nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒01‒28
fifteen papers chosen by
Marcus Dejardin
Facultes Universitaires Notre-Dame de la Paix

  1. Risk-bearing and Entrepreneurship By Newman, Andrew
  2. Self-employment - a Way to End Unemployment? : Empirical Evidence from German Pseudo-Panel Data By Daniela Glocker; Viktor Steiner
  3. More Pushed than Pulled: Self-employment in rural Mexico ten years after NAFTA By Sindy A. González; Héctor J. Villarreal
  4. Multicultural Diversity and Migrant Entrepreneurship: The Case of the Netherlands By Sahin, Mediha; Nijkamp, Peter; Baycan-Levent, Tuzin
  5. Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability By Pástor, Lubos; Taylor, Lucian; Veronesi, Pietro
  6. Management of Knowledge Workers By Hvide, Hans Krogh; Kristiansen, Eirik Gaard
  7. Last-In First-Out Oligopoly Dynamics By Jaap H. Abbring; Jeffrey R. Campbell
  8. Employment Protection, Firm Selection, and Growth By Markus Poschke
  9. Economics and Politics of Alternative Institutional Reforms By Francesco Caselli; Nicola Gennaioli
  10. Non-financial Value-added of Venture Capital: A Comparative Study of Different Venture Capital Investors By Terttu Luukkonen; Mari Maunula
  11. Practitioner Views on Financial Reporting for Smaller Entities By Gavin C. Reid; Julia A. Smith
  12. Investor Protection and Entry By Enrico Perotti; Paolo Volpin
  13. The Evolution of the French Public Poliy to Promote Biotech Innovation : The Case of Genomics By Anne Branciard; Vincent Mangematin
  14. The impact of innovation activities on productivity and firm growth: evidence from Brazil By Goedhuys, Micheline
  15. Spatial Concentration of Creative Industries in Los Angeles By Sascha Brinkhoff

  1. By: Newman, Andrew
    Abstract: In the 'Knightia'” theory of entrepreneurship, entrepreneurs provide insurance to workers by paying fixed wages and bear all the risk of production. This paper endogenizes entrepreneurial risk by allowing for optimal insurance contracts as well as the occupational self-selection. Moral hazard prevents full insurance; increases in an agent’s wealth then entail increases in risk borne. Thus, even under decreasing risk aversion, there are robust instances in which workers are wealthier than entrepreneurs. This empirically implausible result suggests that risk-based explanations for entrepreneurship are inadequate.
    Keywords: moral hazard; occupational choice; principal-agent model
    JEL: D2 D8 L2 O16
    Date: 2007–01
  2. By: Daniela Glocker; Viktor Steiner
    Abstract: Abstract: This paper contributes to the policy-relevant question whether self-employment is a way out of (long-term) unemployment. We estimate the relationship between the entry rate into self-employment and previous (long-term) unemployment on the basis of pseudo-panel data for Germany in the period 1996-2002. The estimation method accounts for cohort fixed effects and measurement errors induced by the pseudo panel structure. We find that previous (long-term) unemployment significantly increases entry rates into self-employment for both men and women. These effects are quantitatively important, both in absolute terms and compared to other potential determinants of self-employment transitions, such as age, the level of vocational qualification and certain household characteristics.
    Keywords: self-employment, entrepreneurship, entry rate, start-ups, unemployment, pseudo-panel, age and cohort effects
    JEL: J23 J64 C35
    Date: 2007
  3. By: Sindy A. González; Héctor J. Villarreal
    Abstract: Who are the self-employed in rural Mexico? This paper tries to answer that question with special emphasis on the role of human capital in self-employment decisions. The model presented suggests that the need for leisure/flexibility may have a driving effect once the household framework is considered. Imperfect markets may hinder possible gains of self-employment with particular groups being more vulnerable (e.g. women). Some estimated parameters in this study for propensities to become self-employed and returns to education vary between 1994 and 2004, the first decade of the North American Free Trade Agreement (NAFTA). Pull and push factors emerge in the decision to enter into self-employment in rural area. Being self-employed still may be the best or sole option for a considerable percentage of the population. The alter may suggest that if self-employment in the rural sector is posed as a development strategy, this should come with adequate policy supports.
    Keywords: Mexico, rural, NAFTA, self-employment, leisure, flexibility
    JEL: R10 R13 R11 R15
    Date: 2006–11
  4. By: Sahin, Mediha (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Nijkamp, Peter; Baycan-Levent, Tuzin
    Abstract: With the advent of the era of mass migration in Europe, the issue of cultural diversity (CD ) has gained increasing social and political interest. There is a changing and often contradictory relationship between immigration, the increasing CD as a result of migration, and the development of global cities as desirable places to live and to work. Of special interest here are the SMEs (Small and Medium-sized Enterprises), which are often owned by migrants. Native and migrant entrepreneurs tend to differ in terms of their commercial opportunities, their business features, management styles, networks and associations, and market niches obtained in cities. The aim of this paper is to explore and review differences in entrepreneurial attitude both between natives and migrants and within migrant groups, and to explain these differences by means of distinct social and cultural indicators (derived from the cultural backgrounds of the entrepreneurs concerned) on the basis of a sample in the Netherlands.
    Keywords: Entrepreneurship; Cultural diversity; Netherlands
    JEL: M13
    Date: 2006
  5. By: Pástor, Lubos; Taylor, Lucian; Veronesi, Pietro
    Abstract: We develop a model in which an entrepreneur learns about the average profitability of a private firm before deciding whether to take the firm public. In this decision, the entrepreneur trades off diversification benefits of going public against benefits of private control. The model predicts that firm profitability should decline after the IPO, on average, and that this decline should be larger for firms with more volatile profitability and firms with less uncertain average profitability. These predictions are supported empirically in a sample of 7,183 IPOs in the U.S. between 1975 and 2004.
    Keywords: Diversification; IPO; Learning
    JEL: G1 G3
    Date: 2007–01
  6. By: Hvide, Hans Krogh; Kristiansen, Eirik Gaard
    Abstract: We study how complementarities and intellectual property rights affect the management of knowledge workers. The main results relay when a firm will wish to sue workers that leave with innovative ideas, and the effects of complementary assets on wages and on worker initiative. We argue that firms strongly protected by property rights may not sue leaving workers in order to motivate effort, while firms weakly protected by complementary assets must sue in order to obtain positive profits. Firms with more complementary assets pay higher wages (and have lower turnover), but such higher pay has a detrimental effect on worker initiative. Our analysis suggests that strengthened property rights protection reduces turnover costs but weakens worker initiative.
    Keywords: Entrepreneurship; Innovation; IPR; Litigation; Personnel economics; R&D; Start-ups
    JEL: E00
    Date: 2007–01
  7. By: Jaap H. Abbring (Vrije Universiteit Amsterdam); Jeffrey R. Campbell (Federal Reserve Bank of Chicago, and NBER)
    Abstract: This paper extends the static analysis of oligopoly structure into an infinite-horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first-out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, a sequence of thresholds describes firms' equilibrium entry and survival decisions. Bresnahan and Reiss's (1993)empirical analysis of oligopolists' entry and exit assumes that such thresholds govern the evolution of the number of competitors. Our analysis provides an infinite-horizon game-theoretic foundation for that structure.
    Keywords: Sunk costs; Demand uncertainty; Markov-Perfect equilibrium; LIFO
    JEL: L13
    Date: 2006–12–19
  8. By: Markus Poschke
    Abstract: This paper analyzes the effect of firing costs on aggregate productivity growth. For this purpose, a model of endogenous growth through selection and imitation is developed. It is consistent with recent evidence on firm dynamics and the contribution of firm entry and exit to aggregate productivity growth. In this model, growth arises endogenously via market selection among heterogeneous incumbent firms. It is sustained as entrants imitate the best incumbents. In this framework, besides inducing misallocation of labor and reducing entry, firing costs also discourage exit of low-productivity firms. This makes selection less severe and reduces growth. However, exempting exiting firms from firing costs speeds up the exit of inefficient firms and thereby growth, with little change in job turnover. These effects are stronger in sectors where firms face larger idiosyncratic shocks, as in services, fitting evidence that here, EU-US growth rate differences are largest. Introducing firing costs of one year’s wages in a benchmark economy calibrated to the US business (services) sector then leads to 0.1 (0.3) points lower growth. A brief empirical analysis of the impact of firing costs on the size of exiting firms supports the model’s conclusions.
    Keywords: endogenous growth theory, firm dynamics, labor market regulation, firing costs, entry and exit, firm selection
    JEL: E24 J63 J65 L11 L16 O40
    Date: 2006
  9. By: Francesco Caselli; Nicola Gennaioli
    Abstract: We compare the economic consequences and political feasibility of reforms aimed at reducing barriers to entry (deregulation) and improving contractual enforcement (legal reform). Deregulation fosters entry, thereby increasing the number of firms (entrepreneurship) and the average quality of management (meritocracy). Legal reform also reduces financial constraints on entry, but in addition it facilitates transfers of control of incumbent firms, from untalented to talented managers. Since when incumbent firms are better run entry by new firms is less profitable, in general equilibrium legal reform may improve meritocracy at the expense of entrepreneurship. As a result, legal reform encounters less political opposition than deregulation, as it preserves incumbents' rents, while at the same time allowing the less efficient among them to transfer control and capture (part of) the resulting efficiency gains. Using this insight, we show that there may be dynamic complementarities in the reform path, whereby reformers can skillfully use legal reform in the short run to create a constituency supporting future deregulations. Generally speaking, our model suggests that "Coasian" reforms improving the scope of private contracting are likely to mobilize greater political support because -- rather than undermining the rents of incumbents -- they allow for an endogenous compensation of losers. Some preliminary empirical evidence supports the view that the market for control of incumbent firms plays an important role in an industry's response to legal reform.
    JEL: G34 O11 O16
    Date: 2007–01
  10. By: Terttu Luukkonen; Mari Maunula
    Abstract: This study focuses on the non-financial value-added Venture Capital (VC) investors bring to their portfolio companies, especially when these represent early-stage, high-technology and high-growth companies. The study draws attention to the extent and nature of non-financial value-added and analyses whether and in what ways different types of VC investors differ in this respect. The data were collected via a web-based survey tool in the autumn of 2006. The study takes into consideration the viewpoint of VC investors as it focuses on Finnish VC companies (private sector VCs), public sector VC organisations and informal investors (business angels). An effort was made to collect data from foreign investors active in Finland though they did not respond actively. Major findings of the study included the observation that private sector VCs were the most and public sector VCs the least active in monitoring their portfolio companies. Informal VCs were less active than expected. The different investor types had distinct profiles in providing management support and advice. Overall, private sector VCs evaluated the non-financial support they provided as the most and public sector VCs the least important for the success of their portfolio companies while informal VCs were between these extremes. These findings differed from those obtained in our study on the value-adding function of VCs in biotechnology, according to which informal VCs were found to have the highest overall value-added and kept closest contacts with their investee firms.
    Keywords: venture capital
    JEL: O16 G24 G32
    Date: 2007–01–19
  11. By: Gavin C. Reid; Julia A. Smith
    Abstract: This paper has four purposes. First, to establish the policy background leading to a special financial reporting standard for small firms (FRSSE), aimed at reducing compliance costs. An indirect policy implication of this was that small firms would be stimulated, for example, in terms of start-up rate, performance (including survival rate, and profitability, and growth), and contribution to employment and innovation within the economy. Second, to consider the implications for FRSSE itself on compliance costs, and to ask what forms they may take. Third, to analyse new evidence on adopters and non-adopters of the FRSSE. Fourth, to cast this new evidence into a cost effectiveness framework, to judge whether adopters who engage in upgrading of skills to implement the FRSSE had attained a net benefit as compared to non-adopters. The conclusion, based on this preliminary evidence, is that upgrading of skills to implement the FRSSE has indeed led to a significant net benefit.
    Keywords: Small firms, financial reporting, compliance costs, cost-effectiveness.
    JEL: G32 M13 M41
    Date: 2007–01
  12. By: Enrico Perotti (Universiteit van Amsterdam); Paolo Volpin (London Business School)
    Abstract: Entry requires external finance, especially for less wealthy entrepreneurs, so poor investor protection limits competition. We model how incumbents lobby harder to block access to finance to entrants when politicians are less accountable to voters. In a broad cross-section of countries and industries, we find that (i) entry rates and the total number of producers are positively correlated with investor protection in financially dependent sectors and (ii) countries with more accountable political institutions have better investor protection and lower entry costs. We also find that investor protection is more critical to entry than financial market development. We measure political accountability as access to information. Newspaper readership has much more explanatory power than formal measures of democracies. The effect of diffusion of the press is not due to differences in education or in state ownership of the press. Thus newspaper readership appears to proxy for the degree of informed private scrutiny on political decisions.
    Keywords: Financial Development; Investor protection; Entry; Cost of Entry; Political Economy
    JEL: G21 G28 G32
    Date: 2007–01–12
  13. By: Anne Branciard (LEST - Laboratoire d'économie et de sociologie du travail - [CNRS : UMR6123] - [Université de Provence - Aix-Marseille I][Université de la Méditerranée - Aix-Marseille II]); Vincent Mangematin
    Abstract: European Biotechnology companies and public policy-makers face to a number of crucial problems related to the development of Biotechnology in Europe : European industrial competitiveness, the relative under-exploitation of the European science base in Biotechnology, poor technology transfer mechanisms and difficulties in starting 'spin-off' firms. <br />The aim of this paper on innovation in genomics and biomedical related biotechnologies is to study the relative impact of the different public policy in France compared to the action of the private non for profit sector. Public policies in favour of biotech have changed during the last ten years from a support of research in large firms to a support of SME's creation in biotech. At the same time, large non-for profit organisations such as CEPH (Human Polymorphism Research Center) and AFM (French Organisation Against Myopaty) create a new dynamic by initiating path breaking scientific and technical programmes. This new scientific space has been complementary to the public policy, but only to a certain extend. <br />By studying the co-ordination mechanisms between the different organisations (non for profit organisations, public authorities, public sector research, Biotech SMEs and large firms, especially in the biomedical sector), this paper shows that the existing contradiction between the different tools to encourage biotech economic development can explain the poor development of biotech sector in France in the last few years. It also shows that the situation is getting better the last two years, especially in terms of firms' creation.
    Keywords: Public Policy; Research Policy; Biotechnology; Innovation; R&D; SME
    Date: 2007–01–19
  14. By: Goedhuys, Micheline (UNU-MERIT and University of Antwerpen)
    Abstract: Using micro data from Brazilian manufacturing firms, this paper investigates the impact of a wide set of innovation activities on firms' total factor productivity (TFP) and its subsequent effect on firm growth, measured by sales. Controlling for size and age of the firms, productivity levels and productivity growth of firms over time are found to be key drivers of firm size adjustments. The activities leading to higher productivity levels are organizational change, cooperation with clients, human capital development, ICT usage, product innovation and learning by exporting, with an R&D effect only in the long run. Though the intensity with which firms engage in these innovation activities is sector dependent, innovation activities are in all sectors important for explaining sales growth differences, also in the more traditional sectors in which Brazilian firms have a competitive advantage.
    Keywords: Technological Change, Research and Development, Innovation, Productivity, Manufacturing Industry, Total Factor Productivity, Brazil
    JEL: O12 D24
    Date: 2007
  15. By: Sascha Brinkhoff
    Date: 2007–01–22

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