nep-ent New Economics Papers
on Entrepreneurship
Issue of 2005‒09‒29
twenty-one papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. An Assessment of Validity in Small Business and Entrepreneurship Research By M. BUELENS; D. BOUCKENOOGHE; D. DE CLERCQ; A. WILLEM
  2. What are Firms? Evolution from Birth to Public Companies By Kaplan, Steven; Sensoy, Berk A.; Strömberg, Per Johan
  3. Quantifying Creative Destruction Entrepreneurship and Productivity in New Zealand By John McMillan
  4. Venture Capital Contracting and Syndication: An Experiment in Computational Corporate Finance By Zsuzsanna Fluck; Kedran Garrison; Stewart C. Myers
  5. Entrepreneurial Risk and Market Entry By Brian Wu; Anne Marie Knott
  6. Do human capital and fund characteristics drive follow-up behaviour of early stage high tech VCs? By M. KNOCKAERT; A. LOCKETT; B. CLARYSSE; M. WRIGHT
  7. INOVATIONS - ENTREPRENEURSHIP - CREDIT in the Theory of  J.A. Schumpeter By Oldrich Kyn
  8. Inequality, Incomplete Contracts, and the Size Distribution of Business Firms By Thomas Gall
  9. Corporate Growth and Industrial Dynamics: Evidence from French Manufacturing By Giulio Bottazzi; Alex Coad; Nadia Jacoby; Angelo Secchi
  10. Firms’ Creative Capabilities, the Supporting Innovation System and Globalization in Southern Latin America: A Bleak Technological Outlook or a Myopic Standpoint? Evidence from a Developing Region in Brazil By Figueiredo, Paulo N.; Vedovello, Conceição
  11. Startup firms' growth, management control systems adoption and performance By Davila, Toni; Foster, George
  12. Organizing for innovation: R&D projects, activities and partners By Cassiman, Bruno; Guardo, Chiara di; Valentini, Giovanni
  13. Networks of People in Specialty Production: Family Firms in the Iron and Steel Wire Industries in Spain (1870-2000) By Paloma Fernández Pérez
  14. Banking Consolidation and Small Business Lending:A Review of Recent Research By Charles Ou
  15. Does Social Capital Improve Labour Productivity in Small and Medium Enterprises? By Fabio Sabatini
  16. Business Estimates from the Office of Advocacy: A Discussion of Methodology By Brian Headd;
  17. A Business-Demographics Adjusted Shift-Share Analysis: the effects of business demography on regional employment and output growth By Georgios Fotopoulos
  18. Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities By Noh, Yong-Hwan; Moschini, GianCarlo
  19. Self-organization of R&D search in complex technology spaces By Silverberg,Gerald; Verspagen,Bart
  20. Individual Risk Attitudes : New Evidence from a Large, Representative, Experimentally-Validated Survey By Thomas Dohmen; Armin Falk; David Huffman; Uwe Sunde; Jürgen Schupp; Gert G. Wagner
  21. Everything you Always Wanted to Know about Inventors (but Never Asked): Evidence from the PatVal-EU Survey By Paola Giuri; Myriam Mariani; Stefano Brusoni; Gustavo Crespi; Dominique Francoz; Alfonso Gambardella; Walter Garcia-Fontes; Aldo Geuna; Raul Gonzales; Dietmar Harhoff; Karin Hoisl; Christian Lebas; Alessandra Luzzi; Laura Magazzini; Lionel Nesta; Önder Nomaler; Neus Palomeras; Pari Patel; Marzia Romanelli; Bart Verspagen

    Abstract: Based on an analysis of empirical articles published in the academic literature between 1999 and 2003, we examined the current state of the small business and entrepreneurship research in terms of its validity. We collected 275 relevant publications in order to explore the small business and entrepreneurship field with respect to internal validity, external validity, construct validity, and statistical conclusion validity. Our aim was to gain insight into the dominant methodological and statistical practices that currently shape the field, shed light on possible gaps, and compare these observations with the findings in the management literature.
    Date: 2005–08
  2. By: Kaplan, Steven; Sensoy, Berk A.; Strömberg, Per Johan
    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 six 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.
    Keywords: entrepreneurship; theory of the firm; venture capital
    JEL: D21 D23 G24
    Date: 2005–09
  3. By: John McMillan (Stanford University)
    Abstract: This paper (a) provides a framework for quantifying any economy’s flexibility, and (b) reviews the evidence on New Zealand firms’ birth, growth and death. The data indicate that, by and large, the labour market and the financial market are doing their job.
    JEL: L
    Date: 2005–09–12
  4. By: Zsuzsanna Fluck; Kedran Garrison; Stewart C. Myers
    Abstract: This paper develops a model to study how entrepreneurs and venture-capital investors deal with moral hazard, effort provision, asymmetric information and hold-up problems. We explore several financing scenarios, including first-best, monopolistic, syndicated and fully competitive financing. We solve numerically for the entrepreneur's effort, the terms of financing, the venture capitalist's investment decision and NPV. We find significant value losses due to holdup problems and under-provision of effort that can outweigh the benefits of staged financing and investment. We show that a commitment to later-stage syndicate financing increases effort and NPV and preserves the option value of staged investment. This commitment benefits initial venture capital investors as well as the entrepreneur.
    JEL: G24 G32
    Date: 2005–09
  5. By: Brian Wu; Anne Marie Knott
    Abstract: This paper attempts to reconcile the risk-bearing characterization of entrepreneurs with the stylized fact that entrepreneurs exhibit conventional risk aversion profiles. We propose that the disparity arises from confounding two distinct dimensions of uncertainty: demand uncertainty and ability uncertainty. We further propose that entrepreneurs will be risk averse with respect to demand uncertainty, yet “risk-seeking” (or overconfident) with respect to ability uncertainty. To examine this view we model the entrepreneur’s entry decision then test the model empirically. We find that entrepreneurs in aggregate behave as we predict. Accordingly, risk-averse entrepreneurs are willing to bear market risk when the degree of ability uncertainty is comparable to the degree of demand uncertainty. A potential market failure exists however in instances where there is a high degree of demand uncertainty, but low ability uncertainty. In those settings there may be insufficient entry, competition and innovation.
    Date: 2005
    Abstract: This paper uses a unique dataset to examine the neglected but important issue concerning the relationship between the human capital and fund characteristics of venture capitalists and post-investment follow-up behavior in early stage high tech investments. We found no indication that involvement in monitoring activities by the investment manager is determined by either fund or human capital characteristics. In relation to value-adding activities, human capital variables were the most important, with previous consulting experience and entrepreneurial experience contributing to a higher involvement in valueadding activities. Furthermore, the diversity of an investment manager’s portfolio was negatively related to involvement in value-adding activities. Finally, with respect to fund level characteristics, we found that investment managers of captive funds were less involved in value-adding activities.
    Keywords: venture capital; early stage high tech firms; post-investment follow-up behavior; human capital; fund characteristics
    Date: 2005–08
  7. By: Oldrich Kyn (Boston University)
    Abstract: Short explanation of Schumpeter's concepts of dynamics, innovations and entrepreneurship. It is argued, that Schumpeters theory was highly relevant and should have been incorporated into the design of the reformed economic system, that attempted transition from Command to Socialist Market Economy in the 1960's.
    Keywords: Schumpeter, Innovations, Economic Dynamics, Entrepreneurship, Market Socialism
    JEL: O P
    Date: 2005–09–24
  8. By: Thomas Gall (Economic Theory II, University of Bonn)
    Abstract: This paper analyzes the effects of intrafirm bargaining on the formation of firms in an economy with imperfect capital markets and contracting constraints. In equilibrium wealth inequality induces a heterogenous distribution of firm sizes allowing for firms both too small and too large in terms of technical efficiency. The findings connect well to empirical facts such as the missing middle of size distributions in developing countries. The model identifies a number of properties of the firm size distribution with respect to the wealth distribution and can encompass a non-monotonic relationship between aggregate wealth and inequality.
    Keywords: Intrafirm bargaining, matching, firm size distribution
    JEL: O12 C78 D31
    Date: 2005–07
  9. By: Giulio Bottazzi; Alex Coad; Nadia Jacoby; Angelo Secchi
    Abstract: We report several characteristics of industrial dynamics, including the firm size distribution, Gibrat's Law, and also the distribution of growth rates and their autocorrelation. We use a variety of econometric techniques, looking first at the aggregate and subsequently at a sectoral level. Many of our results corroborate previous findings, but there are also several surprises. For example, although previous findings on US and Italian data find that the growth rate distribution follows the Laplace density (i.e. is 'tent-shaped'), the French growth rates distribution has noticeably fatter tails. Growth rates depend negatively on size but the relationship does not seem to be linear, with larger firms possibly growing faster than medium-sized ones. It also appears that growth rate autocorrelation may vary with firm size: autocorrelation is negative for smaller firms, but the magnitude seems to decrease with size and becomes positive for larger firms.
    Keywords: Industrial dynamics, Gibrat's Law, Firm Growth, Aggregation.
    Date: 2005–09–11
  10. By: Figueiredo, Paulo N. (Brazilian School of Public and Business Administration); Vedovello, Conceição (Technological Research Institute of the State of Sao Paulo)
    Abstract: This paper examines empirical evidence of the technological capabilities of firms in the industrial pole of Manaus, in a developing area of northern Brazil. It also investigates the links these firms have with supporting organizations of the innovation system such as universities, research institutes or business incubators. Firms’ capabilities are classified by type and level of development, and we also identify the nature of the links between them and the supporting organizations. The paper draws on a sample of 75 organizations from Manaus: 46 firms (in two sectors: electro-electronics and motorcycle and bicycle industries, and their major suppliers) and 29 research-oriented support organizations. The evidence was collected through extensive fieldwork at both the industry- and firm-level as well as from first-hand accounts. From the study we find that all the sampled firms have progressed beyond basic operational capabilities. At the time of the fieldwork, several firms possessed a high level of innovative capabilities in diverse technological functions. Many of these firms have actively established a variety of informal, human resource-based and even research-based links with innovation supporting organizations. These findings oppose prevailing generalizations and assumptions that, as a consequence of globalization and outward-looking industrialization regimes, firms in southern Latin American economies lack technological capabilities. Furthermore our evidence does not support the view that there is a prevailing weakness in the innovation system in this region. Although this study does not explicitly examine technological development over time, we believe it offers an alternative (and more optimistic) view of the industrial reality in this developing area of Brazil. This view, which differs from existing conventional (and myopic) standpoints, could potentially support the design of more realistic industrial strategies.
    Keywords: Firm-level capabilities, technological capabilities, innovation systems, globalization, Latin America.
    Date: 2005
  11. By: Davila, Toni (IESE Business School); Foster, George (Stanford University)
    Abstract: Startup firms face a significant managerial challenge when they grow beyond the boundaries of informal interactions. This transition point has often been identified with a significant crisis in the growth path of these firms. An important aspect of this transition is the adoption of management control systems that leverage top management attention and provide the infrastructure to scale up the business model. Using a multi-method, multi-case field research design in a sample of 78 startup firms, we examine the relevance of the adoption of financial systems vis-à-vis other management control systems. We find that financial planning-including cash budget, operating budget and sales projections-are the earliest set of systems adopted. We also look at the association between the adoption of management control systems and startup firm growth. We model this association using a simultaneous equation specification to capture the theoretical arguments that posit the endogeneity of these variables. We find a positive and significant association in both equations among these variables. We further examine whether the often argued CEO replacement at this transition point is associated with the level of adoption of management control systems. We find that CEOs that have adopted fewer systems have shorter tenures. Taking advantage of the intimate knowledge that venture capital investors have about the management processes (and management systems in particular) of the firms they invest in, we examine the association between company valuation and the adoption of management control systems. We find evidence consistent with this association. Finally, we examine the association between the adoption of financial planning systems and the adoption of strategic and human resource planning systems.
    Keywords: management control systems; formal systems; professionalization; CEO tenure; startups;
    Date: 2005–07–25
  12. By: Cassiman, Bruno (IESE Business School); Guardo, Chiara di (University of Cagliari); Valentini, Giovanni (IESE Business School)
    Abstract: We explore how R&D project characteristics condition the governance of an R&D project and its individual activities. Prior literature has tried to understand the factors - both at the industry and at the firm level - that influence the way in which firms partner for innovation. In this paper, through the analysis of detailed data from a subsidiary of STMicroelectronics, we identify the main drivers of partner selection for innovation. Partnering or contracting with universities for innovation is common practice for developing new -original- knowledge, as opposed to applying existing knowledge to a problem. But firms are more reluctant to partner, especially with other firms, when that knowledge directly enhances their competitiveness. However, conditional on cooperation, partners are more likely to act individually when the project is strategically important. Contracting for innovation to universities or research centers, as opposed to partnering, happens for more experimental projects, where highly original knowledge is developed, and typically early on in the project.
    Keywords: Innovation strategy; Technological innovation; R&D projects' organization; Partner selection;
    Date: 2005–07–14
  13. By: Paloma Fernández Pérez (Universitat de Barcelona)
    Abstract: Capital intensive industries in specialized niches of production have constituted solid ground for family firms in Spain , as evidenced by the experience of the iron and steel wire industries between 1870 and 2000. The embeddedness of these firms in their local and regional environments have allowed the creation of networks that, together with favourable institutional conditions, significantly explain the dominance of family entrepreneurship in iron and steel wire manufacturing in Spain, until the end of the 20 th century. Dominance of family firms at the regional level has not been not an obstacle for innovation in wire manufacturing in Spain, which has taken place even when institutional conditions blocked innovation and traditional networking. Therefore, economic theories about the difficulties dynastic family firms may have to perform appropriately in science-based industries must be questioned.
    Keywords: Family Firms, Steel Wire Industries, Spanish Economic History
    JEL: N63 N64 N83 N84
    Date: 2005
  14. By: Charles Ou
    Abstract: Banking consolidation has continued to accelerate over the past several years, assisted by technological innovations in information management and statistical modeling, and by the large merger and acquisition (M&A) deals of the late 1990s. Total domestic assets held by the largest 50 bank holding companies (BHC) rose from around 52 percent in June 1997 to nearly 70 percent in June 2002, and the number of small banks with assets under $500 million declined from 8,647 in June 1997 to 7,208 in June 2002. The perennial question about the impact of banking consolidation on the availability of financing to small business remains a major concern to small business researchers and policymakers. This paper provides a review of recent major studies conducted over the past several years.
    Date: 2005
  15. By: Fabio Sabatini (University of Rome La Sapienza & University of Cassino)
    Abstract: This paper carries out an empirical assessment of the relationship between social capital and labour productivity in small and medium enterprises in Italy. By means of structural equations models, the analysis investigates the effect of different aspects of the multifaceted concept of social capital. While the bonding social capital of strong family ties seems to be irrelevant, the bridging social capital of weak ties connecting friends and acquaintances is proved to exert a significant and positive influence both on labour productivity and on human development.
    Keywords: Labour productivity, Small and medium enterprises, Social capital, Social networks, Structural equations models
    JEL: J24 R11 O15 O18
    Date: 2005–09–14
  16. By: Brian Headd;
    Abstract: The Office of Advocacy creates estimates of the number of employer and nonemployer businesses for recent years, since the newest available data have around a two-year lag. Advocacy estimates the number of nonemployers using growth rates from Internal Revenue Service’s sole proprietor count estimates. Advocacy estimates the number of employers using the net difference in employer births and deaths from the Employment and Training Administration. Analysis shows that historical estimates have been close to the actual figures, as employers and nonemployers exhibited slow steady growth during the period of analysis. Nonemployers, however, tended to be slightly underestimated as sole proprietors have consistently grown faster than nonemployers in recent years. As more data become available, more sophisticated techniques could be employed to create current estimates of the number of businesses.
    Date: 2005
  17. By: Georgios Fotopoulos
    Abstract: This paper proposes a business-demographics adjusted shift-share analysis. This can be used when data availability does not allow direct association of employment changes to business demographics at the regional level. The method may be also used as an exploratory step before any explanatory econometric work is undertaken as a means of identifying classes of potential control variables. Applying the method to Greek data suggests that firm-size heterogeneity should not be ignored, that local conditions matter more than regional economic structure and that the latter are not symmetrical across sectors when it comes to the effects of business demographics on regional employment or output growth.
    Date: 2005–09
  18. By: Noh, Yong-Hwan; Moschini, GianCarlo
    Abstract: We analyze the entry of a new product into a vertically differentiated market in which an entrant and an incumbent compete in prices. Here the entry-deterrence strategies of the incumbent firm rely on “limit qualities.” With a sequential choice of quality, a quality-dependent marginal production cost, and a fixed entry cost, we relate the entry-quality decision and the entry-deterrence strategies to the level of entry cost and the degree of consumer heterogeneity. Quality-dependent marginal production costs in the model entail the possibility of inferior-quality entry as well as an incumbent’s aggressive entry-deterrence strategies of increasing its quality level toward potential entry. Welfare evaluation confirms that social welfare is not necessarily improved when entry is encouraged rather than deterred.
    Keywords: entry deterrence; quality choice; vertical product differentiation.
    JEL: C72 D43 L13
    Date: 2005–09–14
  19. By: Silverberg,Gerald; Verspagen,Bart (MERIT)
    Abstract: We extend an earlier model of innovation dynamics based on invasive percolation by adding endogenous R&D search by economically motivated firms. The {0,1} seeding of the technol-ogy lattice is now replaced by draws from a lognormal distribution for technology ‘difficulty’. Firms are rewarded for successful innovations by increases in their R&D budget. We compare two regimes. In the first, firms are fixed in a region of technology space. In the second, they can change their location by myopically comparing progress in their local neighborhoods and probabilistically moving to the region with the highest recent progress. We call this the mov-ing or self-organizational regime. We find that as the mean and standard deviation of the log-normal distribution are varied, the relative rates of aggregate innovation switches between the two regimes. The SO regime has higher innovation rates, other things being equal, for lower means or higher standard deviations of the lognormal distribution. This results holds for in-creasing size of the search radius. The clustering of firms in the SO regime grows rapidly and fluctuates in a complex way around a high value which increases with the search radius. We also investigate the size distributions of the innovations generated in each regime. In the fixed one, the distribution is approximately lognormal and certainly not fat tailed. In the SO regime, the distributions are radically different. They are much more highly right skewed and show scaling over at least two decades with a slope of almost exactly one, independently of parame-ter settings. Thus we argue that firm self-organization leads to self-organized criticality. (Keywords: innovation, percolation, search, technological change, R&D, clustering, self-organized criticality.
    Keywords: research and development ;
    Date: 2005
  20. By: Thomas Dohmen; Armin Falk; David Huffman; Uwe Sunde; Jürgen Schupp; Gert G. Wagner
  21. By: Paola Giuri; Myriam Mariani; Stefano Brusoni; Gustavo Crespi; Dominique Francoz; Alfonso Gambardella; Walter Garcia-Fontes; Aldo Geuna; Raul Gonzales; Dietmar Harhoff; Karin Hoisl; Christian Lebas; Alessandra Luzzi; Laura Magazzini; Lionel Nesta; Önder Nomaler; Neus Palomeras; Pari Patel; Marzia Romanelli; Bart Verspagen
    Abstract: By drawing information from a survey of inventors of 9,017 European patents (PatVal-EU), this paper provides novel and detailed data about the characteristics of the European inventors, the sources of their knowledge, the importance of formal and informal collaborations among researchers and institutions, the motivations to invent, and the actual use and economic value of the patents. This is important information as the unavailability of direct indicators has limited the scope and depth of the empirical studies on innovation.
    Date: 2005–09–10

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