Abstract
Does terrorism influence entrepreneurial entry? We investigate if people use entrepreneurship to cope with terrorism. Contrary to current research on disruptive contexts and entrepreneurial entry, we argue based on human capital theory that terrorism– a man-made disruptive context– changes labor markets and pushes people towards employment over entrepreneurship. Human capital allows people to cope differently with these changes. The empirical test of peoples’ how people cope in the labor market in response to terrorism is challenging because terrorists tend to select people with specific demographics (e.g., occupational, political, and religious affiliations), which leads to selection bias. To overcome the resulting endogeneity, we use a nationally representative random sample and an exhaustive list of terror attacks in Egypt in 2017 to identify inherent randomness in the success of terror attacks. We find that terror attacks negatively influence entrepreneurial entry, and that human capital mitigates this negative influence. Our findings contribute to theoretical advancements on entrepreneurship in disruptive contexts, urging caution against generalizing across different types of disruption. We emphasize variation within and between types of disruptive contexts and the role of human capital in coping.