Innovative entrepreneurial entry over the business cycle: variation by form of innovation and country economic development

Abstract While prior studies indicate innovation and product introductions decrease during economic downturns and recessions, the nature of innovative entry by startups is unclear. Furthermore, studies of business entry, which is dominated by non-innovative firms, show mixed results. We build on innovation theories to propose that likelihood of entry varies with business cycle fluctuations, following an inverted U-shape relationship with startup innovativeness and with related contextual variations by level of economic development. Using GEM data to study entrepreneurial entry in 66 countries between 2003 and 2018—evaluating both the recovery from the dot.com crash and Global Financial Crisis—we find evidence supporting our proposed counter-cyclic disruption mechanism for discontinuously innovative entry, pro-cyclic prosperity pull mechanism for incrementally innovative entry, and counter-cyclic recession push mechanism for imitative entry, together with contextual variations with economic development.