warnke, 2012). However, it seems that the evolution of capacities with the mental age of

individuals is generally unfavourable to the propensity to innovate, which is confirmed by

empirical work on the attitude of third age individuals towards business innovation.

There is indeed an emerging literature on the adoption of technical changes by older

individuals. Several articles based on individual data show that older people are slower than
other categories of workers in the adoption of innovative tools such as information and
communication technology (Friedberg, 2003; Weinberg, 2004; Koning and Gelderblom,
2006; Borghans and ter Weel, 2002; Bertschek and Meyer, 2008). Meyer (2011) shows, based
on surveys of German SMEs, that firms which have older workforce are those which adopt
less new technology. One explanation for this phenomenon is provided by Behaghel and
Greenan (2010) based on the data from French firms. The authors show that when following a
training in the implementation of technical changes to their business workers over the age of
50 suffer from a comparative disadvantage compared to other age groups.

In the field of marketing, many works are also interested in the attitude of third age
individuals towards innovation. Research thus shows that older individuals are often among
the last to adopt innovative products, services or ideas (Lunsford and Burnett, 1992). Several
studies have also shown that attitudes towards technology and its adoption vary with age.
Older consumers thus seem to have a more negative attitude towards technology and they use
less new technologies (Gilly and Zeithmal, 1985). However, this finding should be nuanced
because of the heterogeneity of the elderly in terms of attitude towards innovation. Szmigin
and Carrigan (2000) show for example that cognitive age is an important factor in the
purchasing behaviour of older individuals. Thus, those third age individuals who perceive
themselves as younger have a purchasing behaviour that is much more innovative than others.

In the field of entrepreneurship research, Bonte et al.s (2009) is to our knowledge the only
research on the propensity of different age groups to innovate. Based on the regional data on
German start-ups, the authors found a significant, U-shaped relationship, between age and
innovative entrepreneurship. Age groups 20-29 and 40-49 years are the most active in terms
of innovative entrepreneurship while the age group 30-39 years is the least active. This is an
interesting result because it suggests that innovative entrepreneurs are located in specific age
groups. The authors suggest several explanations for this phenomenon. To create innovative
enterprises, the accumulated experience and knowledge useful for creating an activity
increase with age. However, the mindset and routines that install with age leave less room for
5

the recognition of entrepreneurial opportunities or creativity, influencing negatively the

decision of an individual to create an innovative company (Bonte et al., 2009). Other
explanations can also be proposed. Innovative activities generate results generally after a
longer period than other activities. However, an elderly person is less likely to opt for longterm and therefore less certain activities. The perception of time has an impact on innovative
entrepreneurship. An elderly person prefers an activity that may provide an income in a
shorter term (Lvesque and Minniti, 2006).

Based on the analyses of the literature, we can formulate the following hypotheses regarding
the relationship between entrepreneurship and innovation of seniors.

Hypothesis 1. Third age entrepreneurs offer less innovative products than younger
entrepreneurs.

Hypothesis 2. Third age entrepreneurs use less innovative technologies than younger
entrepreneurs.

Research methodology

The objective of this paper is to determine whether third age individuals are innovative
entrepreneurs relative to other categories of entrepreneurs. We use the Global
Entrepreneurship Monitor (GEM) database. GEM is an annual assessment of the level of
entrepreneurial activity. The data come from surveys conducted between 2001 and 2008 on at
least 2000 people per country, randomly selected, entrepreneurs and non entrepreneurs. In
2008, the base covers 64 developed and developing countries. We use the total early-stage
entrepreneurial activity (TEA) sub-sample and we therefore consider individuals engaged in
an entrepreneurial activity since between 3 and 42 months at the time of the survey. The full
sample includes 69,054 observations.

To test our research hypotheses we defined the dependent, explanatory and control variables.
The variables used in the study and data sources are presented in Table 1. The dependent
variables are binary variables New Product and New Technology. New Product takes the
value 1 when the product offered by an entrepreneur is new for all or part of the clients, 0
otherwise. New Technology takes the value 1 when the technology or procedure required for
6

the production is available for less than a year, 0 otherwise. In other words we try to explain
innovative entrepreneurship, whether it be in terms of product or process. We consider the
result of innovation and not the intention. This methodological choice reduces the concept
propensity to innovate, commonly used in the literature on entrepreneurial orientation, but it
is constrained by the database.

Insert Table 1 here

The explanatory variable is a binary variable, Third age entrepreneur. It takes the value 1
when the entrepreneur is 50 years old or more, 0 otherwise. In this study we consider as
seniors entrepreneurs aged 50 or over, which is the threshold that is commonly used in the
literature on the subject (Curran and Blackburn, 2001; Kautonen et al., 2011; Malaoui et al.,
2012). We consider as young entrepreneurs aged 29 or less, as is the case in the rare studies
on youth entrepreneurship (Lorrain and Raymond, 1991; Blanchflower and Meyer, 1994;
Roberts and Tholen, 1998). We take into consideration the chronological age and not the age
felt, because our database does not allow this. Table 2 presents the cross-tabulation between
the dependent variables and age groups. It shows, for each age group, the distribution of
entrepreneurs according to their innovative products and technologies. For example, among
the 14,844 third age entrepreneurs, 5877, that is 39.59% offer an innovative product. In
comparison to that, 44.92% of entrepreneurs who are under 30 years old have an innovative
product. There is also a difference with respect to the use of new technologies. 8.43% of
young entrepreneurs rely on technology that is available for less than a year against 5.43% of
third age individuals.

Insert Table 2 here

These analyses do not, however, test our hypotheses. We proceed therefore with probit
estimates in order to control for factors that can affect the relationship between innovation and
age of an entrepreneur. Empirical studies have indeed highlighted the role of other factors
related to personal characteristics of an entrepreneur, such as gender (Minniti and Nardone,
2007), education level (Davidsson and Honig, 2003), motivations (McMullen et al., 2008),
sector of activity (Thornhill, 2006) or the economic environment in which an entrepreneur is
embedded (Wennekers et al., 2005).

The main descriptive statistics of the variables and a correlation matrix are presented in Table
3. We conducted FIV tests (factors of inflation of variance) in all regressions. They are
between 1.00 and 1.08, which confirms the absence of co-linearity between the explanatory
and control variables.

Insert Table 3 here

Results

Table 4 presents four models of probit regressions. Models 1 and 2 have as dependent
variable innovative entrepreneurship in terms of product, models 3 and in terms of
technology. Models 1 and 3 include only the control variables, models 2 and 4 include the
explanatory variable. The results in Table 4 allow to test hypotheses 1 and 2. All coefficients
are significant at the 1% level with the exception of gender and motivation in models 3 and 4.
The R2 of McKelvey and Zavoina are relatively low but are consistent with comparable
empirical studies. Moreover, as Hoetker (2007) suggested, R2 for probit estimates cannot be
interpreted intuitively or compared to those of the OLS estimates. To facilitate interpretation
of the results we calculate and report the marginal values of probit estimates in Table 4.
Marginal values indicate the change of the observed result for the dependent variable when
the explanatory variable changes from 0 to 1. Thus, starting from model 2 we see that the fact
that an entrepreneur is a third age individual reduces the likelihood by 1.8% that he/she will
offer a new product. Similarly, we observe from model 4 that the fact that an entrepreneur is a
third age individual reduces the likelihood of a use of a new technology by 1.6%. These
findings lead us to validate Hypotheses 1 and 2.

The estimated coefficients for the control variables are also worth interpreting. The coefficient
for gender is positive in the case of product innovation, but negative in the case of process
innovation. This suggests that female entrepreneurs are more innovative in terms of product
but that there is no difference in the use of new technologies. As expected, the coefficient of
Higher education is positive and significant, suggesting that educated entrepreneurs are more
likely to be innovative in terms of both products and technology. The analysis of the
estimated coefficients of the variable Opportunity is particularly interesting. The estimated
coefficients are positive and significant for product innovation, while they are not significant
8

for technology innovation. This clearly indicates that innovative entrepreneurs in terms of
product exploited an opportunity, while this is not the case for innovative entrepreneurs in
terms of technology. Innovative entrepreneurship is more likely to occur in areas of medium
and high technology, as indicated by the estimated coefficients of the technology sector. This
result is intuitive but not trivial. In fact, innovation can take place in all sectors, including
agriculture and retail. Finally, the coefficient of GDP per capita is negative, consistent with
previous findings. This suggests that in the richest countries innovation is carried out by large
incumbent firms, which limits the entry of new innovative companies into the market.

Insert Table 4 here

Discussion and conclusion

The aim of this paper was to investigate the innovativeness of relatively older entrepreneurs
compared to other categories of entrepreneurs. The empirical analysis shows that older
entrepreneurs are less innovative than younger entrepreneurs, both in terms of product
innovation and process innovation. These results confirm our hypotheses. Several
explanations may clarify these results. On the one hand, according to the gerontological
perspective, third age individuals suffer from the decrease of their cognitive functions, which
reduces their ability to offer innovative products or to adopt innovative technologies. On the
other hand, older people are more reluctant to adopt new technologies and to follow training
in this area. They are therefore at a disadvantage when creating a new business, as they are
less innovative. This reduced ability to innovate may affect the success of older entrepreneurs.
Indeed, several studies have shown that the survival of new firms is largely dependent on their
ability to innovate (Cefis and Marsili, 2006; Buddelmeyer et al., 2010). Harada (2003) has
also shown the existence of a negative relationship between the probability of success of an
entrepreneur and his/her age, although the author does not suggest any particular reason for
that. The lower ability to innovate of third age entrepreneurs could be an explanation.

The results of this research should however be nuanced for several reasons. First, the
deterioration of cognitive abilities and reluctance to adopt new technologies do not affect all
people the same way. As emphasized by Desjardins and Warnke (2012) cognitive abilities of
individuals and their evolution are the result of interactions between multiple factors:
biological characteristics, education, family and social environment, occupation, cognitive
9

stimulation and physical exercise. For example, the exercise of an intellectual profession that
requires frequent adaptation to technological change reduces the risk of cognitive decrease
associated with aging (Valenzula and Sachdev, 2005). In contrast, recent studies show that
retirement accelerates cognitive decline (Bonsang et al., 2012). Second, the propensity to
innovate of individuals also depends on the economic, social and cultural development, which
can be more or less favourable to innovative entrepreneurship. Thus Koellinger (2008) shows
that the probability that an entrepreneur is innovative is more important in developed
countries with high income. At a regional scale Lee et al. (2004) show that a socially and
culturally diverse environment facilitates the influx of specific human capital and the
dissemination of information for innovation and entrepreneurship. Finally, the results of this
research are valid over the study period but cannot be generalized to other periods. In fact,
they may be affected by cohort effects, that is to say, by the specific characteristics of a
generation or a structural change caused by specific major events, such as the development of
the computer or the Internet (Desjardins and Warnke, 2012). Thus, being 50 years old today is
not comparable to being 50 years old ten years ago, especially in terms of entrepreneurship
and innovation. The results of this study should therefore be interpreted with caution and
positioned in the current context.

This paper has several limitations, mainly due to the limitations of the database, which open
perspectives for future research. First, the empirical analysis is based on survey data, a
possible source of bias. In particular, the variables New product and New technology are
based on the statements of entrepreneurs. However, as suggested by Koellinger (2008),
innovation is a subjective concept that depends on the viewpoint of the observer. This
limitation is particularly important in the context of studies on generational differences, where
the perception of innovation may be affected by the respondent's age. Second, this study is
based on the actual age of entrepreneurs and not the age felt by the respondents. However, the
perceived age may differ from the actual age, especially for older individuals, according to the
state of health, life expectancy, or the place of elderly people in a society. A recent study by
Kautonen et al. (2011) has shown that entrepreneurial intention of older individuals depends
among other things on their perception of entrepreneurship at different ages. Future research
could examine the impact of perceived age on the propensity to create firms and in particular
the innovative ones. This extension of the search would be that more relevant insofar as it
would take into account the role of the economic and social environment in the perception of
age. Third, this study does not specifically identify the reasons for a weaker orientation of
10

older entrepreneurs towards innovation. To complement this research it would be interesting

to conduct an analysis of the barriers faced by seniors wishing to start an innovative company.
In fact, studies on this topic are rare and do not focus specifically on innovative
entrepreneurship. Kibler et al. (2011) and Wainwright et al. (2011) show that the negative
perception of a society towards older entrepreneurs, whether it is real or perceived by the
entrepreneurs, is a significant barrier to the development of senior entrepreneurship. Other
research directions deserve to be explored on the specific barriers to third age
entrepreneurship, and namely the difficulties to access financial resources due to a shorter
time horizon than younger entrepreneurs. Fourth, this research is limited to product or process
innovations and does not study organizational innovations, yet these could be important, in
particular among older entrepreneurs because of their experience.

This article leads to practical implications for older entrepreneurs and public authorities that
accompany them. The most important recommendation is to ensure the maintenance or
improvement of skills of individuals throughout the life. Steps in this direction would limit
cognitive decline related to aging but also facilitate the adoption of new tools by the third age
individuals. Any periods of inactivity, and especially at the end of life, should not cause a loss
of skills. Training or other activities that allow maintaining intellectual and physical condition
but also staying close to technological developments are needed. Strengthening
intergenerational transfers of know-how can also be a direction to explore in order to
effectively combine fluid intelligence and crystallized intelligence. Finally, it is necessary to
establish specific policies for the promotion and support of third age entrepreneurship, taking
into account the particular challenges they may encounter in their entrepreneurial projects,
such as the negative perception of the company by the society or difficulty accessing financial
resources. All these measures can be implemented by support organizations but also internally
by companies wishing to help their employees to start a business. Finally, policies that
integrate the specificities of third age entrepreneurship would allow to increase the innovative
abilities, indispensable to its survival and growth.

11

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Table 1 Description of variables and sources

= 1 if the product is new to all or some clients, 0 otherwise.

New product

Source: Global Entrepreneurship Monitor (GEM)

= 1 if the technology or the procedure required for the

New technology

production is available since less than one year ago, 0

otherwise. Source: GEM

Third age entrepreneur

= 1 if the entrepreneur is 50 years old or more, 0 otherwise.

Source: GEM
= 1 if the entrepreneur is a male, 0 if the entrepreneur is a

Gender

female. Source: GEM

= 1 if the entrepreneur has a higher education degree, 0

Higher education

otherwise. Source: GEM

= 1 if the entrepreneur responded that he/she created the

Opportunity

enterprise because there was an opportunity, 0 if this happened

because of economic necessity. Source: GEM
= 1 if the entrepreneurial activity takes place in the medium or

Technological sector

high technology sector, 0 otherwise. Source : GEM

Logarithm of GDP per capita in purchasing power parity, in

GDP per capita

constant 2005 US dollars. Source: World Bank Development

Indicators.

Table 2 Cross tabulation

Age category

<30

30-49

>49

Total

New product

New technology

Yes

No

Yes

No

7816

9583

1467

15932

Total
17399

44,92% 55,08% 8,43% 91,57% 100%

15078

21733

2533

34278

36811

40,96% 59,04% 6,88% 93,12% 100%

5877

8967

806

14038

14844

39,59% 60,41% 5,43% 94,57% 100%

28771

40283

4806

64248

69054

41,66% 58,34% 6,96% 93,04% 100%

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Table 3 Descriptive statistics and correlation matrix

Variables

1. New product

2. New technology

3. Third age entrepreneur

4. Gender

5. Higher education

6. Opportunity

7. Technological sector

8. GDP per capita

Variables

5. Higher education

6. Opportunity

7. Technological sector

8. GDP per capita

Mean
(standard deviation)
0,417
(0,493)
0,069
(0,255)
0,215
(0,411)
0,600
(0,490)
0,405
(0,491)
0,724
(0,447)
0,064
(0,246)
9,75
(0,851)
Mean
(standard deviation)
0,405
(0,491)
0,724
(0,447)
0,064
(0,246)
9,75
(0,851)

1,000

0,069*

1,000

-0,022* -0,031*

1,000

-0,007

-0,008

0,011*

1,000

0,085*

-0,001

-0,001

0,028*

0,081*

-0,014* -0,039* 0,060*

0,041*

0,011*

-0,013* 0,089*

-0,003

-0,058*

0,089*

0,066*

1,000

0,14*

1,000

0,096*

0,051*

1,000

0,197*

0,176*

0,07*

1,000

Note: * p < 0,1.

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Table 4 Marginal effects after probit estimations

Model 1
Variables:

Model 2

Model 3

Model 4

Dependent variable:

Dependent variable:

New product

New technology

Third age

-0,018***

-0,016***

entrepreneur

(0,004)

(0,002)

-0,014***

-0,014***

-0,003

-0,003

(0,004)

(0,004)

(0,002)

(0,019)

0,079***

0,079***

0,005***

0,005***

(0,004)

(0,004)

(0,002)

(0,002)

0,083***

0,083***

-0,003

-0,003

(0,004)

(0,004)

(0,002)

(0,001)

Technological

0,067***

0,067***

0,015***

0,015***

sector

(0,008)

(0,008)

(0,004)

(0,004)

-0,019***

-0,019***

-0,017***

-0,016***

(0,002)

(0,003)

(0,001)

(0,001)

R2 (McK. & Zav.)

0,023

0,023

0,012

0,015

Wald Chi2

985,96***

1000,91***

267,08***

307,85***

Number of observ.

68998

68998

68998

68998

Gender

Higher education

Opportunity

GDP per capita

Notes : *** p < 0,01. Standard deviation is in parentheses. The number of observations is
inferior to the number of total observations of the sample (69054) because of the missing data
for control variables.

20