nep-ent New Economics Papers
on Entrepreneurship
Issue of 2005‒09‒11
twenty-one papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. Firms as Realizations of Entrepreneurial Visions By U. Witt
  2. Entrepreneurship Among Married Couples in the United States: A Simultaneous Probit Approach By Simon C. Parker
  3. U.S. Sole Proprietorships: A Gender Comparison, 1985-2000 By Ying Lowery;
  4. The Entrepreneruship-Philanthropy Nexus: Implication for internationalization By Acs, Zoltan; Braunerhjelm, Pontus
  5. A Search Model of Venture Capital, Entrepreneurship, and Unemployment By Robin Boadway; Oana Secrieru; Marianne Vigneault
  6. Venture Capital Investor Behaviour in the Backing of UK High Technology Firms: Financial Reporting and the Level of Investment By Gavin C. Reid; Julia A. Smith
  7. Venture capitalists’ selection process: the case of biotechnology proposals By K. BAEYENS; T. VANACKER; S. MANIGART
  8. What Are Firms? Evolution from Birth to Public Companies By Steven N. Kaplan; Berk A. Sensoy; Per Strömberg
  9. Determinants of Regional Entry and Exit in Industrial Sectors By Nyström, Kristina
  10. Local Factors and Innovativeness – An Empirical Analysis of German Patents for Five Industries By T. Broekel; T. Brenner
  11. Between-Firm Redistribution of Profit in Competitive Industries: Why Labor Market Policies May Not Work By Galina Vereshchagina
  12. Does Foreign Bank Entry Reduce Small Firms' Access to Credit? Evidence from European Transition Economies By Ralph de Haas; Ilko Naaborg
  13. Engines of growth: why low-income communities need small business By anonymous
  14. Heritage and Agglomeration: The Akron Tire Cluster Revisited By G. Buenstorf; S. Klepper
  15. Trade Credit as Collateral By Massimo Omiccioli
  16. Job Creation and Destruction over the Business Cycles and the Impact on Individual Job Flows in Denmark 1980-2001 By Ibsen, Rikke; Westergaard-Nielsen, Niels
  17. Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability? By Lucia Foster; John Haltiwanger; Chad Syverson
  18. An Empirical Model of Growth Through Product Innovation By Rasmus Lentz; Dale T. Mortensen
  19. Sunk Costs and Real Options in Antitrust By Pindyck, Robert S.
  20. A Test of Real Options Logic By Bernadette Power; Gavin C. Reid
  21. Export Performance and Destination Characteristics of Irish Manufacturing Industry By Ruane, Frances; Sutherland, Julie

  1. By: U. Witt
    Abstract: In the debate on why firms exist, the question of who chooses between firms and markets and on what basis is rarely addressed. This paper argues that the choice is a core element of the entrepreneurial pursuit of visions or conceptions of business opportunities. To successfully organize resources into the envisioned businesses – be it via firms or markets – resource owners must be coordinated on the entrepreneur’s conception of the business and be motivated to perform properly. To solve the dual problem, the organizational form of the firm offers the entrepreneur unique advantages not feasible under the organizational form of markets.
    Date: 2005–09
  2. By: Simon C. Parker (University of Durham and IZA Bonn)
    Abstract: This article proposes a simultaneous probit equation framework to analyse the business ownership patterns of married couples in the United States. A structural model of knowledge spillovers within couples is formulated and estimated. Empirical analysis reveals significant and substantial positive interdependence of business ownership propensities within couples. We argue that the evidence is consistent with both male and female spouses receiving positive knowledge transfers from the other. Conversely, there appears to be little support for alternative explanations of interdependent occupational choices based on assortative mating, role model effects, risk diversification, or intrahousehold wealth transfers. We conclude that the conventional practice of ignoring occupational interdependence can generate misleading conclusions about the determinants of business ownership in America.
    Keywords: entrepreneurship, occupational choice, family, business ownership
    JEL: J23 J24 M13
    Date: 2005–07
  3. By: Ying Lowery;
    Abstract: This paper analyzes one of the best sets of small business data – 1985-2000 U.S. sole proprietorship data that Statistics of Income Division, Internal Revenue Service, produces for researchers. It explains the differences in business owners across the nation from 1985 to 2000 by looking into sole proprietorships by gender in general and by business size, owner’s marital status, 10 industrial classifications, six broad industry categories, and the 10 most populous states in particular. This paper sheds new light on previous research puzzles such as firm-sensitivities and gender segregations in business activities and earnings, and the possible reason for certain existing gender differences. Women sole proprietors grew faster than men in terms of the number of businesses and net income during 1985-2000. Male sole proprietors were more firm size sensitive and disparate than women in business earnings. Gender segregation seemed to be clear when looking into industrial classifications but less so across six broad industry categories. Florida had the highest sole proprietorship growth between 1985 and 2000. A higher proportion of women than men sole proprietors bore the responsibility of taking care of their children. Lack of family support is a possible reason female sole proprietors earned less on average than their counterparts did during the same period. A set of micro data from SOI, rather than aggregated tabulations, might result in more robust findings.
    Date: 2005
  4. By: Acs, Zoltan (Max Plank Institute and Merrick School of Business, Baltimore); Braunerhjelm, Pontus (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper examines how Sweden and the United States have been impacted by philanthropic activities, commercialization of university-based knowledge and international entrepreneurship. The analysis comprises a detailed case study of Swedish and U.S. universities, as well as a statistical analysis of the impact of philanthropy on economic growth. The results show that the United States has prompted a university system based on competition and variety, with an emphasis on philanthropy, promoting knowledge creation. International entrepreneurship has been an important mechanism by which this knowledge is globalized leading to increased economic growth. Conversely, Swedish universities were characterized by less commercialized R&D and weak links to the commercial sector, rooted traditionally in dependence on tax-financed and homogenous university structure. The Swedish model has begun to change with important implications for development in smaller domestic markets. The analysis has important implications for knowledge creation as a source of economic growth through international entrepreneurship taking advantage of globalization, especially for smaller countries.
    Keywords: Philanthropy; entrepreneurship; growth
    JEL: M13 M14 O30
    Date: 2005–08–12
  5. By: Robin Boadway; Oana Secrieru; Marianne Vigneault
    Abstract: The authors develop a search model of venture capital in which the number of successful matches of entrepreneurs and venture capitalists (VCs) at any moment in time is a function of the number of entrepreneurs searching for funds, the number of VCs searching for entrepreneurs, and the number of vacancies posted by each VC. The authors extend the literature by incorporating search unemployment and they explicitly model the occupational choice of individuals to become workers or entrepreneurs. Their analysis shows that, in the market equilibrium, the level of advice VCs offer is inefficiently low compared with the social optimum. Furthermore, the number of vacancies, the level of employment, and the number of potential entrepreneurs are generally either too low or too high relative to their socially optimal level. Policy to achieve the social optimum consists of a capital gains subsidy, an employment tax or subsidy, and an investment tax or subsidy.
    Keywords: Financial markets; Fiscal policy; Labour markets
    JEL: D82 G18 G24 H21 J64
    Date: 2005
  6. By: Gavin C. Reid; Julia A. Smith
    Abstract: This paper is an empirical investigation into the ways in which venture capitalists value (and invest in) high technology firms, focusing on financial reporting, risk disclosure and intangible assets. It is based on questionnaire returns from UK investors in diverse sectors, ranging from biotechnology, through software/ computer services, to communications and medical services. This evidence is used to examine: (a) the usefulness of financial accounts; (b) the implications of technopole investment; (c) the extent of investor control over the investee’s AIS; and (d) the role of investor opinion (e.g. on disclosure, due diligence and risk reporting) in determining the level of equity provision.
    Keywords: venture capital, high technology, accounting information, intangible assets
    JEL: D81 D82 G24 G32 M13 M41 O31
    Date: 2005–06
    Abstract: The paper analyses venture capitalists’ selection process in biotechnology ventures. Biotech ventures operate in an extremely risky environment making this an interesting research setting. The majority of venture capitalists exclude certain biotech sectors exante because of regulatory uncertainty, the long development process to a market ready product and the difficulty to understand the technology. The more thorough due diligence process focuses on financial, market and technology criteria. Management team capabilities are more important for later stage investors, whereas early stage investors expect to have an impact on the future recruiting of professional managers. Despite the higher risk of biotech investments, we find no evidence that VCs require higher hurdle rates or more complete contracts for these investments, compared to investments in other technology-based companies. The most important reason for not reaching an investment agreement is disagreement over valuation, due to large differences in risk perception between entrepreneurs and venture capitalists and the lack of a standard valuation tool for biotech projects.
    Keywords: Venture capital; Selection process; Biotechnology.
    Date: 2005–06
  8. By: Steven N. Kaplan; Berk A. Sensoy; Per Strömberg
    Abstract: We study how firm characteristics evolve from early business plan to initial public offering to public company for 49 venture capital financed companies. The average time elapsed is almost 6 years. We describe the financial performance, business idea, point(s) of differentiation, non-human capital assets, growth strategy, customers, competitors, alliances, top management, ownership structure, and the board of directors. Our analysis focuses on the nature and stability of those firm attributes. Firm business lines remain remarkably stable from business plan through public company. Within those business lines, non-human capital aspects of the businesses appear more stable than human capital aspects. In the cross-section, firms with more alienable assets have substantially more human capital turnover.
    JEL: L2 G3
    Date: 2005–08
  9. By: Nyström, Kristina (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Recent empirical research by, for example, Audretsch and Fritsch (1999) and Armington and Acs, (2002) shows that regional determinants of new firm formation differs between industries. It has also been suggested that a large part of the regional variation of new firm formation can be explained by differences in industrial structure. This paper reinvestigates the regional determinants of entry and exit considering these findings. The empirical analysis is performed using data on Swedish firm entry and exit rates for 1997-2001. It is shown that on average about 0.5 to 2.7 percent of the regional variation in entry and exit rates remains to be explained, after controlling for differences in industrial structure, but that there is substantial regional variation. A majority of the firms in the 47 industries investigated are sensitive to unobserved regional characteristics, such as regional policy when deciding to enter or exit a particular region. Agglomeration and the size structure in the particular industry and region are factors that are found to influence entry and exit rates in almost all industries.
    Keywords: Entry; exit; industry structure; regions
    JEL: L10 R12
    Date: 2005–08–12
  10. By: T. Broekel; T. Brenner
    Abstract: A growing body of work emphasizes the role that the spatial component plays in the in the innovation process. These perspectives brought the region's infrastructure and its endowment with crucial factors into the focus of research. Given that these factors do significantly influence the innovativeness of local firms, it is important to identify precisely which regional characteristics matter. The aim of this paper is to identify a number of key influences out of a multitude of structural factors that are thought to influence the firm's innovation activity. We examine more than eighty variables that approximate the financial, geographical and social-economic factor endowment of a region. The variables are tested with a linear and log - linear model. The two staged procedure examines the variable's bivariate correlation with patent data of five industries. Based on these outcomes multivariate regression models are applied in the second stage. The results for the different models are compared and their advantages and disadvantages are discussed. We find a strong impact of economic agglomeration, extramural science institutions and human capital. In the case of human capital, especially the graduates at the technical colleges are collocated with high regional innovativeness. Furthermore, significant differences are observed for the five industries and for using the two models.
    Date: 2005–08
  11. By: Galina Vereshchagina
    Abstract: Empirical studies document differences in firms' response to the introduction of various labor market policies. In particular, large and mature firms tend to participate more actively in targeted employment subsidy programs (under which firms receive subsidies for hiring disadvantaged workers). This paper offers an explanation for this phenomenon and argues that it might have important consequences for policy making. Namely, such behavior of firms may indicate that large and mature firms benefit from the introduction of a new subsidy program, while small and young firms incur indirect costs. In this case, the policy implicitly redistributes profit from young to mature firms and may discourage startups if the entry into the industry is competitive. The resulting decrease in the number of operating firms is likely to have a significant impact on the policy's outcomes. These effects become more pronounced as heterogeneity between young and mature firms increases.
    Date: 2005–06
  12. By: Ralph de Haas; Ilko Naaborg
    Abstract: On the basis of focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltic States, the development of small-business lending by foreign banks is analysed. Our approach allows us to complement the standard empirical literature, which has difficulty in analysing qualitative issues such as the role of changing lending technologies. It is found 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.
    Keywords: foreign banks; transition economies; small-business lending
    JEL: F23 F36 G21
    Date: 2005–08
  13. By: anonymous
    Abstract: Small businesses and microenterprises have an important role to play in low- and moderate-income communities. Often they are the engines of growth in these neighborhoods.
    Keywords: Small business ; Economic development
    Date: 2004
  14. By: G. Buenstorf; S. Klepper
    Abstract: We use new data on the location and background of entrants into the U.S. tire industry to analyze the factors that caused the industry to be so regionally concentrated around Akron, Ohio, a small city with no particular advantages for tire production. We analyze the states where firms entered and for the Ohio entrants the counties where they originated and entered, and we conduct various analyses of how proximity to other tire firms and to demanders affected the longevity of tire producers. We also examine how the heritage of the Ohio entrants influenced their longevity. Our findings suggest that the Akron tire cluster grew primarily through a process of organizational reproduction and heredity rather than through agglomeration economies, as has been commonly posited by scholars of the industry.
    Date: 2005–08
  15. By: Massimo Omiccioli (Bank of Italy, Economic Research Department)
    Abstract: A remarkable feature of short-term business finance is the widespread use of trade credit as collateral in bank borrowing, especially by small and medium-sized firms. The paper models the incentives for a firm to collateralize accounts receivable as a trade-off between the benefit from lower interest rates and the implicit cost from the disclosure of private information associated with this form of collateral. The model shows that the share of receivables pledged as collateral is larger: i) when the borrowing firm is riskier (and the difference in interest rates between secured and unsecured lending is larger); ii) when information disclosure costs for the firm are lower (e.g., when the information is dispersed among many banks and firm’s assets are mostly made up of tangibles); iii) when the default correlation between sellers and buyers is lower; iv) when the legal protection of creditors is weaker (and suppliers have a stronger advantage over banks in monitoring and enforcing loan contracts). These predictions are supported by empirical evidence in a sample of 7,250 Italian firms.
    Keywords: trade credit, collateral, information disclosure
    JEL: G32 G33 L15
    Date: 2005–06
  16. By: Ibsen, Rikke (Department of Economics, Aarhus School of Business); Westergaard-Nielsen, Niels (Department of Economics, Aarhus School of Business)
    Abstract: Job creation and destruction should be considered as key success or failure criteria of the economic policy. Job creation and destruction are both effects of economic policy, the degree of out- and in-sourcing, and the ability to create new ideas that can be transformed into jobs. Job creation and destruction are results of businesses attempting to maximize their economic outcome. One of the costs of this process is that employees have to move from destroyed jobs to created jobs. The development of this process probably depends on labor protection laws, habits, the educational system, and the whole UI-system. A flexible labor market ensures that scarce labor resources are used where they are most in demand. Thus, labor turnover is an essential factor in a well-functioning economy. <p> This paper uses employer-employee data from the Danish registers of persons and workplaces to show where jobs have been destroyed and where they have been created over the last couple of business cycles. Jobs are in general destroyed and created simultaneously within each industry, but at the same time a major restructuring has taken place, so that jobs have been lost in Textile and Clothing, Manufacturing and the other “old industries”, while jobs have been created in Trade and Service industries. Out-sourcing has been one of the causes. This restructuring has caused a tremendous pressure on workers and their ability to find employment in expanding sectors. The paper shows how this has been accomplished. Especially, the paper shows what has happened to employees involved. Have they become unemployed, employed in the welfare sector or where?
    Keywords: job creation and job destruction; turnover of personnel; duration of unemployment; and impact of business cycles
    JEL: J63 M51 O51
    Date: 2005–09–02
  17. By: Lucia Foster (U.S. Census Bureau); John Haltiwanger (University of Maryland, NBER and IZA Bonn); Chad Syverson (University of Chicago, NBER)
    Abstract: There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high "productivity" businesses may not be particularly efficient, and the literature’s findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth.
    Keywords: productivity dynamics, market selection, reallocation
    JEL: L10 J63
    Date: 2005–07
  18. By: Rasmus Lentz (University of Wisconsin-Madison); Dale T. Mortensen (Northwestern University)
    Abstract: Productivity dispersion across firms is large and persistent, and worker reallocation among firms is an important source of productivity growth. The purpose of the paper is to estimate the structure of an equilibrium model of growth through innovation that explains these facts. The model is a modified version of the Schumpeterian theory of firm evolution and growth developed by Klette and Kortum (2004). The data set is a panel of Danish firms than includes information on value added, employment, and wages. The model's fit is good and the structural parameter estimates have interesting implications for the aggregate growth rate and the contribution of worker reallocation to it.
    Keywords: labor productivity growth; worker reallocation; firm dynamics; firm panel data estimation
    JEL: E22 E24 J23 J24 L11 L25 O3
    Date: 2005–07
  19. By: Pindyck, Robert S.
    Abstract: Sunk costs play a central role in antitrust economics, but are often misunderstood and mismeasured. I will try to clarify some of the conceptual and empirical issues related to sunk costs, and explain their implications for antitrust analysis. I will be particularly concerned with the role of uncertainty. When market conditions evolve unpredictably (as they almost always do), firms incur an opportunity cost when they invest in new capital, because they give up the option to wait for the arrival of new information about the likely returns from the investment. This option value is a sunk cost, and is just as relevant for antitrust analysis as the direct cost of a machine or a factory.
    Keywords: Sunk costs, real options, investment decisions, antitrust, entry barriers, market power, mergers,
    Date: 2005–07–29
  20. By: Bernadette Power; Gavin C. Reid
    Abstract: The main hypothesis examines whether real options logic is applied by entrepreneurs in undertaking key organisational change (e.g. ownership, technology, location, line of business etc.). This is explored in a model of firm performance using data collected in face-to-face interviews with entrepreneurs on the level and timing of precipitating influences of organisational change and the level and timing of consequential adjustments following organisational change. Two econometric estimation techniques (e.g. Box-Cox regression with WLS correction and Heckman sample selectivity correction) were employed. Firm performance is explained in terms of a count of real options exercised, measures of the level and timing of precipitators and consequential adjustments, plus interactions between these measures to capture firm behaviour through a real options lens. Evidence was found of the value of holding real options until uncertainties are resolved. At this point the value of waiting is at its lowest
    Keywords: Real Options, Strategic Flexibility, Performance, Small Firms
    JEL: C21 C42 D21 G31 L25 M13 M21
    Date: 2005–06
  21. By: Ruane, Frances (Trinity College, Dublin); Sutherland, Julie (University of Wollongong)
    Abstract: Recent research has sought to explore whether exporting enterprises have superior performance characteristics relative to non-exporters, and whether such superiority is associated with performance pre- and/or post- exporting. This paper extends existing research by examining the influence of export market destination on firm performance. It explores these issues using micro data on Irish manufacturing between 1991 and 1998, a time period during which Ireland experienced rapid export-driven growth. The study provides further evidence of the superior characteristics of exporters relative to non-exporters and supports the self-selection hypothesis that superior enterprises are more likely to export. We find export destination matters: the performance characteristics of enterprises that export globally differ from those that export locally.
    Keywords: Trade, Export Premium, Export Destination
    JEL: F14
    Date: 2005

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