nep-ent New Economics Papers
on Entrepreneurship
Issue of 2005‒01‒23
six papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. Are you experienced? Prior exeprience and the survival of new organizations By Michael S. Dahl; Toke Reichstein
  2. Social security and entrepreneurial activity By Thomas Steinberger
  3. A Matter of Life and Death: Innovation and Firm Survival By Elena Cefis, Orietta Marsili
  4. Firm Tunrover and the Rate of Macroeconomic Growth - Simulating the Macroeconomic Effects of Schumpeterian Creative Destruction By Eliasson, Gunnar; Johansson, Dan; Taymaz, Erol
  5. Sunk costs, Profit Volatility, and Turnover By Adelina Gschwandtner; Val E. Lambson
  6. The Efficiency of the Bankruptcy Process. An International Comparison By Buttwill, Klas; Wihlborg, Clas

  1. By: Michael S. Dahl; Toke Reichstein
    Abstract: This paper investigates the relationship between the level of experience of managers and founders, and the likelihood of survival of their new firms. We take advantage of a comprehensive dataset covering the entire Danish labor market from 1980-2000. This is used to trace the activities of top ranked members of start-ups prior to their founding, and follow the fate of these firms. More specifically, we compare the survival of spin-offs from surviving parents, spin-offs from exiting parents, and other start-ups. Moreover, we investigate whether firms managed and founded by more experienced teams with higher levels of industry-specific experience are more likely to survive. Distinguishing between survivors and firms that have been acquired, we find that spin-offs from a surviving parent company combined with and industry-specific experience, positively affects the likelihood of survival. We also find that spin-offs from parent companies that exit are less likely to survive than either spin-offs from surviving parents or other start-ups. These findings support the theoretical arguments that organizational heritage is important for the survival of new organizations. We found no similar significant results when comparing exits with firms that have been acquired.
    Keywords: Organizational routines; Industry-specific experience; Survival of new firms; Spin-offs
    JEL: L25 M13 L60
    Date: 2005
  2. By: Thomas Steinberger (CSEF, University of Salerno)
    Abstract: We solve the dynamic occupational choice problem of a finitelylived, borrowing constrained household which faces exogenously given stochastic wages and business returns. Entrepreneurship means investing personal wealth into a risky asset and neither receiving wage income nor paying social security contributions. Social security bene- fits in retirement depend on the number of contribution periods. We show that, entrepreneurial activity depends negatively on the generosity of the social security system and non-monotically on the size of the system. Numerical results for a multi-period version suggest that for reasonable parameter values the relationship between the size of the social security system and entrepreneurial activity is negative. In simulation experiments, we find that lowering social security contributions for the young has a relatively larger effect on entrepreneurial activity than other ways to reduce the size of the system.
    Keywords: Occupational choice, Life-cycle models, Social security
    JEL: H55 G11 J24
    Date: 2005–01–01
  3. By: Elena Cefis, Orietta Marsili
    Abstract: This paper examines the effects of innovation on the survival of manufacturing firms in the Netherlands. The demographics of firms according to their innovative performance and type of innovation are traced by using the Business Register population of all firms active in the Netherlands and the Community Innovation Survey. Through estimation of a parametric duration model, we observe that firms do benefit of an innovation premium that extends their life expectancy, independent of firm- specific traits such as age and size. Especially process innovation seems to have a distinctive effect on survival. Furthermore, our results confirm that survival chances increase with age and the growth rate of a firm, the latter representing a more crucial factor than the initial size. Finally, sectors at high intensity of technology, that is, science based and specialised suppliers are most favourable environments to the survival of firms.
    Keywords: Firm Survival, Innovation, Firms Exit, Duration models.
  4. By: Eliasson, Gunnar (Royal Institute of Technology); Johansson, Dan (The Ratio Institute); Taymaz, Erol (Middle East Technical University)
    Abstract: The positive effects of new innovative entry and fast and efficient allocation of resources are balanced against the efficiency of price signaling in markets in a non-linear micro based simulation model of an Experimentally Organized Economy (EOE). In this model increasingly rapid reallocation of resources over markets, moved by innovative new entry and competitive exit (the rate of firm turnover) generates faster growth in output, but eventually, if too fast, is shown to affect the reliability of price signaling in markets and to raise the frequency of investment mistakes. Beyond a certain level of the rate of firm turnover the aggregate effects at the macro level, therefore, turn negative. This optimal growth trajectory depends on the balance between the rates of entry and exit and on the performance of new firms compared to incumbents, their size compared to incumbents and the variation in the same characteristics.
    Keywords: Business Mistakes; Economic Systems Stability; Endogenous Growth; Experimentally Organized Economy (EOE); Firm Turnover
    JEL: C15 C45 C62 C81 L16 O12
    Date: 2005–01–18
  5. By: Adelina Gschwandtner; Val E. Lambson
    Abstract: Dynamic competitive models of industry evolution suggest that firm profit will be more volatile and turnover will be lower in industries with higher sunk costs. These implications are consistent with empirical observation.
    JEL: L00
    Date: 2004–04
  6. By: Buttwill, Klas (Department of Economics); Wihlborg, Clas (Copenhagen Business School)
    Abstract: Failure of projects and firms are an inherent element of growth. Economic growth requires that old activities are phased out to make room for new ones, and that economic resources are reallocated from activities that are no longer profitable. In an economy where most firms are financed by debt to a substantial extent, insolvencies inevitably play an important role in restructuring. Insolvency leads to formal bankruptcy when legal procedures are employed to liquidate the insolvent firm’s assets in order to pay stakeholders fully or partially according to a priority established in law or contracts. In some countries legal procedures exist for restructuring as well as for liquidation. In other countries the restructuring of an insolvent firm is handled informally through negotiation. The economic roles of insolvency procedures are discussed (in Section 2) with an emphasis on dynamic aspects. In discussing the efficiency of insolvency procedures (in Section 3) we distinguish between ex ante and ex post efficiency. Since efficiency ultimately must be evaluated in terms of its dynamic effects, simple efficiency criteria are not easily identified. Formal insolvency procedures in different countries are classified (in Section 4) as more or less creditor or debtor oriented. Legal approaches can also be classified as more or less contractual or statutory. The important interdependence between formal and informal procedures is discussed in Section 5.Thereafter we turn in Section 6 to the empirical evidence on bankruptcy and restructuring in a number of countries with substantial differences in legal approaches to insolvency. We ask in Section 7 what explains the relatively high bankruptcy frequency in Sweden in an international comparison. Is the high frequency an indication of efficiency of procedures or does it indicate that viable firms are forced into bankruptcy unnecessarily?
    Keywords: Bankruptcy; Insolvency; Restructuring; Contracting
    JEL: G33 K22
    Date: 2005–01–18

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