nep-ent New Economics Papers
on Entrepreneurship
Issue of 2005‒04‒24
six papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. Start-up Entry Strategies: Employer vs. Nonemployer firms By Michele Moretto; Gianpaolo Rossini
  2. Nascent and infant entrepreneurs in Germany. Evidence from the Regional Entrepreneurship Monitor (REM) By Joachim Wagner
  3. Firm Size Dynamics in the Aggregate Economy By Esteban Rossi-Hansberg; Mark L.J. Wright
  4. Do Differences Make a Difference? The Impact of Human Capital Diversity, Experience and Compensation on Firm Performance in Engineering Consulting By Keld Laursen; Volker Mahnke; Per Vejrup-Hansen
  5. Why So Small? Explaining the Size of Firms in Latin America By Eduardo A. Lora; Ana Maria Herrera
  6. U.S. Banking Deregulation, Small Businesses,and Interstate Insurance of Personal Income By Bent E. Sørensen; Yuliya Demyanyk; Charlotte Ostergaard

  1. By: Michele Moretto (University of Brescia); Gianpaolo Rossini (University of Bologna)
    Abstract: From 1997 to 2001 we observe in the Usa a faster growth in the number of Nonemployer firms (NF) vis à vis Employer firms (EF). The diverse speed of net entry may be due to particular internal organisation of the two types of firms and the effect that this has on the reactions to market uncertainty. However, the set of internal organizations of firms is larger than that made up simply by EFs and NFs, in particular among newborn firms, since we observe corporate start-ups with employees, firms owned and managed by their founders who are simultaneously the employees and, finally, non corporate enterprises. The second class of firms mostly belongs to the category of NFs, according to US nomenclature, while non corporate firms may belong to either category. Our curiosity is attracted by different entry patterns of NFs and EFs and our aim is to interpret them. According to recent literature, firms carry out an irreversible investment, such as entry, only if market prices are strictly larger than average total costs (Marshallian point). However, the trigger price that makes firms become active is affected by institutional rules, the existence of profit sharing, efficiency wages, exit options - i.e. partial reversibility -, financial constraints. Then, the internal organization of a newborn firm may make the difference. In a continuous time stochastic environment, where firms bear a sunk cost, we model entry as a growth option. On the trace of distinct objective functions we show that NFs and EFs have specific entry patterns in terms of output price and/or size. Why? Simply because they react in diverse fashions to market price volatility. In this sense we are able to show that, in most cases, the NF is locally less risky. This makes the NF better suited to enter under conditions of higher volatility. This exactly corresponds to what happened during the years between 1997-2001.
    Keywords: Entry strategies, Uncertainty, Nonemployer, Employer firms
    JEL: L21 L3 J54 G13
    Date: 2005–01
  2. By: Joachim Wagner (University of Lueneburg)
    Abstract: Based on data from a recent representative survey of the adult population in Germany this paper documents that the patterns of variables influencing nascent and infant entrepreneurship are quite similar and broadly in line with our theoretical priors – both types of entrepreneurship are fostered by the width of experience and a role model in the family, and hindered by risk aversion, while being male is a supporting factor. Results of this study using cross section data are in line with conclusions from longitudinal studies for other countries finding that between one in two and one in three nascent entrepreneurs become infant entrepreneurs, and that observed individual characteristics – with the important exception of former experience as an employee in the industry of the new venture - tend to play a minor role only in differentiating who starts and who gives up.
    Keywords: Nascent Entrepreneurs, Infant Entrepreneurs, Regional Entrepreneurship Monitor, REM, Germany
    JEL: J23
    Date: 2005–04–20
  3. By: Esteban Rossi-Hansberg; Mark L.J. Wright
    Abstract: Why do firm growth and exit rates decline with size? What determines the size distribution of firms? This paper presents a theory of firm dynamics that simultaneously rationalizes the basic facts on firm growth, exit, and size distributions. The theory emphasizes the accumulation of industry specific human capital in response to industry specific productivity shocks. The theory implies that firm growth and exit rates should decline faster with size, and the size distribution should have thinner tails, in sectors that use human capital less intensively, or correspondingly, physical capital more intensively. In line with the theory, we document substantial sectoral heterogeneity in US firm dynamics and firm size distributions, which is well explained by variation in physical capital intensities.
    JEL: E2 D2 L2
    Date: 2005–04
  4. By: Keld Laursen; Volker Mahnke; Per Vejrup-Hansen
    Abstract: The paper investigates the relationship between human capital characteristics and firm performance in engineering consulting. Because general experience, firm-specific human capital and diversity carry specific costs and benefits we hypothesize curvilinear (taking inverted U-shapes) relations to firm performance. We find little effect of general experience and firm-specific human capital, but the findings give some support for the curvilinear relation between performance and human capital diversity.
    Keywords: Educational diversity; human capital; firm performance
    JEL: C31 D83 M5
    Date: 2005
  5. By: Eduardo A. Lora (Research Department, Inter-American Development Bank); Ana Maria Herrera (Michigan State University - Department of Economics)
    Abstract: On average, Latin American firms are small with respect to world patterns, both in terms of the quantity of assets they control and the amount of employment they generate. We examine data on firm size from developed and developing countries around the world to assess the influence on demand, supply and institutional factors on the size of the largest firms in each country. We find that, besides the size of the economy and the level of income per capita, the key determinants of the size of firms are trade openness, stock market capitalization and physical infrastructure. Our simulations suggest that if the gaps with respect to the best Latin American performer were closed in each of these three areas, firm size in the countries of the region would - on average - reach world patterns.
    Keywords: firm size, Latin America, openness, financial sector, infrastructure
    JEL: D23 G30 K40 L20
    Date: 2005–03
  6. By: Bent E. Sørensen (Department of Economics, University of Houston); Yuliya Demyanyk (Department of Economics, University of Houston); Charlotte Ostergaard (Norwegian School of Management and Norges Bank)
    Abstract: We estimate the effects of deregulation of U.S. banking restrictions on the amount of interstate personal income insurance during the period 1970–2001. Interstate income insurance occurs when personal income reacts less than one-to-one to state-specific shocks to output. We find that income insurance improved after banking deregulation, and that this effect is larger in states where small businesses are more important. We further show that the impact of deregulation is stronger for proprietors’ income than for wage income. Our explanation of this result centers on the role of banks as a prime source of small business finance and on the close intertwining of the personal and busi- ness finances of small business owners. Our analysis casts light on the real effects of bank deregulation, on the insurance function of banks, and on the integration of bank markets.
    Keywords: Financial deregulation, integration of bank markets, interstate risk shar-ing, small business finance.
    Date: 2005–04

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