What Makes Mothers Decide (Not) to Become Entrepreneurs? Unpacking the Role of Time and Money in Parental Leave Policies

Abstract Whether mothers become entrepreneurs after childbirth may depend on the generosity of the parental leave that they receive. We apply a resource perspective to disentangle the impact of the policy's time and money components on mothers' likelihood of becoming entrepreneurs. Against the common belief that generous parental leave discourages entrepreneurship, we suggest that offering more time and monetary resources through parental leave can promote mothers' entrepreneurship. In a natural experiment (n = 181 mother entrepreneurs from the German Socio‐Economic Panel), we find that a German time‐contractionary policy reform (2001) reduced the odds of mothers becoming self‐employed by 17 per cent. A subsequent money‐expansionary reform (2007) was unrelated to mothers' entrepreneurial entry. Our second study, a conjoint experiment (n = 2176 decisions nested within 136 women), confirms these findings, showing a significant effect for only the time but not the money component of parental leave on women's likelihood of self‐employment. We further explore boundary conditions that underscore nuanced effects of these policies depending on household burdens and socioeconomic context. We conclude that it is the time component of parental leave policies that matters most, while money affects the likelihood of becoming an entrepreneur only among mothers heavily burdened with household responsibilities.