Nonfinancial Benefits and Entrepreneurs’ Choice of Manager*

Top managers are believed to be critical players in their organizations, significantly affecting organizations’ behavior and performance. Therefore, the choice of the top manager is considered to be one of the most important decisions that an organization makes and is being extensively studied by research scholars. However, the extant evidence is largely limited to mature organizations, whereas the choice of top manager in entrepreneurial ventures and family start-ups has received little attention. When starting a firm, an entrepreneur has to decide whether to manage it personally or hire a manager, yet we know very little of what motivates this choice. In particular, it is unclear if this choice is solely based on profit maximization or can be motivated by nonfinancial considerations. This paper examines the role of nonfinancial returns to management in an entrepreneur’s choice of manager. We use a setting of foreign entrepreneurs who, in order to manage their firms abroad, need to relocate to a host country and thus experience the benefits and costs of relocation associated with personally managing the firm. We show that entrepreneurs with high benefits of relocation are more likely to manage their firms abroad personally and seem to substitute relocation benefits for some firm profit. These findings are consistent with the idea that entrepreneurs anticipating nonfinancial benefits from owner-management are more likely to manage their firms themselves and are willing to substitute nonfinancial benefits for monetary earnings.