nep-ent New Economics Papers
on Entrepreneurship
Issue of 2005‒10‒04
eight papers chosen by
Marcus Dejardin
Facultés Universitaires Notre-Dame de la Paix

  1. Financial integration and entrepreneurial activity - evidence from foreign bank entry in emerging markets By Mariassunta Giannetti; Steven Ongena
  2. Banking consolidation and small business lending By El?d Takáts
  3. Public policy and the creation of active venture capital markets By Marco Da Rin; Giovanna Nicodano; Alessandro Sembenelli
  4. Role of Financial Institutions in Promoting Entrepreneurship in Assam Small Scale Sector in Assam By Prof. Purusottam Nayak
  6. IT, Enterprise Reform and Productivity in Chinese Manufacturing Firms By Kazuyuki Motohashi
  7. Comparing the Innovation Performance in Canadian, French and German Manufacturing Enterprises By Pierre Mohnen; Pierre Therrien
  8. Financial market integration and loan competition: when is entry deregulation socially beneficial? By Leo Kaas

  1. By: Mariassunta Giannetti (Stockholm School of Economics, ECGI, and CEPR, Department of Finance and SITE, PO Box 6501, S 11 383 Stockholm, Sweden); Steven Ongena (CentER – Tilburg University and CEPR, Department of Finance, PO Box 90153, NL 5000 LE Tilburg,The Netherlands)
    Abstract: An extensive empirical literature has documented the positive growth effects of equity market liberalization. However, this line of research ignores the impact of financial integration on a category of firms crucial for economic development, i.e. the small entrepreneurial firms. This paper aims to fill this void. We employ a large panel containing almost 60,000 firm–year observations on listed and unlisted companies in Eastern European economies to assess the differential impact of foreign bank lending on firm growth and financing. Foreign lending stimulates growth in firm sales, assets, and leverage, but the effect is dampened for small firms. We also find that firms started during the transition period of 1989-1993 – arguably the most connected businesses – benefit least from foreign bank entry. This finding suggests that foreign banks can help mitigate connected lending problems and improve capital allocation.
    Keywords: Foreign bank lending; emerging markets; competition; lending relationships.
    JEL: G21 L11 L14
    Date: 2005–06
  2. By: El?d Takáts (Department of Economics, Princeton University, Fisher Hall, Princeton, 08544-1021 NJ, USA.)
    Abstract: The paper investigates small business lending as an information problem. It models the effects of information asymmetries within the bank combined with fixed wages. Two kinds of inefficiencies arise in equilibrium: the credit officer either sometimes shirks or he is occasionally fired. In both cases lending falls below the first-best level. The solution, when the bank accepts the information asymmetries, is called the centralized structure. Under decentralized structure the bank employs additional supervisors to mitigate the information asymmetries within its organization. Decentralized banks manage to finance more small firms, but incur higher costs than centralized ones. Small banks are interpreted as a bank with relatively few credit officers, whom can be monitored without information asymmetries. The specification allows for investigating the effects of banking consolidation and technological change on small business lending. The model suggests that not banking size, but organizational structure is decisive in small business lending.
    Keywords: Corporate governance; banking; small business lending; efficiency wage.
    JEL: G21 G34 J30
    Date: 2004–11
  3. By: Marco Da Rin (Department of Economics and Finance, Turin University); Giovanna Nicodano (Department of Economics and Finance, Turin University); Alessandro Sembenelli (Department of Economics and Finance, Turin University)
    Abstract: We study how public policy can contribute to increase the share of early stage and high-tech venture capital investments, thus helping the development of active venture capital markets. A simple extension of the seminal model by Holmstrom and Tirole (1997) provides a theoretical base for our analysis. We then explore a unique panel of data for 14 European countries between 1988 and 2001. We have several novel findings. First, the opening of stock markets targeted at entrepreneurial companies positively affects the shares of early stage and high-tech venture capital investments; reductions in capital gains tax rates have a similar, albeit weaker, effect. Second, a reduction in labor regulation creases the share of high-tech investments. Finally, we find no evidence of a shortage of supply of venture capital funds, and no evidence of an effect of increased public R&D spending on the share of high-tech or early stage venture capital investments.
    Keywords: Venture Capital; Capital Gains Tax; Public R&D Expenditure; Barriers to Entrepreneurship; Stock Markets; Public Policy
    JEL: G10 G24 H20 O30
    Date: 2005–01
  4. By: Prof. Purusottam Nayak (North-Eastern Hill University)
    Abstract: The movement of entrepreneurship promotion and development in the past few decades has gone a long way in North East India, particularly in the state of Assam. Both governments and various industrial promotion and support institutions are making considerable efforts to facilitate the process of emergence of new entrepreneurs for setting up enterprises in small scale sector. These efforts involved making attractive schemes for availability of finance and various other assistances including technical know how, training, sales, purchases, etc. It is believed that these efforts have made a favorable impact on the growth of these enterprises in the State as well as in the region. There are today a large number of organizations like North Eastern Industrial and Technical Consultancy Organization (NEITCO), National Institute of Small Industry Extension Training (NISIET) [till it was merged with the Indian Institute of Entrepreneurship (IIE)] and the North Eastern Industrial Consultants Ltd (NECON) who has been actively involved in entrepreneurship development activities in the region. Their efforts have been supported by the North Eastern Council (NEC) in general and financial institutions like Industrial Development Bank of India (IDBI), Small Industries Development Bank of India (SIDBI), North Eastern Development Finance Corporation Limited (NEDFi) and various commercial banks in particular. The present paper in this regard is an attempt to examine the role of financial institutions in promoting small scale and tiny industries in terms of growth of entrepreneurs, enterprises and its contribution to State Domestic Products.
    Keywords: Financial Institutions and Entrepreneurship Development
    JEL: A
    Date: 2005–09–26
  5. By: Prof. Purusottam Nayak (North Eastern Hill University); Dr. B. Mishra (North Eastern Hill University)
    Abstract: In recent years, most of the countries across the globe are in a sweeping mood to promote micro finance institutions not only as a positive rural development intervention but also as a rural development panacea. Allured by the success of micro credit institutions in developed countries, the developmental economists in under developed and developing economies have increasingly become enthusiastic in the promotion of micro credit as a rural development intervention by tying it neatly with post-liberal development ideology. In the Indian context, the frenzied promotional activity of the micro credit institutions derive in part from the political slogan of ‘Garibi Hatao’ of the Union Government in mid 70’s by the establishment of Grameen Banks which were the offshoot of the putative success of Developmental Financial Institutions in the West. Although the basic philosophy behind the micro credit movement is to eradicate poverty as it stimulates the growth of micro enterprises by developing new markets and by promoting a culture of entrepreneurship, it involves minimal state intervention, thereby shifting the focus of attention away from the society towards individuals. The experience of micro credit schemes in Asia, Africa and South America describes altogether a different story by negating this particular aspect of development intervention. This serves the starting point of the present paper in considering micro credit as the limiting factor of rural development intervention. No doubt, the limits arise from the individualistic focus of the intervention. Keeping consistency with the title of the paper, it not only explores the limitations of micro credit as a rural development intervention through a survey of literatures but also makes an attempt to bring to the focus the concept of rural micro finance in which the issues of credit markets and the poor are explored. The objective of bringing the above discussion to the forefront is to assess the potential impact of micro finance institutions as development interventions. Finally, attempt is made to look at the conditions which limit the effectiveness of micro finance institutions as development interventions in different parts of the globe including India.
    Keywords: Micro Credit Rural Development
    JEL: A
    Date: 2005–09–29
  6. By: Kazuyuki Motohashi
    Abstract: This paper is a first attempt of looking into the impact of IT and enterprise reform on productivity of Chinese manufacturing firms by using large scale firm level datasets from 1995 to 2002. It is found that enterprise reforms captured by entry and exit of firms have a positive impact on aggregated productivity growth. In addition, IT plays relatively more important role in productivity performance of post reform enterprises, as compared to enterprises which are not affected by major restructuring in the course of Chinese state owned enterprise reforms.
    Date: 2005–09
  7. By: Pierre Mohnen; Pierre Therrien
    Abstract: This paper compares pairwise the innovation performance of Canada with France and Germany, respectively. The comparison is based on two ordered probit models with sample selection, one where innovation is measured by the introduction of new-to-the firm products and one where it is measured by the introduction of new-to-the market products. The econometric analysis attempts to explain part of the country differences as the result of the sectoral composition of output, and the effects of size, environment conditions (proximity to basic research and competition) and innovation activities (internal R&D, the number of innovation activities, cooperation and government support). The Canadian firms benefit from being larger and more numerous in receiving government support, but suffer from a lack of competition and internal R&D. These structural effects combined, while informative, are not enough to explain a lot of the basic pattern of innovation revealed by the raw data. If we take the stronger measure of first-to-market innovation as a yardstick of innovation, the observed pairwise country differences are less strong, and our model explains a little bit more of the observed differences. <P>Cette étude compare les performances d’innovation entre le Canada et la France d’une part, et entre le Canada et l’Allemagne d’autre part. La comparaison repose sur deux modèles de probit ordonné avec sélection. Le premier mesure l’innovation par l’introduction sur le marché de produits nouveaux pour la firme, le second par l’introduction de produits nouveaux pour le marché. L’analyse économétrique essaye d’expliquer une partie des différences nationales d’innovation par la composition sectorielle de la production, l’effet taille, les conditions environnementales (proximité de la recherche de base et concurrence) et les activités d’innovation (R-D interne, nombre d’activités innovantes, coopération et support gouvernemental). Les firmes canadiennes tirent avantage de leur plus grande taille et sont plus nombreuses à recevoir du support gouvernemental. Par contre, elles souffrent du manque de concurrence et de R-D interne. Au total, la prise en compte de ces effets structurels est certes révélatrice, mais n’explique qu’une faible partie des différences bilatérales dans les processus d’innovation. La mesure plus forte d’innovation par l’introduction de produits nouveaux pour le marché réduit les différences observées et les explique un peu mieux.
    Keywords: innovation, international comparisons, innovation, comparaison internationale
    JEL: O31 O51 O52
    Date: 2005–09–01
  8. By: Leo Kaas (Department of Economics, University of Vienna, Hohenstaufengasse 9, 1010 Vienna, Austria.)
    Abstract: The paper analyzes how the removal of barriers to entry in banking affect loan competition, bank stability and economic welfare. We consider a model of spatial loan competition where a market that is served by less efficient banks is opened to entry by banks that are more efficient in screening borrowers. It is shown that there is typically too little entry and that market shares of entrant banks are too small relative to their socially optimal level. This is because efficient banks internalize only the private but not the public benefits of their better credit assessments. Only when bank failure is very likely or very costly, socially harmful entry can occur.
    Keywords: Entry deregulation; Bank competition.
    JEL: D43 D82 G21
    Date: 2004–11

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.
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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.