nep-ent New Economics Papers
on Entrepreneurship
Issue of 2005‒01‒02
sixteen papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. Entrepreneurship and the Innovation Ecosystem Policy Lessons from the United States By Charles Wessner
  2. Entrepreneurship in the EU: to wish and not to be By Isabel Grilo and; Jesus Maria Irigoyen
  3. Venture capital, private equity and earnings quality By Beuselinck C.; Deloof M.; Manigart S.
  4. Conceptualization and measurement of firm performance By Bostyn F.; Vandingenen R.
  5. Sources of persistent firm performance differences By Bostyn F.; Vandingenen R.
  6. Innovation Heterogeneity, Schumpeterian Growth and Evolutionary Theorizing By Pol, Eduardo; Carroll, Peter
  7. CEO Experience and firm growth in small family firms By Laveren E.; Limère A.; Vanbilsen E.
  8. Product market reforms and productivity: a review of the theoretical and empirical literature on the transmission channels By Gaëtan Nicodème; Jacques-Bernard Sauner-Leroy
  9. Financial Institutions and The Wealth of Nations: Tales of Development By Jian Tong; Chenggang Xu
  10. A Risk-Based Rationale for Two-way Capital Flows: Why Do Capital Flights and Inward Foreign Direct Investments Co-exist? By Arnab K. Basu; Nancy H. Chau
  11. What One Can Learn From the Initial Public Offering of Google? A Twenty-Year Excursion to the Venture Capital Industry By Emanuel Shachmurove; Yochanan Shachmurove
  12. Choosing Between Promising and Crowded Industries: How Does the Venture Capital Industry Fare in Each? By Amir Shachmurove; Yochanan Shachmurove
  13. Private equity investment and disclosure policy By Beuselinck C.; Deloof M.; Manegart S.
  14. Selling a Cheaper Mousetrap: Entry and Competition in the Retail Sector By Emek Basker
  15. Threshold Effects and Firm Size: the Case of Firing Costs By Fabiano Schivardi; Roberto Torrini
  16. Endogenous Financial Constraints: Persistence and Interest Rate Fluctuations By Juan Pablo Medina

  1. By: Charles Wessner
    Date: 2004–12
  2. By: Isabel Grilo and; Jesus Maria Irigoyen
    Abstract: It is now widely acknowledged that the entrepreneurial capacity in an economy is a key determinant of economic growth and productivity improvements. This paper uses survey data from the 15 EU Member States and the US to establish the effect of demographic and other variables on latent and actual entrepreneurship. Latent entrepreneurship is measured by the probability of a declared preference for self-employment over employment. Other than demographic variables such as gender, age and education level, the set of explanatory variables used includes country specific effects, the perception by respondents of administrative complexities and of availability of financial support and a rough measure of risk tolerance. The most striking result is the lack of explanatory power of the perception of lack of available financial support in the latent entrepreneurship equation.
    Keywords: Entrepreneurship, self-employment, administrative complexities, access to finance, risk attitudes, probit regression
    JEL: M13 J23 R12
    Date: 2004–12
  3. By: Beuselinck C.; Deloof M.; Manigart S.
    Abstract: This paper examines the quality of financial statements reported by private equity (PE) backed companies in the years around the initial PE investment. We study both pre- and postinvestment earnings characteristics of a unique hand-collected sample of 556 Belgian unlisted companies, receiving PE financing between 1985 & 1999, and a matched non-PE backed sample. We find strong evidence of upward earnings management in the PE backed sample prior to the investment year, consistent with the hypothesis that entrepreneurs which apply for PE manage earnings upward to catch PE investors’ interest. Further, PE backed companies show a significantly higher extent of earnings conservatism compared to matched companies from the investment year on, indicating a governance impact of PE investors on the financial reporting discipline. Finally, we find a marginally higher degree of earnings conservatism for companies receiving PE from non-government related investors compared to companies backed by government-related PE investors. We interpret this stricter financial reporting discipline as being the reflection of a more slack governance by government-related PE investors compared to non-government-related investors. Our results have implications for PE investors as well as for all other stakeholders of PE backed firms.
    Date: 2004–01
  4. By: Bostyn F.; Vandingenen R.
    Date: 2003–10
  5. By: Bostyn F.; Vandingenen R.
    Date: 2003–11
  6. By: Pol, Eduardo (University of Wollongong); Carroll, Peter
    Abstract: Schumpeterian growth models revolve around two tacit assumptions that are at odds with the empirical evidence, namely: all innovations are equally important for economic growth (equipollent innovation) and all innovations occur in one sector only (confined innovation). The present paper shows that it is possible to dispose of both implicit assumptions by disaggregating the "ideas production function" without altering the gist of the theoretical framework. The paper refers briefly to the concepts of macro and microinventions, and introduces the concept of "innovatory discontinuity". The extended theoretical framework developed here throws light on the ongoing controversy between neoclassical and evolutionary theorizing.
    Keywords: Innovation heterogeneity, ideas production function, scale effects problem, innovatory discontinuity, neoclassical and evolutionary theorizing
    JEL: O31 O32
    Date: 2004
  7. By: Laveren E.; Limère A.; Vanbilsen E.
    Abstract: The primary purpose of this paper is to examine the relationship between firm performance (measured as growth in value added) and the depth of the experience of the Chief Executive Officer. Based on a sample of 511 small family firms, the research results show that the relationship between firm performance and CEO experience is not as clear-cut as was previously assumed. The results suggest curvilinearity to exist. Experience is contributive to the growth in value added of a firm up to a certain level of CEO-ship and dissimilar industry tenure after which it then becomes counterproductive. In addition the results show that firms with CEOs currently holding multiple directorships are found to generate significantly higher performance levels and that growth rates appear to lessen according to the age of the CEO
    Date: 2004–11
  8. By: Gaëtan Nicodème (Solvay Business School & European Commission); Jacques-Bernard Sauner-Leroy (Banque de France)
    Abstract: Product market reforms are structural reforms of microeconomic type that aim at improving the functioning of product markets by increasing competition amongst producers of goods and services. Theoretical models suggest that regulation and reforms which liberalise or improve the functioning of markets can positively affect productivity through three different channels, namely a reallocation of scarce resources (allocative efficiency), an improvement in the utilisation of the production factors by firms (productive efficiency) and an incentive for firms to innovate to move to the modern technology frontier (dynamic efficiency). This paper reviews the theoretical and empirical literature on these three channels.
    Keywords: Productivity Product market reforms competition entry innovation
    JEL: O P
    Date: 2004–12–23
  9. By: Jian Tong; Chenggang Xu
    Abstract: Interactions between economic development and financial development are studied by looking at the roles of financial institutions in selecting R&D projects (including for both imitation and innovation). Financial development is regarded as the evolution of the financing regimes. The effectiveness of R&D selection mechanisms depends on the institutions and the development stages of an economy. At higher development stages a financing regime with ex post selection capacity is more effective for innovation. However, this regime requires more decentralized decision-making, which in turn depend on contract enforcement. A financing regime with more centralized decision-making is less affected by contract enforcement but has no ex post selection capacity. Depending on the legal institutions, economies in equilibrium choose regimes that lead to different steady-state development levels. The financing regime of an economy also affects development dynamics through a 'convergence effect' and a 'growth intertia effect'. A backward economy with a financing regime with centralized decision-making may catch up rapidly when the convergence effect and the growth inertia effect are in the same direction. However, this regime leads to large development cycles at later development stages. Empirical implications are discussed.
    Keywords: Development, transition, financial institutions, R&D.
    Date: 2004–03
  10. By: Arnab K. Basu (Department of Economics, College of William and Mary); Nancy H. Chau (Department of Applied Economics and Management, Cornell University)
    Abstract: This paper develops a positive theory of two-way capital flows -- the simultaneous outward flight of capital assets, and the inflow of foreign direct investment that acquires ownership of local production units. The basic model exploits insights from entrepreneurial decision making under uncertainty in a general equilibrium setting, and traces out the relationship between (i) entrepreneurial incentives to exploit higher expected profits from risky production activities at the firm level and (ii) the resulting competitive rewards to capital in general equilibrium. The model shows that contrary to expectation, relatively liquid capital assets tend to flow from capital-poor to capital-rich economies, while foreign direct investment aimed at acquiring ownership of production units follows the reversed pattern. We also examine the optimal investment policies for both host and origin countries, and show the rationale behind the inherent conflict of interests between developing and developed economies in the context of capital market liberalization.
    Keywords: Affirmative Action, Discrimination, Public Policy, Education, Asymmetric Information
    JEL: F13 F21
    Date: 2004–09–10
  11. By: Emanuel Shachmurove (University of Michigan Law School); Yochanan Shachmurove (The City College of The City University of New York and the University of Pennsylvania)
    Abstract: Over the past two decades the venture capital industry became a major focus for the financial media. With potential for high rates of return, this industry attracts entrepreneurs looking for opportunities to invest. While some investments are successful and highly publicized, many are not. This paper gives insight about the role financing in different stages plays in determining the success of an investment. It compares data on the rates of return of 2,678 venture-backed public companies during multiple stages of financing. Additionally, this paper evaluates how the rates of return of these companies have changed between the 1980s and 1990s.
    Keywords: Annualized returns, Venture Capital, Venture-Backed Public Companies, Stage of Financing, Initial Public Offering, Early-Stage Financing, Seed Financing, Research and Development Financing, Start-up Financing, First-Stage Financing, Expansion Financing, Second-Stage Financing, Third-Stage and Mezzanine Financing, Bridge Financing, Acquisition/Buyout Financing, Acquisition Financing, Management /Leveraged Buyout
    JEL: C12 D81 D92 E22 G12 G24 G3 M13 M21 O16 O3
    Date: 2004–10–25
  12. By: Amir Shachmurove (Department of Economics, University of Pennsylvania); Yochanan Shachmurove (The City College of The City University of New York and the University of Pennsylvania)
    Abstract: Incredible profits from Initial Public Offerings have been highly emphasized. This paper refutes these profits as being standard and supports the market’s return to normalcy by stratifying annual and cumulative returns for different industries: Biotechnology; Communications; Computer Related companies; Medical, Health and Life Science industries; Non-High-Technology companies; and Semiconductor and Other Electronics Industries. This paper tests whether an entrepreneur has greater potential for success in continually promising fields or whether one should slug it out in a risky but potentially very rewarding industry. A comparison of success is made between already competitive businesses and those, which are young and growing.
    Keywords: Initial public offering, venture capital, annualized and cumulative rates of return, Information Technology, Medical, Health and Life Science, Non-High Technology, Biotechnology, Communications, Computer Industry, Semiconductor and Other Electronics Industries
    JEL: C12 D81 D92 E22 G12 G24 G3 M13 M21 O16 O3
    Date: 2004–12–17
  13. By: Beuselinck C.; Deloof M.; Manegart S.
    Abstract: We investigate whether a firm’s disclosure policy is affected by the changing corporate setting and intensified corporate governance associated with private equity (PE) investments. For a unique sample of unquoted PE backed firms we observe a significant switch to increased financial disclosure in the pre-investment year, consistent with the hypothesis that entrepreneurs attempt to reduce information asymmetries inherent to the PE application by increasing their disclosure levels. Further, we document that the governance and professionalization impact of PE investors affects their portfolio firms’ financial disclosure positively. Finally, differentiating on investor type (government versus non-government related) reveals no overall effect on disclosure, both in the pre- as in the post-investment years. Results are robust to various sensitivity checks.
    Date: 2004–11
  14. By: Emek Basker (Department of Economics, University of Missouri-Columbia)
    Abstract: In models of imperfect competition, entry of a lower-cost competitor tends to reduce output prices of all market participants; this effect is likely to be larger in small (less-competitive) markets and for product categories with high cross-price elasticities of demand. In this paper, I test these predictions by considering the effect of Wal-Mart entry on average city-level prices of various consumer goods. I combine two unique data sets, one containing opening dates of all US Wal-Mart stores and the other containing average quarterly retail prices of several narrowlydefined commonly-purchased goods over the period 1982-2002. I focus on 13 specific items likely to be sold at Wal-Mart stores and analyze their price dynamics in 160 US cities before and after Wal-Mart entry. An instrumental-variables specification corrects for measurement error in Wal-Mart entry dates. I find an economically large and statistically significant decline in the prices of drugstore items such as toothpaste, shampoo, and facial tissue. As expected, this effect is much stronger in small cities than in large ones. No effect on prices of convenience-store items (alcoholic beverages, Coke, and cigarettes) or clothing items can be detected. These results are consistent with the intuition that Wal-Mart provides a closer substitute to most drugstores than to convenience stores and clothing stores.
    Keywords: Wal-Mart, Competition, Prices, Market Size
    JEL: L13 L81 E31
    Date: 2004–10–20
  15. By: Fabiano Schivardi; Roberto Torrini
    Abstract: We study the role of employment protection legislation (EPL) in determining firm size distribution. In manycountries the provisions of EPL are more stringent for firms above certain size thresholds. We construct asimple model that shows that the smooth relation between size and growth probability is interrupted inproximity of the thresholds at which EPL applies differentially. We use a comprehensive longitudinal dataset ofall Italian firms, a country with an important threshold at 15 employees, to estimate the effects of EPL in termsof discouraging small firms from growing. We find that the probability of firms ' growth in the proximity of thethreshold is reduced by around 2 percentage points. Using the stochastic transition matrix for firm size, wecompute the long-run effects of EPL on size distribution. We find that average firm size would increase by lessthan 1% in steady state when removing the threshold; a quantitatively modest effect.
    Keywords: Firm size distribution, Employment protection, Firing costs
    JEL: J65 D21 L11
    Date: 2004–05
  16. By: Juan Pablo Medina
    Abstract: This article analyzes firm dynamics when the entrepreneurs have limited capacity to comply with their financial contracts. We characterize the optimal constrained contract under this imperfection in the presence of productivity and interest rate fluctuations. We show that under the optimal contract, productivity and interest rate fluctuations have amplified effects on the firms’ dynamics, beyond what would be predicted in the case of perfect enforceability. Moreover, the persistence of these fluctuations is higher when the compliance problems are more severe. These findings can be related to the fact that countries with better contract enforceability display deeper financial development and better economic performance.
    Date: 2004–12

This nep-ent issue is ©2005 by Marcus Dejardin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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