Journal of Economics, Management & Agricultural Development Vol. 2, No.

1 89

Factors Affecting Entrepreneurship Decision

in Los Banos, Laguna, Philippines

Mark Anthony C. Huang1, Jose DV Camacho Jr.2, Dinah Pura T. Depositario3

and Amelia L. Bello4

Abstract
Entrepreneurship is becoming the popular means to promote economic growth and
development in different economies. One fundamental issue though is what factors affect
an individual’s decision to engage in entrepreneurship.
This study aims to determine the factors that affect an individual’s decision to
become an entrepreneur. One-hundred entrepreneurs and 100 non-entrepreneurs in Los
Baños, Laguna were the respondents of the study. Probit regression was used to estimate
the probability that an individual would become an entrepreneur with respect to some
factors. The analysis reveals that six variables are significant: gender, family size, wealth,
having entrepreneur- parents, years of schooling and risk tolerance.
Women are found to be more inclined to engage in entrepreneurial activity. On the
other hand, as the years of schooling of an individual increase, the probability of his or her
engaging in entrepreneurship decreases. Meanwhile, family size has a direct relationship
with the decision to become an entrepreneur. Further, the wealthier an individual is, the
more likely that he or she would start a business. Lastly, if any or both of an individual’s
parents is an entrepreneur as well as if an individual is more risk-tolerant, the more likely
it is that he/ she would become an entrepreneur.
The study recommends that personal entrepreneurial development (PED) trainings,
low-interest loans and small business insurance mechanisms should be provided to would
- be entrepreneurs.
Keywords: entrepreneurship decision, micro-enterprise owner, entrepreneur,
non - entrepreneur
Introduction
Entrepreneurship has long been recognized as an agent of economic growth.
Many developing countries, including the Philippines, have come to the realization
that entrepreneurship is the engine of economic prosperity and thus have started to
formulate programs and policies to stimulate entrepreneurship development (Munoz,
Liao and Welsch 2005).
Based on 2013 figures provided by the Philippine Statistics Authority (PSA),
there are 941,174 establishments in the Philippines. Of these, 99.6% (937,327) are
micro, small and medium enterprises (MSMEs) and the remaining 0.4% (3,847) are
large enterprises. Of the total number of MSMEs, 90.3% (846,817) are micro
enterprises, 9.3% (86,762) are small enterprises and 0.4% (3,748) are medium
enterprises. Majority of the 937,327 MSMEs in 2013 are in the wholesale and retail
trade; repair of motor vehicles and motorcycle industries with 434,847 business
establishments; accommodation and food services with 127,128; followed by
manufacturing with 117,524; other service industries with 60,563; information and
communication, financial and insurance; human health and social work services;
professional, scientific and technical activities; education and administrative and
support services with 152,997.
1
Graduate, Department of Economics, College of Economics and Management, University
of the Philippines Los Baños, College, Laguna. E-mail: markhuang07@rocketmail.com
2
Professor, DE, CEM, UPLB College, Laguna. E-mail: anjoecon@yahoo.com
3
Professor, Department of Agribusiness Management and Entrepreneurship, CEM, UPLB,
College, Laguna. E-mail: dinahpura@yahoo.com
4
Associate Professor, DE, CEM, UPLB, College, Laguna.
E-mail: amaibello@yahoo.com.ph
90 Huang, Camacho, Depositario and Bello

Majority of the MSMEs in operation as of 2011 can be found in the National

Capital Region (NCR), with 213,594 business establishments, followed by Region 4-
A (CALABARZON) with 123,173. Out of the total number of MSMEs in
CALABARZON, 92.8% or 114,293 were micro-enterprises.
The first class urban municipality of Los Baños is one the municipalities of the
province of Laguna and in the region of CALABARZON. The municipality is famous
for its hot spring resorts; it is also known for its other products like buko pie (coconut
meat pie) and dairy products such as fresh milk, yogurt, chocolate, soya and ice
cream. Los Baños is also home to a number of micro-enterprises including buko pie
and pasalubong food enterprises, ornamental plant businesses, bakeries, coffee shops,
milk tea stalls, beauty parlors, motorcycle retailing businesses and computer shops.
The challenge facing entrepreneurial development support institutions in
promoting entrepreneurship in Los Baños is no different from what the whole country
faces – that is, to develop the capability and skills of Filipinos in starting and growing
businesses as identified by the Global Entrepreneurship Monitor (2014). The
government through its policy levers can influence these factors, especially the
economic factors to attract potential entrepreneurs. Before would-be entrepreneurs
are encouraged and supported, it is however important to identify who would make
the best candidates for entrepreneurship. Identifying the potential entrepreneurs can
help in screening individuals for entrepreneurial trainings and micro-enterprise
development assistance.
However, there is still no consensus on the exact determinants of the decision to
become an entrepreneur. Some studies point to socio-demographic factors as critical
to the decision to become an entrepreneur. On the other hand, some look at economic
factors such as economic environment factors as more reliable predictors of who will
most likely engage in entrepreneurship. According to Xie (2014), there is no single
approach sufficient to explain individuals’ decision to start a venture and entrepre-
neurial behavior cannot be understood adequately without consideration of both the
individual and the environment.
There are also mixed results in relation to the link of some variables with
entrepreneurial intention. Some earlier researches claim that individuals with higher
levels of human capital may be better at perceiving opportunities and therefore are
more likely to engage in entrepreneurship (Davidsson and Honig 2003). However,
Van der Sluis et al. (2008) as cited by Skriabikova, Dohmen and Kriechel (2013),
expressed that while formal education seems to have a higher pay-off for self-
employed workers than for employees, the findings regarding the effect of schooling
on the probability of being self-employed or on transition into self-employment are
mixed.
Socio-demographic and economic factors may either increase or decrease the
probability that an individual engage in entrepreneurial activity. By examining the
relationship of these factors to the decision to become an entrepreneur, government
and policymakers may be able to design and implement policies and programs which
could promote entrepreneurial engagement and, consequently, entrepreneurial
success.
The general objective of this study is to identify the factors affecting the
entrepreneurship decision (i.e., engagement in entrepreneurship). The study
specifically intends to: 1) present a profile of entrepreneurs and non - entrepreneurs
in Los Baños, Laguna, 2) identify the factors which have an effect on an individual’s
decision to engage in entrepreneurship and 3) recommend strategies to promote
entrepreneurial engagement as well as enterprise development.
Journal of Economics, Management & Agricultural Development Vol. 2, No. 1 91

This study hopes to contribute to one of the fields of study within the
entrepreneurship research program identified by Liñán and Santos (2007), that is,
the characteristics of potential entrepreneurs and the firm-creation process.
Review of Literature
There are different factors affecting an individual’s decision to engage in an
entrepreneurial activity. In various studies, these factors are generally grouped as
socio-demographic and economic factors.
Nair and Pandey (2006) examined the socio-economic and attitudinal
characteristics of entrepreneurs using primary data for the state of Kerala. Their
study found that business acumen does not seem to run in families. However, the
economic status of the family, age, technical education/training and work
experience in a similar or related field seem to favor entrepreneurship.
In relation to gender, Becker (1993) as cited by Bhola et al. (2006) claimed
that women traditionally tend to have lower levels of human capital investments
since they are more likely to work part-time or quit the labor force right after giving
birth. Hence, women may have fewer opportunities to develop the experience
needed to engage in entrepreneurship (Fischer, Reuber and Dyke 1993; Kalleberg
and Leicht 1991 as cited by Bhola et al. 2006).
The 2012 Global Entrepreneurship Monitor (GEM) Women’s Report likewise
pointed out that in nearly every economy there are fewer female than male
entrepreneurs, and they appear to show reluctance to scale up their businesses or to
enter new and less tested markets. According to the report’s authors, in Europe and
the United States, women are less likely to believe they have the capability to start a
business and may question their ability to identify, assess and act on an
opportunity even if they are as educated as the men or even more educated.
Interestingly, a 2010 GEM study cited by Ciccone (2011), which surveyed
women entrepreneurs in 59 countries, found that when it comes to entrepreneurship,
males tend to cite "opportunity" as their main motivator, while women more often
start or maintain businesses out of "necessity". As there is a higher percentage of
people in developing countries whose entrepreneurial endeavors are born out of
necessity, the study said women make up a larger share of the total number of
entrepreneurs in less-developed economies than they do in developed economies.
Meanwhile, age can also be considered to be positively and strongly correlated
with work experience in fostering the development of entrepreneurial skills and
attitudes. According to Reynolds et al. (2002) as cited by Bhola et al. (2006), people
in the age range of 25 to 44 years old are those who are more likely to engage in
entrepreneurial activity as older people are expected to have more exposure and
experience in the labor market, enabling them to engage in entrepreneurship more
easily. Reynolds et al. further claimed that older people may be more likely to
perceive an opportunity and act upon this opportunity by starting a business, i.e.,
engaging more in opportunity-based entrepreneurship (versus necessity - based
entrepreneurship).
In relation to years of schooling, entrepreneurship requires the ability to
recognize opportunities and exploit them and this ability is related to human capital.
Thus, for Davidsson and Honig (2003), individuals with higher levels of human
capital may be better at perceiving opportunities and are therefore more likely to
engage in entrepreneurship.
92 Huang, Camacho, Depositario and Bello

As for entrepreneur-parents having a great influence on an individual’s

decision to become an entrepreneur, one’s social network – family, friends and
peers who are entrepreneurs – can contribute or encourage an individual to become
like them as well (Bhola et al. 2006). Skriabikova, Dohmen and Kriechel (2013)
add that family members who have a business can transfer it to the offspring,
thereby helping relax potential credit and information constraints facing younger
family members. Further, they pointed out that risk attitudes are relatively less
important among individuals with self-employed parents, suggesting that uncertain-
ty about self-employment is reduced by having witnessed the self-employment
experience of the parents. Djankov, Roland and Zhuravskaya (2005) likewise found
that entrepreneurs have nearly three times more entrepreneurs in their family (i.e.,
parents, aunts or uncles, siblings and cousins) than non- entrepreneurs.
In addition, women in developing countries, like their counterparts in more
developed ones, rely more than men on extended families (Brush 1992, Greve and
Salaff 2003, Justo and DeTienne 2008 as cited by Minniti and Naudé 2010); in
many rural settings, extended families are often their only or major social network.
Verheul et al. (2010) noted that the relationship between education, self-
employed parents, and risk tolerance varies depending on whether an entrepreneur
is opportunity-driven or necessity-driven. Necessity-driven entrepreneurs are
considered to be driven mainly by push motivations, while pull factors form the
basis for opportunity entrepreneurs to set up a new venture. For opportunity-driven
individuals, entrepreneurship-specific education, self-employed parents, risk toler-
ance, perception of lack of financial support and living in a metropolitan area were
important variables in determining entrepreneurial engagement and failure. They,
however, were not (or less) important for necessity-driven individuals.
As for family size, Omotoso and Daramola (2005), in a study on socio-
economic factors influencing entrepreneurship among women in fishing
communities in Ondo State, Nigeria, cited that the variable used to be positively
related with entrepreneurship because of its implication for family labor. They,
however, added that a negative relationship could also be expected under the present
circumstances because risk aversion increases with increase in household size due to
the higher cost associated with the failure to satisfy subsistence food requirement.
Larger household size no longer translates into higher family labor; instead, it
means more responsibilities for the household.
In relation to economic factors, an unfavorable economic environment may
discourage an individual to become self-employed. Casson in his pioneering work,
“The Entrepreneur: An Economic Theory” contended that entrepreneurship is a
result of economic conditions that are conducive to entrepreneurial activity. The
economic factors he identified that encourage or discourage entrepreneurship
include: 1) taxation policy, 2) industrial policy, 3) easy availability of raw
materials, 4) easy access to finance on favorable terms, 5) access to information
about market conditions, 6) availability of technology and infrastructure and 7)
marketing opportunities. (Nayab 2011).
According to Bhola et al. (2006), who investigated the differences between
opportunity and necessity entrepreneurs in terms of socio-demographics, attitudes
and perception of obstacles, these barriers result in lower levels of entrepreneurial
activity. In particular, they found that the obstacle variables include the perception
of availability of financial support, administrative complexity, access to information
on new venture creation and an unfavorable economic climate.
Journal of Economics, Management & Agricultural Development Vol. 2, No. 1 93

On the other hand, Djankov, Roland and Zhuravskaya (2005) found a distinct
difference between entrepreneurs and non-entrepreneurs with regard to their
perception of the institutional environment of doing business. Entrepreneurs perceive
the business climate (i.e., tax rules and racket, inflation and macroeconomic
instability and inefficient courts, among others) more favorably than non-
entrepreneurs.
Another economic factor is risk attitude. There are a lot of risks associated with
entrepreneurship. Risk-averse individuals are less likely to choose self - employment
because the expected utility of variable income is lower for them than the utility of a
sure payment with the same mean (Arrow 1965, Pratt 1964 as cited by Skriabikova,
Dohmen and Kriechel 2013). Furthermore, in a study comparing entrepreneurs and
non-entrepreneurs in China, Djankov, Roland and Zhuravskaya (2005) found that
entrepreneurs also differ strongly from non-entrepreneurs, among others, in their
attitude toward risks. Entrepreneurs are more willing to accept a risk neutral gamble.
In relation to wealth, liquidity constraints, according to Naudé and MacGee
(2009), play a vital role in a household’s as well as in an individual’s decision to
engage in entrepreneurship. Liquidity constraints prevent households and individuals
from entering a business and sometimes lead to the acquisition of low levels of
capital. However, higher levels of wealth can encourage an individual to become
entrepreneurs since they can use their savings to finance their businesses or use
personal assets as collateral for loans.
Empirical research has shown that the establishment of new firms is more likely
when people have access to financial capital (Blanchflower et al. (2001), Evans and
Jovanovic (1989) and Holtz-Eakin et al. (1994) as cited by Simpeh (2011)). Buera
(2009), however, contends that the probability of becoming an entrepreneur as a
function of wealth is increasing for low wealth levels (as predicted by standard static
models) but is decreasing for higher wealth levels. This negative relationship reflects
the fact that over time, individuals with high entrepreneurial skills are selected out of
the pool of workers and this selection effect increases with wealth. Intuitively, if an
individual is rich and still works for a wage, it is unlikely that he has a high
entrepreneurial skill.
Lastly, in relation to monetary compensation, Naudé (2013) pointed out that
someone will become an entrepreneur if profits and the non-pecuniary benefits from
self-employment exceed wage income plus the additional benefits from being in wage
employment. An individual will choose to be a wage earner if the wage rate is greater
than the potential profit. Therefore, if one is already enjoying high monetary
compensation, one may not be that strongly motivated to become self - employed.
Conceptual Framework
Based on an analysis of the preceding review of literature, it is hypothesized that
the following factors will have an effect on the decision to engage in entrepreneur-
ship. For the socio-demographic factors, these are age, gender, family size,
engagement of parent(s) in entrepreneurial activity and years of schooling. On the
other hand, for the economic factors, the factors to be tested are risk propensity,
perception of the complexity of administrative procedures, monetary compensation,
acquisition of credit, start-up costs and wealth. The variables which are expected to
have a positive effect on the probability that a person will engage in entrepreneurship
are age, gender (i.e., if male, the higher the probability), years of schooling,
engagement of parent (s) in entrepreneurial activity, access to credit, wealth and
tolerance for risk.
94 Huang, Camacho, Depositario and Bello

Meanwhile, the variables which could negatively affect the probability of a

person becoming an entrepreneur are perceived complexity of administrative
procedures, business start-up costs, family size and monetary compensation.
Figure 1 illustrates the socio-demographic and economic factors that could
affect entrepreneurial decision.

Socio-demographic Factors Economic Factors

Age Tolerance for risk
Gender Perception of the complexity of
Family size administrative procedures
Engagement of parent(s) in Monetary compensation
entrepreneurial activity Access to credit
Years of schooling Start-up costs
Wealth

Decision To Become An Entrepreneur

Figure 1. Conceptual framework of the study

Methodology
Data Collection and Variables
This study used primary data collected through a survey of 100 micro - entrepre-
neurs and 100 non-entrepreneurs in Los Baños, Laguna, Philippines during the period
from mid - 2012 to the first quarter of 2013.
The entrepreneurs considered in the study were defined as the owners of micro-
business establishments, or any individual who has ventured his or her capital in
exchange for future earnings, such as restaurant owners, shop owners and the like.
Information on Los Baños-based micro enterprises was gathered from the Department
of Trade and Industry (DTI) provincial office. These micro enterprises are those
which employ only up to 9 employees and have an asset of at most PhP 3,000,000.
One-hundred enterprises were then randomly selected. The sample included flower
shops, carinderias (i.e., local eatery selling and serving viands) and food kiosks, car
wash shops, hardware stores, market stalls and salon/parlor owners. The respondents
were the sole-proprietors or owners of the business. In cases where the business was
family-owned, the head of the family was considered.
On the other hand, a list of Los Baños residents registered with the municipal
office was used to derive the sample of non-entrepreneurs. Simple random sampling
was used and in cases where entrepreneurs were chosen, they were replaced with
other non-entrepreneurs in the list. The non-entrepreneurs were wage earners, like
government and company employees, who did not own a business.
The survey provided socio-demographic information such as gender, age,
education level, family size and whether their parents are self-employed or wage
earners. The dependent variable used in the study was whether a person is an
entrepreneur or not. This variable was assigned a value of 1 if he or she was an
entrepreneur and 0 if he or she was a wage earner.
Journal of Economics, Management & Agricultural Development Vol. 2, No. 1 95

The independent variables used in the study are age, gender, years of schooling,
engagement of parent(s) in entrepreneurial activity, access to credit, perception of
complexity of administrative procedures, start-up costs, monetary compensation,
wealth, family size and tolerance for risk.
The Empirical Model
Probit regression was used to estimate the probability that an individual will
become an entrepreneur with respect to several factors. For the empirical analysis
investigating the factors affecting entrepreneurship decision, a probit equation was
used relating the probability of revealing a preference for self-employment:
DEC= α+ β1 AGE +β2 GEN + β3 SCH + β4 PAR + β5 ACC+ β6 ADM + β7 SC
+ β8MON + β9 WEA + β10 FAM + β11RIS+ ε
Where: DEC = Probability of becoming an entrepreneur (DEC = 1 if the
individual prefers to be self-employed, DEC = 0 if the individual
prefers to be wage-employed)
α = Y - intercept
βi = Coefficient showing the change (i.e., increase or decrease) in predicted
probability of becoming an entrepreneur with a change in the predictor
variable
AGE = Actual age of individual (years)
GEN = Gender (Male = 1, Female = 0)
SCH = Years of schooling (number of years spent in school)
PAR = Parent(s) is/are entrepreneur(s) or not (any or both parents)
(Yes =1, No = 0)
ACC = Access to credit in the past (Yes =1, No = 0)
ADM = Perception of administrative procedures (Complex =1, Easy = 0)
SC = Start-up costs (actual amount of money needed to start a business, in
Philippine pesos PhP)
MON = Monetary compensation (amount of money received per month from
work/ business, in Philippine pesos PhP)
WEA = Wealth (include all savings and value of possessions, in Philippine
pesos PhP)
FAM = Family size (number of family members – father, mother and children)
RIS = Tolerance for risk (High = 1, No = 0)
ε = Error term

Results and Discussion

Profile of Entrepreneurs and Non-Entrepreneurs in the Study Area
Table 1 presents the socio-demographic profile of the entrepreneurs and the non-
entrepreneurs. Most of the entrepreneurs were in the age range of 50 and above
(36%) and 40 - 49 (26%) and majority were female (70%). In the case of the non-
entrepreneurs, a substantial number were in the age range 40-49 (43%) and 30-39
(21%) and were male (55%).
96 Huang, Camacho, Depositario and Bello

In terms of years of schooling, there were more entrepreneurs (39%) compared

to non-entrepreneurs (15%) who were either high school graduates or attended
some years of high school (7 – 10 years). On the other hand, the entrepreneur’s
mean family size (5.28), monthly salary/wage (PhP 20,545) and mean wealth (PhP
434,000) were all higher compared to those of the non-entrepreneurs. Lastly, major-
ity of the entrepreneurs had one or both parents who were also engaged in entrepre-
neurship (62%) and perceived themselves as risk-takers (70%).
Interestingly, majority of both entrepreneurs and non-entrepreneurs perceived
that the administrative procedures in starting a business in Los Baños are complex.
Table 1. Summary of socio-demographic profile of entrepreneurs and
non-entrepreneurs
Percentage Overall
Variable
Entrepreneur Non-Entrepreneur Mean
Age
20 - 29 19 16
30 - 39 19 21 42.49
40 - 49 26 43
50 & above 36 20
Mean 43.28 41.70
Gender
Male 30 55
Female 70 45
Years of schooling
High school (7-10 years) 39 15
College (11-14 years) 61 85 12.36
Mean 11.44 13.27
Family size
Mean 5.28 4.58 4.93
Monthly salary (PhP)
Mean 20,545 19,560 20,052.50
Wealth (PhP)
Mean 434,000 230,560 332,280
Acquisition of credit
Yes 72 76
No 28 24
Having entrepreneur-parents
Yes 62 26
No 38 74
Perception of administrative
procedures
Complex 71 77
Easy 29 23
Risk tolerance
High 70 35
Low 30 65
Journal of Economics, Management & Agricultural Development Vol. 2, No. 1 97

Factors Affecting an Individual’s Decision to Engage in Entrepreneurship

Table 2 shows the variables derived from regression analysis which were found
to be statistically significant at 1% and 5% level. These variables are GEN (gender),
SCH (years of schooling), PAR (having entrepreneur-parents), FAM (family size),
WEA (wealth) and RIS (risk tolerance). The model derived was:
Probit(π(x)) = -0.8741 GEN -0.1864 SCH + 0.9399 PAR + 0.1427 FAM +
0.00000121 WEA + 0.84823 RIS + ε
Table 2. Regression results of the factors hypothesized to be related to the
decision to become an entrepreneur
Standard
Variable Coefficient Z P> |z|
Error
Age -0.0016 0.0102 -0.16 0.875
Gender -0.8741*** 0.2404 -3.64 0.000
Years of schooling -0.1864*** 0.0451 -4.13 0.000
Entrepreneur parents 0.9399*** 0.2258 4.16 0.000
Family size 0.1427** 0.0722 1.98 0.048
Wage 4.81e-06 7.94e-06 0.61 0.544
Wealth 1.21e-06*** 4.51e-07 2.69 0.007
Start-up costs -1.49e-06 1.32e-06 -1.13 0.260
Access to credit -0.3572 0.2596 -1.38 0.169
Administrative procedures -0.0828 0.2598 -0.32 0.750
Risk tolerance 0.8482*** 0.2237 3.79 0.000
Intercept 1.1563 0.8546 1.35 0.176
Number of obs = 200
LR chi2(11) = 101.04
Prob > chi2 = 0.0000
Log likelihood = -88.1079
Pseudo R2 = 0.3644
***, **Significant at 1% and 5% probability levels, respectively.

Table 3 contains the marginal effects of each of the significant variables;

marginal effect is the amount by which the probability increases or decreases with
respect to each variable.
Gender
The marginal effect result for gender (-0.3378) shows that the estimated
probability that an individual will become an entrepreneur decreases by 0.338 if the
individual is a male. As presented earlier, according to the 2010 GEM survey cited
by Ciccone (2011), women make up a larger share of the total number of entrepre-
neurs in less-developed economies compared to developed economies as women’s
entrepreneurial activities are borne out of necessity.
The finding related to gender is not consistent with most of the studies saying
that women tend to be more risk averse because they are more afraid of business fail-
ures. One probable reason is that the study was done in the context of a developing
country (i.e., Philippines) where women are forced to engage in business to support
their families and augment the family income.
98 Huang, Camacho, Depositario and Bello

Table 3. Marginal effects of the factors hypothesized to be related to the decision

to become an entrepreneur
Standard
Variable dy/ dx Z P> |z|
Error
Age -0.0006 0.0041 -0.16 0.875
Gender -0.3378*** 0.0870 -3.64 0.000
Years of schooling -0.0743*** 0.0179 -4.13 0.000
Entrepreneur-parents 0.3602*** 0.0796 4.16 0.000
Family size 0.0569** 0.0288 1.98 0.048
Wage 1.92e-06 3.17e-06 0.61 0.544
Wealth 4.83e-07*** 1.79e-07 2.69 0.007
Start-up costs -5.93e-07 5.28e-07 -1.13 0.260
Access to credit -0.1407 0.1003 -1.38 0.169
Administrative -0.0330 0.1036 -0.32 0.750
procedures
Risk tolerance 0.3285*** 0.0816 3.79 0.000
Number of obs = 200
LR chi2(11) = 101.04
Prob > chi2 = 0.0000
Log likelihood = -88.1079
Pseudo R2 = 0.3644
***, ** Significant at 1% and 5% probability levels, respectively.

Years of Schooling
On the other hand, the marginal effect of years of schooling of -0.0743 suggests
that the estimated probability that an individual will become an entrepreneur will
decrease by 0.074 as the year of schooling increases by a year. This finding is
consistent with those of Evan and Eighton (1990), Audretsch and Vivarelli (1995) and
Audretsch and Thurik (2000) as cited by Bohla et al. (2006) who claim that lower
levels of education make it difficult for individuals to get a paid job so they resort to
self-employment.
Entrepreneur-Parents
Whether an individual’s parent is an entrepreneur turned out to be a significant
factor in the model. Looking at its marginal effects, the probability that an individual
will become an entrepreneur increases by 0.360 for an individual who has an entre-
preneur parent. This is similar to the findings of several studies such as Bohla (2006)
who stated that an important source of entrepreneurial opportunities may be the social
network of entrepreneurs such as their parents. Similarly, Wagner (2004) found that
the presence of role models such as parents encourages an individual to become an
entrepreneur since these role models can introduce their offsprings to the rudiments
of running a business, transfer business experiences and provide capital.
Family Size
In relation to family size, the estimated probability that an individual will
become an entrepreneur will increase by 0.0569 if the family size increases by one
member. As family size increases, one might be forced to engage in business.
However, this is in contrast to Omotoso and Daramola (2005) who say that family
size could have a negative effect on an individual’s decision to become an
entrepreneur as larger household size means more responsibilities for the household.
Journal of Economics, Management & Agricultural Development Vol. 2, No. 1 99

Wealth
As for wealth, the estimated probability that an individual will become an
entrepreneur will increase by 4.83e-07 as his wealth increases by PhP 1.00. The
result of the study agrees with that of Naudé and MacGee (2009) who suggest that
the wealthier an individual is, the more access to capital they have, and thus, the
chances of them becoming an entrepreneur increase.
Risk Tolerance
Lastly, the estimated probability that an individual will become an entrepre-
neur will increase by 0.3285 if he/she has a high tolerance for risk. This finding
agrees with Wagner (2004) who claims that risk aversion lowers an individual’s
likelihood of entering a business since he or she would become unwilling to put his
or her capital at risk.

Conclusion
This study aims to determine the factors that affect an individual’s decision
to become an entrepreneur. The study covered 100 entrepreneurs and 100 non-
entrepreneurs in Los Baños, Laguna, Philippines. In predicting the likelihood that
an individual will decide to become an entrepreneur, a Probit model was used with
the following parameters: age, gender, years of schooling, having entrepreneur -
parents, family size, access to credit, perception of administrative procedures,
monetary compensation, start-up costs, wealth and tolerance to risk.
The regression analysis reveals that only six variables are significant at 1%
and 5% levels. These are gender, family size, wealth, having entrepreneur - parents,
years of schooling and tolerance to risk.
As the results show that women in the study area are more likely to engage in
an entrepreneurial activity, local officials should encourage women, especially the
housewives, to earn extra income for themselves by engaging in entrepreneurial
activities. They can be encouraged to attend Personal Entrepreneurial Development
(PED) trainings.
The results also suggest that some variables like years of schooling among the
Los Baños entrepreneurs could prove to be favorable or unfavorable to entrepre-
neurial engagement, depending on whether the entrepreneurs are opportunity -
driven or necessity - driven, the classification of which was first suggested by
Verheul et al. (2010). In this study, it appears that most entrepreneurs in the study
area are necessity-driven entrepreneurs and thus, as their years of schooling
increase, the probability that an individual would become an entrepreneur
decreases.
Furthermore, as the results show that people with less number of years of
schooling (i.e., lower level of education) are more likely to engage in an entrepre-
neurial activity, the local government may offer a special business assistance
package to entrepreneurial individuals so they can start a business. It is, however,
recommended that the local government of Los Baños should aim to promote more
a particular type of entrepreneurship –opportunity-driven entrepreneurship – as the
trend in the country is more of this type of entrepreneurship. Opportunity-driven
entrepreneurship can lead to more innovative and high value-added products. The
University of the Philippines Los Baños may help the local government unit in this
respect by sharing its commerciable technologies with the town’s current and would
- be entrepreneurs.
100 Huang, Camacho, Depositario and Bello

The study also shows that high tolerance to risk encourages an individual to
become an entrepreneur in the study area. The local government and other institutions
may take advantage of this by providing trainings related to the development of
personal entrepreneurial competency of risk-taking as well as risk management to
individuals who are risk averse. Small business insurance mechanisms can also be
provided to would-be entrepreneurs to encourage risk-averse individuals to venture
into entrepreneurship.
On the other hand, the emergence of family size as a significant variable,
especially in the context of Philippine culture, highlights the importance of family
involvement towards enterprise growth. This suggests that entrepreneurial trainings
should emphasize the topics of management succession and the harnessing of family
values for entrepreneurial success.
The emergence of family size as well as gender also suggests that there may be
culture-bound determinants of the decision to engage in entrepreneurship. These
factors were found to be unfavorable to entrepreneurial engagement in previous
researches conducted in Western countries.
Meanwhile, the finding that having entrepreneurial parents is a significant
determinant indicates that exposure to business of children and young adults is an
important factor affecting the likelihood of entrepreneurial engagement. This implies
a need to incorporate activities related to the development of an entrepreneurial mind-
set and competencies among the youth in Los Baños through the enhancement of
elementary and high school curricula, especially under the K to 12 program.
Likewise, as wealth also turned out to be a significant determinant of entrepreneurial
decision, financial literacy subjects should be given emphasis in the K to 12 curricula
in the study area.
A secondary finding from this study is that majority of the respondents, whether
entrepreneur or not, view the administrative procedures related to starting a business
in Los Baños, Laguna as complex. The national as well local governments should
therefore exert utmost efforts to simplify and expedite the procedures involved in
starting a business.
The study has some limitations. First, the study focused only on one town. In
future researches, the whole CALABARZON region or even other regions in the
Philippines can be covered. Also, there may be more objective measures of some of
the variables used in this study. For example, tolerance for risk should not just be a
binary variable and based on the perception of the respondent but on a risk propensity
score to capture the unique preference of various individuals. In addition, access to
credit can be operationally defined based on the amount of credit accessed or the
credit terms of the loans while the complexity of administrative procedures may be
measured by the number of requirements. Furthermore, other variables which could
possibly determine the probability that an individual will decide to be an
entrepreneur, such as technical training and work experience as well as some
psychological factors identified by Xie (2014) like locus of control and need for
achievement, could be used in future research. There is also a need to do a more
in-depth comparative study of the factors affecting entrepreneurship decision of
opportunity-driven and necessity-driven entrepreneurs. Lastly, it would be interesting
to determine whether or not entrepreneurial education can significantly influence
entrepreneurial engagement in the Philippine context.
Journal of Economics, Management & Agricultural Development Vol. 2, No. 1 101

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