nep-ent New Economics Papers
on Entrepreneurship
Issue of 2006‒03‒11
ten papers chosen by
Marcus Dejardin
Facultes Universitaires Notre-Dame de la Paix

  1. Venture Capital Industries and Policies: Some Cross-Country Comparisons By Morris Teubal; Terttu Luukkonen
  2. Human capital and the internationalization of venture capital firms By S. MANIGART; V. COLLEWAERT; M. WRIGHT; S. PRUTHI; A. LOCKETT; H. BRUINING; U. HOMMEL; H. LANDSTROM
  3. Follow-on financing of venture capital backed companies: The choice between debt, equity, existing and new investors By K. BAEYENS; S. MANIGART
  4. The effect of business regulations on nascent and actual entrepreneurship By Andre van Stel; David Storey; Roy Thurik
  5. The Contribution of Business Ownership in Bringing Down Unemployment in Japan By Andre van Stel; Lendert Baljeu; Roy Thurik; Ingrid Verheul
  6. Venture Capital Industry in Finland - Country Report for the Venture Fun Project By Terttu Luukkonen
  7. Innovation in Small and Medium-Sized Enterprises: A Study of Businesses in New South Wales, Australia By Olsen, Jane; Lee, Boon-Chye; Hodgkinson, Ann
  8. Productivity, Profitability and Financial Fragility: Evidence from Italian Business Firms By Giulio Bottazzi; Angelo Secchi; Federico Tamagni
  9. SME Development in Malaysia: Domestic and Global Challenges By Saleh, Ali Salman; Ndubisi, Nelson Oly
  10. Financial Fragility and Growth Dynamics of Italian Business Firms By Giulio Bottazzi; Angelo Secchi; Federico Tamagni

  1. By: Morris Teubal; Terttu Luukkonen
    Abstract: The paper summarizes the findings obtained during the first year of the Venture Fun project, carried out in an EU Network of Excellence PRIME and funded from the Sixth Framework Programme. The paper defines the central concepts of the project, identifies questions for further elaboration and study, and finally provides a rough idea of the different profiles that the studied countries (Finland, Israel, France, Italy, and the UK) evidence in the organization of their VC industries. One of the conclusions of the paper is that Israel, and to a lesser extent, Finland, has succeeded in developing a specialized, independent VC industry oriented to the early phase finance and support of ICT start-ups. By contrast, though the UK has a strong Private Equity industry, it is, however, not focusing on early-stage or high tech areas. Italy and France showed a significant presence of Venture Capital and Private Equity industries (public/private organisations), but in Italy an early phase VC industry has almost disappeared after 2001. The paper further summarises factors that have influenced the development of VC industries in the studied countries.
    Keywords: venture capital, industry emergence, start-ups, venture capital -directed policy, innovation policy
    JEL: O16 O38
    Date: 2006–03–01
    Abstract: We examine the neglected area of internationalisation by VCs. Using a representative sample of 195 VCs, we show that the decision of a European VC firm to invest internationally is driven by its human resources. Having more VC executives in general and more VC executives with previous international experience in specific, results in a higher probability of investing internationally. In contrast, more VC executives with experience in the VC industry or with an engineering background lead to a higher probability of remaining domestic.
    Date: 2006–01
    Abstract: We study the financing strategies of 191 start-ups after they have received venture capital (VC) and thereby contribute to the staging literature. The VC backed start-ups have raised financing on 345 occasions over a five-year period after the initial VC investment. Surprisingly, bank debt is the most important source of funding for these young and growthoriented companies, supporting the view that VC investors have a certifying role in their portfolio companies. Bank debt is available to firms with a lower demand for money, lower levels of risk and of information asymmetries, implying that staging of equity funding is less important for these firms. A firm only raises equity when it’s debt capacity is exhausted, hinting that equity investors are investors of last resort. New equity is provided by the existing shareholders in 70% of the equity issues, supporting earlier findings that staged financing is important in venture capital financing. New shareholders invest when large amounts of funding are required and when risk and information asymmetries are high. We interpret these findings as support for the extended pecking order theory. In line with syndication arguments, new investors thus provide risk sharing opportunities and skills to screen and monitor and thereby reduce information asymmetries. New equity investors face adverse selection problems, however, in that only the most risky investments are syndicated.
    Keywords: financing strategy, venture capital, bank debt, external shareholders
    JEL: G32
    Date: 2006–01
  4. By: Andre van Stel; David Storey; Roy Thurik
    Abstract: This paper investigates the effect of business regulations on various measures of entrepreneurship. Using data for a sample of countries participating in the Global Entrepreneurship Monitor between 2002 and 2005, we estimate a two-equation model explaining the nascent and the actual entrepreneurship rate, while taking into account the interrelationship between the two variables. Various determinants of entrepreneurship reflecting the demand and supply side of entrepreneurship as well as business regulation measures are incorporated in the model. Data on various categories of business regulations are taken from the World Bank Doing Business data base. Our estimation results suggest that, while entry regulations only have a small and indirect impact on the actual entrepreneurship rate, the impact of labour market regulations is more important. We also find that the determinants of opportunity and necessity entrepreneur-ship are fundamentally different.
    Keywords: nascent entrepreneurship, young businesses, business regulations, Global Entrepreneurship Monitor, World Bank Doing Business
    JEL: K20 L51 M13 O57
    Date: 2006–02
  5. By: Andre van Stel; Lendert Baljeu; Roy Thurik; Ingrid Verheul
    Abstract: The relationship between entrepreneurship, measured by fluctuations in the business ownership rate, and unemployment in Japan is examined for the period 1972-2002. We conclude that, although Japan's unemployment rate has been influenced by different exogenous shocks as compared to other OECD countries, the effects of entrepreneurship on unemployment are not distinct. In the past small firms in Japan benefited from the protective environment of the keiretsu structure. This secure environment no longer exists, and a new market environment conducive to new venture creation and growth is not yet established. We argue that the Japanese government should actively stimulate an entrepreneurial culture.
    Keywords: entrepreneurship, business ownership, unemployment, Japan
    JEL: L11 M13 O53
    Date: 2006–03
  6. By: Terttu Luukkonen
    Abstract: This report is a descriptive account of the major features of the Venture Capital (VC) Industry in Finland. It has been prepared as a background report for a project entitled Venture Fun, carried out in an EU Network of Excellence PRIME and funded from the Sixth Framework Programme. The report provides a brief overview of the evolution and present structures of the VC industry in Finland, and draws attention to factors that affect the development of VC industry, among others, to the nature of policies pursued in this field. One of its observations is the fact that the primary rationale for policies has been closing the early phase funding gap for start-ups, the promotion of SMEs, regional development or other socio-economic objectives, rather than the promotion of VC industry. As a result, policy measures have tended to be permanent, not temporary, since the objectives are difficult to achieve in a fixed time period. Furthermore, the policies pursued have made a separation of the monetary and non-monetary value-adding functions of VC, and only recently have acknowledged the value of the latter for the growth of high-tech start-ups.
    Keywords: venture capital, start-ups, venture capital -directed policy, innovation policy
    JEL: O16 O38
    Date: 2006–03–01
  7. By: Olsen, Jane; Lee, Boon-Chye (University of Wollongong); Hodgkinson, Ann (University of Wollongong)
    Abstract: This paper examines the process of innovation within SMEs, focusing on a sample of firms in New South Wales, Australia. The trend of the last several decades towards increased integration of global markets, or globalization, has meant that many firms are experiencing continuously increasing pressure to remain viable as their markets expand, and they begin competing with a larger number of firms. SMEs, in particular, are vulnerable to this pressure, since they tend to be disadvantaged relative to larger firms that generally have better access to funding and other resources. The ways in which SMEs operate to remain economically viable, and contribute to economic performance, is of especial interest to governments given the prominent roles that they play in most economies. One way of doing so is through innovation. In this paper, we present a more complex model of the innovation process than the traditional linear model involving R&D investment, what we term the "Ripple Effect Model", building upon recent developments in the literature. The Ripple-Effect Model appears to be substantially supported.
    Keywords: Structural break, unit root test, Lebanon economy
    Date: 2006
  8. By: Giulio Bottazzi; Angelo Secchi; Federico Tamagni
    Abstract: Exploiting a rich panel reporting balance sheets data from a large sample of Italian firms for the period 1996-2002, we attempt to shed light on two crucial dimensions of firms' structure and dynamics: profitability and productivity performances. We start by exploring the statistical properties of a set of measures of profit margins and profitability, some standard as ROI and others that we built from the data, applying a set of parametric and non parametric techniques to the analysis of both their empirical distributions and their persistence over time. Then, looking for the possible linkages existing between the structural characteristics of the firms and their productivity performance, we study the empirical distributions and the dynamics of productive structures and productivity. We also exploit an additional information present in the data which allows to group firms according to an index of financial rating. Besides checking the robustness of results with respect to this level of disaggregation, we also provide an initial understanding about how the economic performances of a firm affect (or are affected by) its financial conditions and, relatedly, the availability of external credit.
    Keywords: Firm performance, Profitability, Productivity, Financial constraints
    Date: 2006–03–03
  9. By: Saleh, Ali Salman (Monash University Malaysia); Ndubisi, Nelson Oly (Monash University Malaysia)
    Abstract: The primary objectives of this paper are to analyze and discuss the development of Malaysian SMEs and their role, as well as various contributions, in the national economy. The paper goes further by reviewing extant literature to identify the major challenges facing this sector in Malaysia as well as government policies aimed at the development of SMEs. We find that, while the government has implemented many programs to strengthen the performance of SMEs in the economy, Malaysian SMEs still face many challenges, both domestic and external, which could hinder their resilience and competitiveness. A number of strategies which could assist them to access new markets, increase their revenues and expand their customer bases are identified.
    Keywords: Malaysian economy, Malaysian SMEs, government assistance programs
    Date: 2006
  10. By: Giulio Bottazzi; Angelo Secchi; Federico Tamagni
    Abstract: In this work we explore the relationship between the overall financial condition of a firm and the properties of its size and growth dynamics. We use the financial rating index provided by Centrale dei Bilanci, the Italian rating agency, as a general indicator of firms' financial health and access to external financing and, conditioning upon it, we analyse the statistical properties of three different measures of firm size, namely Total Sales, Value Added and Tangible Assets. We first focus on size, exploring the properties of the yearly distributions and the inter-temporal dynamics in terms of autoregressive structure. Then, we move to the study of size-growth dependences, trying to identify possible scaling relationships between average size and average growth, on the one hand, and average size and the variance of growth, on the other. Finally, we turn to firms' growth, characterizing the stochastic properties of growth rates distributions and discussing the autoregressive structure of the growth process. All the exercises are conducted at both aggregate and disaggregate level, distinguishing manufacturing from services firms.
    Keywords: Firm size, Firm growth, Financial constraints
    Date: 2006–03–02

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