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Entrepreneurial Ecosystem Narratives and the Micro-Foundations of Regional Entrepreneurship

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Entrepreneurial ecosystems, the set of forces that generate and sustain regional entrepreneurial activity, are a growing focus of scholars and practitioners. Studies are beginning to draw attention to the role of cultural artifacts, including
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  1   Entrepreneurial Ecosystem Narratives and the Micro-Foundations of Regional Entrepreneurship Philip T. Roundy* Summerfield Johnston Centennial Scholar UC Foundation Assistant Professor Department of Marketing and Entrepreneurship University of Tennessee (Chattanooga) Gary W. Rollins College of Business 615 McCallie Avenue Chattanooga, TN 37403-2598 Tel. 330-206-2458 Fax: 423-425-4158 Email: philip-roundy@utc.edu Mark A. Bayer Assistant Professor of Management School of Business Eastern Illinois University 600 Lincoln Avenue Charleston, IL 61920 Tel: 217-581-6929 Email: mbayer@eiu.edu Forthcoming in  International Journal of Entrepreneurship and Innovation Roundy, P.T. and Baye r, M.A. “ Entrepreneurial ecosystem narratives and the micro-foundations of regional entrepreneurship ” ,  International Journal of Entrepreneurship and Innovation , forthcoming. https://journals.sagepub.com/doi/abs/10.1177/1465750318808426  * Corresponding author  2   Entrepreneurial Ecosystem Narratives and the Micro-Foundations of Regional Entrepreneurship Abstract Entrepreneurial ecosystems, the set of forces that generate and sustain regional entrepreneurial activity, are a growing focus of scholars and practitioners. Studies are beginning to draw attention to the role of cultural artifacts, including narratives, in the functioning of entrepreneurial ecosystems. However, the mechanisms driving narratives ’  effects on ecosystem participants are unexamined. The purpose of this paper is to develop theory that explains the influence of entrepreneurial ecosystem narratives on how audiences process information. It is theorized that differences among ecosystems can, in part, be explained by differences in the properties of the narratives that take hold in them. Specifically, propositions are developed about four properties that represent sources of variation among ecosystem narratives: their ability to capture attention, influence the cognitive and emotional encoding of information, and be memorable . Further, it is argued that the maturity of the entrepreneurial ecosystem influences the novelty and potency of narrative effects. By integrating theories of cognitive and social psychology, narrative theory, and entrepreneurship, this paper advances our understanding of how narratives about entrepreneurial ecosystems influence audiences. Keywords: Entrepreneurial ecosystems; Startup communities; New venture creation; Narratives; Communication; Information processing INTRODUCTION The linkages between entrepreneurial activity  –   the creation, recognition, and pursuit of innovative opportunities to generate value  –   and regional economic development are receiving growing interest from academics and policymakers (Acs et al. 2016; Audretsch et al. 2006; Baumol and Strom 2007; Farja et al. 2017). Productive forms of entrepreneurship are lauded for driving innovation and technological advancement (Acs and Audretsch 2003), increasing employment (Malchow-Møller et al. 2011), enacting societal change (Rindova et al. 2009), and stimulating economic growth (Abubaker and Mitra 2013). Acknowledging the social and cultural embeddedness of these activities, researchers examining the intersection of entrepreneurship and economic development are shifting their focus away from studies of individual entrepreneurs to the creation and functioning of entrepreneurial ecosystems: the sets of actors, institutions, social networks, and cultural values that produce and sustain regional entrepreneurial activity (e.g., Acs  3   et al. 2017; Auerswald 2015; Berger and Kuckertz 2016; Brown and Mason 2017; Hechavarria and Ingram 2014; McKague et al. 2017; Spigel 2017b; Roundy et al. 2018). Established entrepreneurial ecosystems (EEs), such as Tel Aviv, Singapore, Austin, and Bangalore as well as emerging ecosystems, such as Chattanooga, USA and Birmingham, UK are the subject of intense scholarly and media attention (e.g., Brown 2015; Clifford 2013;   Motoyama et al 2016; Spigel 2017a). Studies of EEs tend to focus on identifying the core attributes of mature and thriving ecosystems rather than analyzing nascent, under-developed, or struggling ecosystems (e.g., Neck et al. 2004; Saxenian 1990; cf. Roundy 2017b for an exception). The lack of comparative studies in ecosystems research leaves critical questions unanswered. Most notably, it is not clear why some EEs are perceived as being hotbeds of entrepreneurial activity and experience the economic and community benefits generated by this “ buzz ”  (Bathelt et al. 2004), while others languish, remain in obscurity, or suffer declines. Structural variations between regions, such as differences in their population sizes, customers, and infrastructure partly explain differences in entrepreneurial activity and economic development (Glaeser and Kerr 2009). But there are other, less tangible, factors that also influence the vitality of regional economic systems. In the 2017 Presidential Address of the American Economic Association, Nobel Laureate Robert Shiller drew attention to what he termed “narrative economics” and to the possibility that economic conditions, and particularly fluctuations in macro-economic systems, are caused not only by the economic behaviors that have dominated past scholars’ attention  but also by “the prevalence and vividness of certain stories” (Shiller 2017: 3). Shiller called attention to “ the spread and dynamics of popular narratives, the stories, particularly those of human interest and emotion, and how these change through time, to understand economic fluctuations .” (3)  He  4   argued that narratives can create a social epidemic (or contagion) of ideas that can be a source, not simply a reflection, of economic conditions and demonstrated how analyzing popular narratives can shed light on major economic events, such as the Great Recession of 2007-2009. There is sparse, but growing, theorizing and evidence that narratives play an important role in other forms of economic activity including the emergence, growth, and functioning of entrepreneurial ecosystems (Feldman et al. 2005; Roundy 2016; Spigel 2017b). For instance, Roundy (in press) studied three emerging EEs in the United States (Warren, Ohio, Youngstown, Ohio, and Chattanooga, Tennessee) and found that, for an entrepreneurial ecosystem to develop, “ a narrative must take hold that allows participants to make sense of the new entrepreneurial activitie s and the changes to the region.”  In Youngstown, for example, for decades the city was  plagued by a “Rust Belt” nar  rative focused on past economic events (e.g., deindustrialization and plant closures). In the past five years, however, new narratives have emerged about the city and its budding EE and focus on the successes of local entrepreneurs, incubators, and entrepreneurial initiatives and on the city’s  increasingly vibrant entrepreneurship community. Yet there is limited theory to explain narratives’ role in EEs and the specific cognitive and emotional mechanisms by which EE narratives influence audiences. Without a comprehensive framework detailing the mechanisms driving narratives’ impact, differences in the persuasiveness of EE narratives cannot be explained. To address these omissions in EE research, this paper integrates insights from cognitive psychology, narrative theory, and theories of information processing and attitude change to explain how EE narratives influence audiences (i.e., hearers of ecosystem narratives). We argue that differences in EEs can, in part, be explained by differences in properties of the narratives that are communicated and take hold in ecosystems. We develop propositions about how  5   narratives shape the way that ecosystem information is processed through four mechanisms: narratives’ abilities to capture attention, influence the cognitive encoding and emotional encoding of information, and be memorable. By drawing attention to the narratives of entrepreneurial ecosystems, we contribute to the study of entrepreneurship by building on the rich literature examining narratives in other disciplines to explain how EE narratives shape the cognitive and emotional processes of audiences. By focusing on individual-level information processing, the theory generates insights into the micro-foundations of entrepreneurial ecosystems and suggests that an important source of variation among ecosystems is differences in their narratives. The remainder of the paper is structured as follows. In the next section, research on entrepreneurial ecosystems, narratives, and information processing is reviewed. Extended emphasis is given to the intersection of these literatures and the key omissions that the proposed theory addresses. The theoretical model is then presented. Finally, the implications of the model for scholars and practitioners and the directions for future research are discussed. LITERATURE REVIEW Entrepreneurial ecosystems To understand the spillover benefits of entrepreneurship, scholars are shifting their attention from individual- and venture-level activities to the study of entrepreneurial ecosystems, the communities of inter-connected forces that produce and sustain entrepreneurial activity (Mack and Mayer 2016; Spilling 1996; Stam 2015). The focus of most work on EEs is the identification of their core components, such as large pools of early-stage investment capital (Mason, 2009), incubators, accelerators, and other support organizations (Roundy 2017a), and dense networks of entrepreneurs (Motoyama and Knowlton 2017). More recent studies examine
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