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Entrepreneurs' socioeconomic status and government expropriation in an emerging economy

Research Summary This study focuses on a salient challenge for entrepreneurs in emerging economies: government expropriation. Drawing on signaling arguments, we propose that an owner's high socioeconomic status (SES) attracts government attention to her start-up by conveying information about its resource endowments. The empirical tests based on start-ups in China support that an owner's high SES increases government expropriation. The effect is stronger for start-ups in regions with greater income inequality or in those where the legal system is less developed. High-SES entrepreneurs can mitigate the risk of government expropriation by building political connections. Managerial Summary Institutional voids in emerging economies pose a major threat to start-ups in the form of government expropriation. This research finds that the threat is more severe for start-ups with high-SES entrepreneurs because they have strong resource-mobilization capabilities and easily become expropriation targets. Further, this research suggests that two measures help protect high-SES entrepreneurs from government expropriation: locating their start-ups in regions with low income inequality or a well-developed legal system, and building connections with the government in order to exchange favors with government officials.