nep-ent New Economics Papers
on Entrepreneurship
Issue of 2005‒04‒16
eight papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. Understanding the role of entrepreneurship for economic growth By Martin Carree; Roy Thurik
  2. Impact of Market Entry and Exit on EU Productivity and Growth Performance By Michele Cincera; Olivia Galgau
  3. The determining factors of entry of new firms into industrial sectors: a survey By Christian Garavaglia
  4. Start-ups Defined as Portfolios of Embedded Options By Pascal BOTTERON; Jean-François CASANOVA
  5. Foreign Banks in Transition Economies: Small Business Lending and Internal Capital Markets By Ralph de Haas; Ilko Naaborg
  6. The Internationalization Efforts of Lithuanian Manufacturing Firms - Strategy of Luck? By Audra I.Mockaitis; Erika Vaiginiene; Vincent Giedraitis
  7. 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
  8. Discount Rates in Emerging Capital Markets By Samuel Mongrut Montalván; Didac Ramírez Sarrió

  1. By: Martin Carree; Roy Thurik
    Keywords: entrepreneurship, small firms, economic growth, economic development
    JEL: M13 O10
    Date: 2005–02
  2. By: Michele Cincera (Université Libre de Bruxelles-DULBEA-CERT & CEPR); Olivia Galgau (Université Libre de Bruxelles-DULBEA)
    Abstract: The European Union and its Member States have been engaged in product market reforms over a long period with notable reforms including the Single Market Program and the Lisbon Agenda launched in March 2000. Product market reforms are seen as exerting both a direct and an indirect impact on productivity, however, the net effects of the direct effect were found to be small. This study concentrates on the impact of product market reforms on firm entry and exit that can itself be decomposed into two effects: internal restructuring which refers to productivity growth of individual firms present in the industry and external restructuring whereby the process of market selection leads to a reallocation of resources among individual firms. The change in firm entry and exit will in turn affect macroeconomic performance.
    Keywords: Market entry and exit, product market reforms, macroeconomic performance
    JEL: L16 L50 O47 O52
    Date: 2005–03–28
  3. By: Christian Garavaglia (Cattaneo University (LIUC))
    Abstract: Entry is a common feature of all industries and it represents a key aspect to be studied in order to understand the dynamics that characterise the evolution of industrial sectors. It is the purpose of this paper to analyse the process of entry of firms into markets and the nature of the factors that could play a role in determining it and in shaping the evolution of market structures. Different fields of economic literature examine the dynamic process of entry of new firms. In this paper, we focus our attention on the differences that characterise these approaches: the traditional approach, the technological regime theory, the role of “competence-enhancing” and “competence-destroying” technological change, the industry life cycle theory, the role of information and uncertainty, the organisational ecology approach and the psychological view. We claim that the relationship of the entry processes with the evolution of market structures, then, can be deeply understood only if we take into account the distinctions and the complementarities offered by these views.
    Date: 2004–03
  4. By: Pascal BOTTERON (Institute of Banking and Finance, HEC-University of Lausanne and Ernst & Young Ltd.); Jean-François CASANOVA (Strategic Risk Management)
    Abstract: In this paper we show the advantages of staged investments for venture capitalists. We develop an option-pricing model that enables to evaluate the flexibility acquired by a venture capitalist when he stages his investment process. Instead of investing a fixed amount at the beginning of the investment, the venture capitalist proceeds to a staged investment (one first investment and a second investment). The second investment will be triggered by a successful achievement of the first investment. Should the first investment be unsuccessful, the second investment will not be executed. Staging the investment in two phases enables the investor to reduce its uncertainty at the beginning of the project. As it will be demonstrated in the paper, the decision to proceed to the second investment can be modelled as a portfolio of a call option and a binary option.
    Keywords: real options, staged investments, structured products, embedded options
    JEL: G12 G30 G31 G32 G34 M13
    Date: 2003–05
  5. By: Ralph de Haas (De Nederlandsche Bank); Ilko Naaborg (University of Groningen)
    Abstract: On the basis of focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltics, we analyse foreign banks’ small business lending and internal capital markets. This allows us to complement the standard empirical literature, which has difficulty in measuring important variables such as lending technologies and capital allocation systems. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, we show that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank. The credit growth of subsidiaries therefore potentially depends on the financial health of the foreign based parent bank.
    Keywords: foreign banks, transition economies, small business lending, internal capital markets
    JEL: F23 F36 G21 G31 G32
    Date: 2005–04–11
  6. By: Audra I.Mockaitis (Vilnius Univeristy); Erika Vaiginiene (Vilnius University); Vincent Giedraitis (University of California)
    Abstract: With the enlargement of the European Union, many Central and Eastern European (CEE) manufacturing companies have greater opportunity for internationalizing their activities. Although it is generally held that SMEs have the flexibility and ability to adapt to their environment more quickly than large enterprises, SMEs must be able to use these advantages in internationalizing. This study considers the internationalization efforts of a sample of Lithuanian manufacturing SMEs. Specifically, it is sought to reveal whether any patterns in the foreign market entry decisions of these firms may be found, through an examination of the degree of internationalization and its dependence on company age, size, risk aversion, commitment toward internationalization and knowledge acquisition. It is revealed that as yet, Lithuanian SMEs are in a state of uncertainty, and rely on manufacturing contracts in their home market. A pattern of “no pattern” may best describe their process of internationalization.
    Keywords: internationalization, SMEs, manufacturing sector, Lithuania
    JEL: L14 L21 L6
    Date: 2005–02–03
  7. 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 productions 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, relative liquid 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: Capital flows, liquid capital asset, general equilibrium model
    Date: 2003–05
  8. By: Samuel Mongrut Montalván (Universidad del Pacifico); Didac Ramírez Sarrió (Universitat de Barcelona)
    Abstract: The estimation of the discount rate for an investment project in conditions of risk relies upon two crucial assumptions: market completeness and well-diversified investors. Although, these two assumptions are tenable in developed capital markets, they are not suitable in emerging markets. In emerging markets there are not enough twin securities to obtain a unique stochastic discount factor and therefore one project’s market value, and investors usually face short selling and borrowing restrictions. Furthermore, these markets are plagued with non-diversified entrepreneurs that invest all their capital to undertake entrepreneurial adventures. In this research one derives expressions for the project discount rate using the fundamental pricing equation under incomplete capital markets in two extreme situations: when investors hold a well-diversified portfolio and when they are not diversified at all. Although, both situations may apply in developed and emerging capital markets, they apply especially to emerging markets. In fact, well-diversified investors, such as foreign mutual funds, increasingly invest in emerging markets, while the bulk of firms involves either small or medium enterprises owned by a single or a group of non-diversified entrepreneurs. One concludes that although the CAPM cannot hold under incomplete markets it is still a good approximation for well-diversified investors in emerging markets, while it is necessary to use a hurdle rate based on the project total risk for the case of non-diversified entrepreneurs.
    Keywords: Project valuation, incomplete markets, asset pricing
    JEL: H43 D52 G12
    Date: 2005–01–30

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.