nep-ent New Economics Papers
on Entrepreneurship
Issue of 2004‒12‒20
nine papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. Determinants Of Entrepreneurship In Europe By Grilo, I.; Thurik, A.R.
  2. Entrepreneurship over Time: Measures of Activity and Recent Changes in the US: 1993-2002 By Andrew Burke; Aoife Hanley
  3. An empirical study of the transition from paid work to self-employment By Velamuri, S. Ramakrishna; Venkataraman, Sankaran
  4. Entry thresholds and actual entry and exit in local markets By Carree,Martin; Dejardin,Marcus
  5. Persistence in Corporate Performance? - Empirical Evidence from Panel Unit Root Tests By Bentzen, Jan; Madsen, Erik Strøjer; Smith, Valdemar; Dilling-Hansen, Mogens
  6. Incentives for knowledge production with many producers By Bronwyn Hall
  7. Sunk Costs and Antitrust Barriers to Entry By Schmalensee, Richard
  8. Finance, Firm Size, and Growth By Thorsten Beck; Asli Demirguc-Kunt; Luc Laeven; Ross Levine
  9. Bad Loans and Entry into Local Credit Markets By Marcello Bofondi; Giorgio Gobbi

  1. By: Grilo, I.; Thurik, A.R. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam)
    Abstract: This paper uses an Eclectic Framework explaining entrepreneurship incorporating different streams of literature and spanning different disciplines. The Eclectic Framework integrates factors shaping the demand for entrepreneurship on the one hand, with those influencing the supply of entrepreneurs on the other hand. It also creates insight into the role of public policy identifying the channels through which the demand or the supply of entrepreneurship can be shifted. In its empirical part the present paper estimates a multinomial logit using survey data from the 15 EU member states, Norway, Iceland, Liechtenstein and the US to establish the effect of demographic and other variables on various entrepreneurial engagement levels. Data of two Entrepreneurship Flash Eurobarometer surveys (2003 and 2004) containing over 20,000 observations are used. Other than demographic variables, the set of explanatory variables used includes the perception by respondents of administrative complexities, of availability of financial support, a rough measure of risk tolerance, the respondents? preference for self-employment and country specific effects. The most striking result is that the perception of lack of financial support has no discriminative effect across the various levels of entrepreneurial engagement.
    Keywords: Entrepreneurship;determinants;nascent entrepreneurship;multinomial logit;barriers to entry;
    Date: 2004–12–10
  2. By: Andrew Burke; Aoife Hanley
    Abstract: The paper investigates the relationship between bank interest rate margins and collateral for loans issued to new ventures. The analysis finds a convex U-shaped relationship. The results indicate that while provision of collateral initially reduces bank exposure to risk (through security, more optimal levels of capital and lower moral hazard among entrepreneurs) that beyond a point the positive risk-wealth association gives rise to greater risk taking propensity among entrepreneurs and ultimately higher interest rates. This indicates that a lender's pricing policy may even somewhat help to level the competitive playing field between ventures launched by higher and moderately wealthy entrepreneurs.
    Keywords: asymmetric information, bank lending, credit constraints
    JEL: G21
    Date: 2004–12
  3. By: Velamuri, S. Ramakrishna (IESE Business School); Venkataraman, Sankaran (Darden Graduate School of Business Administration)
    Abstract: We explore the relationship between the probability of a transition from paid work to self-employment and three explanatory variables: paid income, predicted income, and income for ability. We use panel data for heads of households from the PSID SRC sample for eight pairs of years. Our results show that therelationship between paid income and self-employment is not linear. We then break up paid income into two components: a)predicted income based on human capital, demographic, and locational variables, and b) income for ability. Again, we find nolinear relationship between self-employment and either predicted income or income for ability. We then test for curvilinear relationships between these three variables (i.e., paid income, predicted income, and income for ability) and the transition to self-employment. We find that individuals with low incomes are more likely to take up self-employment. Further, income for ability is a stronger predictor of the transition to self-employment than predicted income. We show that the relationship between ability and self-employment is U shaped: very low ability and very high ability individuals are more likely to take up self-employment than medium ability individuals. We use prospect theory to explain this result.
    Keywords: Entrepreneurship; self-employment; opportunity costs; value creation;
    Date: 2004–10–21
  4. By: Carree,Martin; Dejardin,Marcus (METEOR)
    Abstract: Bresnahan and Reiss (1991) derive entry thresholds (equilibrium numbers of firms) for local markets but do not investigate actual entry and exit flows. This paper investigates for thirteen Belgian retail and service industries whether markets with actual numbers of firms higher (lower) than the thresholds display exit (entry) in subsequent periods.
    Keywords: industrial organization ;
    Date: 2004
  5. By: Bentzen, Jan (Department of Economics, Aarhus School of Business); Madsen, Erik Strøjer (Department of Economics, Aarhus School of Business); Smith, Valdemar (Department of Economics, Aarhus School of Business); Dilling-Hansen, Mogens (Department of Economics, University of Aarhus)
    Abstract: Persistence in corporate performance is analyzed in the framework of empirical tests of unit root behavior concerning firm profits. Data for firm-specific rates of return is applied in a set of panel unit root tests to address the question of persistence in profits both at firm level and for the aggregate level of industry-specific profits. The firm data all reject a null hypothesis of random walk behavior of profits but when smoothing profit rates at a two-digit NACE-code level for industries, the empirical evidence is more mixed as most industries show up with a unit root in aggregate rates of return, i.e. indicating persistence in corporate performance.
    Keywords: Corporate performance; Persistence in profits; Panel unit root tests
    JEL: C30 L20
    Date: 2004–12–10
  6. By: Bronwyn Hall
    Abstract: In this paper, I briefly review the motivations for inventive behavior and describe two common incentive systems that harness and encourage such behavior. This review of well-trodden ground is performed only so that the implications of the rise of the networked knowledge economy for the effectiveness of these incentive systems can be noted. Some theoretical results on the operation and stability of the two incentive systems for the production of knowledge are presented with a discussion of how they might apply in the networked economy. The paper concludes with suggestions on open research questions.
    Keywords: patents, market value, information technology, appropriability
    JEL: O34 L86 L23
    Date: 2004–09
  7. By: Schmalensee, Richard
    Abstract: US antitrust policy takes as its objective consumer welfare, not total economic welfare. With that objective, Joe Bain's definition of entry barriers is more useful than George Stigler's or definitions based on economic welfare. It follows that economies of scale that involve sunk costs may create antitrust barriers to entry. A simple model shows that sunk costs without scale economies may discourage entry without creating an antitrust entry barrier.
    Keywords: antitrust, U.S. antitrust policy, entry barriers,
    Date: 2004–12–10
  8. By: Thorsten Beck; Asli Demirguc-Kunt; Luc Laeven; Ross Levine
    Abstract: This paper examines whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth. We define an industry's technological firm size as the firm size implied by industry specific production technologies, including capital intensities and scale economies. Using cross-industry, cross-country data, the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms. This suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications.
    JEL: G2 L11 L25 O1
    Date: 2004–12
  9. By: Marcello Bofondi (Bank of Italy, Economic Research Department); Giorgio Gobbi (Bank of Italy, Econimic Research Department)
    Abstract: Is deregulation sufficient to grant free entry in local credit markets? Economic theory suggests at least two ways in which asymmetric information between incumbents and entrants can work as an endogenous barrier to entry. First, entrants’ pool of applicants contains a larger share of potential customers who are not creditworthy because it includes all those would-be borrowers who were previously rejected by mature banks in the market. Second, since a substantial amount of the information used by banks to screen loan applicants and monitor borrowers is generated through repeated interaction with their customers and the local business community, incumbents’ creditworthiness tests are likely to be more accurate. Other things being equal, entrants are therefore expected to experience higher loan default rates than incumbents. Using a unique database of 7,275 observations on 729 individual banks’ lending in 95 Italian local markets, we find that both adverse selection and informational disadvantage play a significant role in explaining entrants’ loan default rates. We argue that these endogenous barriers can help to explain why in many local credit markets by domestic and foreign banks was slow, even after substantial deregulation.
    Keywords: Credit Markets, Barriers to Entry, Winner's Curse, Asymmetric Information
    JEL: D82 G21 L13
    Date: 2004–07

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