nep-ent New Economics Papers
on Entrepreneurship
Issue of 2005‒05‒23
nine papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. Venture Capital as Human Resource Management By Antonio Geldson de Carvalho; Charles W. Calomiris; Joao Amaro de Matos
  2. Optimism and Economic Choice By Manju Puri; David Robinson
  3. SBA-loan guarantees and local economic growth By Ben R. Craig; William E. Jackson, III; James B. Thomson
  4. Uncertainty Avoidance and the Rate of Business Ownership across 22 OECD Countries, 1976-2000 By Niels Noorderhaven; André van Stel; Roy Thurik; Sander Wennekers
  5. Taxation, entrepreneurship and wealth By Marco Cagetti; Mariacristina De Nardi
  6. Entry into Local Retail Food Markets in Sweden: A Real-Options Approach By Daunfeldt, Sven-Olov; Orth, Matilda; Rudholm, Niklas
  7. The size distribution of firms in an economy with fixed and entry costs By Erzo G.J. Luttmer
  8. When and How to Create a Job: The Survival of New Jobs in Austrian Firms By René Böheim; Alfred Stiglbauer; Rudolf Winter-Ebmer
  9. Trade liberalization and the politics of financial development By Matías Braun; Claudio Raddatz

  1. By: Antonio Geldson de Carvalho; Charles W. Calomiris; Joao Amaro de Matos
    Abstract: Venture capitalists add value to portfolio firms by obtaining and transferring information about senior managers across firms over time. Information transfer occurs on a significant scale and takes place both among a single venture capitalist%u2019s portfolio firms and between different venture capitalists%u2019 firms via a network of venture capitalists, which venture capitalists use to locate and relocate managers. Cross-sectional differences are associated with differences in the intensity with which venture capitalists network. The observable factors relevant in explaining the intensity with which venture capitalists network include: 1) the value of the information transmitted through the network, 2) the riskiness of the activities of portfolio firms, 3) the size of the venture capital fund, 4) the degree of difficulty in enticing executives to manage portfolio firms, and 5) the reputation of the venture capitalist for successfully recycling managers. These factors reflect costs and benefits to venture capitalists of participating in the network.
    JEL: G14 G24 J23
    Date: 2005–05
  2. By: Manju Puri; David Robinson
    Abstract: This paper presents some of the first large-scale survey evidence linking optimism to major economic choices. We create a novel measure of optimism using the Survey of Consumer Finance by comparing a person's self-reported life expectancy to that implied by statistical tables. Optimists are more likely to believe that future economic conditions will improve. Self-employed respondents are more optimistic than regular wage earners. In general, more optimistic people work harder and anticipate longer age-adjusted work careers. They are more likely to remarry, conditional on divorce. In addition, they tilt their investment portfolios more toward individual stocks.
    JEL: G1 D1
    Date: 2005–05
  3. By: Ben R. Craig; William E. Jackson, III; James B. Thomson
    Abstract: Increasingly policymakers are looking to the small business sector as a potential engine of economic growth. Policies to promote small businesses include tax relief, direct subsidies, and indirect subsidies through government lending programs. Encouraging lending to small business is the primary policy objective of the Small Business Administration (SBA) loan-guarantee program. Using a panel data set of SBA-guaranteed loans we assess whether SBA-guaranteed lending has an observable impact on local and regional economic performance.
    Date: 2005
  4. By: Niels Noorderhaven; André van Stel; Roy Thurik; Sander Wennekers
    Abstract: Persistent differences in the level of business ownership across economically developed nations have attracted the attention of scientific as well as political debate. Cultural rather than economic influences are assumed to play a decisive role. This paper deals with the influence of cultural attitudes towards uncertainty on the level of business ownership across OECD countries. First, the concepts of uncertainty and risk are elaborated, as well as their relevance for entrepreneurship. Second, cross-sectional regression analysis using data for three separate years in twenty Western countries and Japan and controlling for GDP per capita, yields evidence that in 1976 and 1988 uncertainty avoidance is positively correlated with the prevalence of business ownership. Possibly, a restrictive climate of large organizations in high uncertainty avoidance countries pushes enterprising individuals towards self-employment. However, in 2000 this positive correlation is no longer found, indicating that a compensating pull mechanism in countries with low uncertainty avoidance may have gained momentum in recent years. Third, we carry out pooled panel regressions with respect to business ownership rates in two distinct cultural country clusters for the years 1976, 1988 and 2000. In the group of high-uncertainty avoidance countries a strongly negative relationship between GDP per capita and the level of business ownership is found, suggesting that rising opportunity costs of entrepreneurship are the dominant perception in this cultural environment. In a group of low-uncertainty avoidance countries no such influence of per capita income is found, but the profits associated with being self-employed are positively associated with business ownership.
    Keywords: business ownership, uncertainty avoidance, cross country study, comparative analysis of economies, cultural economics, entrepreneurship
    JEL: P52 Z1 M13 O11 O57
    Date: 2005–05
  5. By: Marco Cagetti; Mariacristina De Nardi
    Abstract: Entrepreneurship is a key determinant of investment, saving, wealth holdings, and wealth inequality. We study the aggregate and the distributional effects of several tax reforms in a model that recognizes the key role played by the entrepreneurs, and that matches very well the extreme degree of wealth inequality observed in the U.S. data. We find that the effects of tax reforms on output and capital formation can be particularly large when they affect the majority of small and medium-size businesses, which face the most severe financial constraints, rather than a small number of big businesses. We show that the consequences of changes in the estate tax depend heavily on the size of its exemption level. The current effective estate tax system seems to insulate most of the businesses from the negative effects of estate taxation thus minimizing the aggregate costs of redistribution. Abolishing the current estate tax would generate a modest increase in wealth inequality and slightly reduce aggregate output. Decreasing progressivity of the income tax can generate large increases in output, as this stimulates entrepreneurial savings and capital formation, but at the cost of large increases in wealth concentration.
    Date: 2004
  6. By: Daunfeldt, Sven-Olov (The Swedish Research Institute of Trade (HUI)); Orth, Matilda (Department of Economics, School of Economics and Commercial Law, Göteborg University); Rudholm, Niklas (Department of Economics, Umeå University)
    Abstract: A real-options approach was used, incorporating uncertainty and irreversibility of investments, to study the number of stores entering the Swedish retail food market during the period 1994-2002. It was found that uncertainty affected the entry-decision. Entry was less frequent in highly concentrated local retail food-markets characterized by a high degree of uncertainty, whereas higher profit opportunities seem to have increased the probability of entry. <p>
    Keywords: Real options; uncertainty; retail food; entry; negative binomial regression
    JEL: L13 L81
    Date: 2005–05–17
  7. By: Erzo G.J. Luttmer
    Abstract: This paper describes an analytically tractable model of balanced growth that allows for extensive heterogeneity in the technologies used by firms. Firms enter with fixed characteristics that determine their initial technologies and the levels of fixed costs required to stay in business. Each firm produces a different good, and firms are subject to productivity and demand shocks that are independent across firms and over time. Firms exit when revenues are too low relative to fixed costs. Conditional on fixed firm characteristics, the stationary distribution of firm size satisfies a power law for all sizes above the size at which new firms enter. The tail of the size distribution decays very slowly if the growth rate of the initial productivity of potential entrants is not too far above the growth rate of productivity inside incumbent firms. In one interpretation, this difference in growth rates can be related to learning-by-doing inside firms and spillovers of the information generated as a result. As documented in a companion paper, heterogeneity in fixed firm characteristics together with idiosyncratic firm productivity growth can generate entry, exit, and growth rates, conditional on age and size, in line with what is observed in the data.
    Date: 2004
  8. By: René Böheim (University of Linz and IZA Bonn); Alfred Stiglbauer (Austrian National Bank); Rudolf Winter-Ebmer (University of Linz, Institute for Advanced Studies Vienna, CEPR and IZA Bonn)
    Abstract: While the volatility of job creations has been studied extensively, the survival chances of new jobs are less researched. The question when and how to expand a firm is of importance, both from the firms and from a macro perspective. Adjustment cost theories and arguments about option values of investment in firm expansion make predictions about the timing, sequencing and form of firm expansions. When we analyze 21 years of job creation in Austria, we find that the survival of new jobs (and of new firms) depends upon the state of the business cycle at the time of job creation, on the number of jobs created, and on firm age. Jobs in new firms last longer than new jobs in continuing firms.
    Keywords: job creation, business cycle, reallocation, persistence
    JEL: J23 J63 E24 E32
    Date: 2005–05
  9. By: Matías Braun; Claudio Raddatz
    Abstract: A well-developed financial system enhances competition in the industrial sector by allowing easier entry. The impact varies across industries, however. For some, small changes in financial development quickly induce entry and dissipate incumbents’ rents, generating strong incentives to oppose improvement of the financial system. In other sectors incumbents may even benefit from increased availability of external funds. The relative strength of promoters and opponents determines the equilibrium level of financial system. This may be perturbed by the effect of trade liberalization on the strength of each group. Using a sample of 41 trade liberalizers, we conduct an event study and show that the change in the strength of promoters vis-à-vis opponents is a very good predictor of subsequent financial development. The result is not driven by changes in demand for external funds or by the success of the trade policy. The relationship is mediated by policy reforms, the kind that induce competition in the financial sector, in particular. Real effects follow not so much from capital deepening but mainly through improved allocation. The effect is stronger in countries with high levels of governance, suggesting that incumbents resort to this costly but more subtle way of restricting entry where it is difficult to obtain more blatant forms of anti-competitive measures from politicians.
    Keywords: International trade ; Financial modernization
    Date: 2004

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