nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒02‒24
nine papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. WHAT IS AN ENTREPRENEURIAL OPPORTUNITY? By Jeffery S. McMullen; Lawrence A. Plummer; Zoltan J. Acs
  2. The Entrepreneurship-Philanthropy Nexus: Nonmarket Source of American Entrepreneurial Capitalism By Zoltan J. Acs; David Audretsch; Ronnie J. Phillips; Sameeksha Desai
  3. Access to Financial Capital Among U.S. Businesses: The Case of African-American Firms By Alicia Robb; Robert Fairlie
  4. Determinants of Business Success: An Examination of Asian-Owned Businesses in the United States By Alicia Robb; Robert Fairlie
  5. Economics and Politics of Alternative Institutional Reforms By Caselli, Francesco; Gennaioli, Nicola
  6. The Role of Small Firms in China's Technology Development By Lundin, Nannan; Sjöholm, Fredrik; Ping, He; Qian, Jinchang
  7. Public Credit Guarantees and SME Finance By Salvatore Zecchini; Marco Ventura
  8. District leaders as open networks: emerging business strategies in Italian industrial districts By Eleonora Di Maria; Stefano Micelli
  9. Favouritism or Markets in Capital Allocation? By Giannetti, Mariassunta; Yu, Xiaoyun

  1. By: Jeffery S. McMullen; Lawrence A. Plummer; Zoltan J. Acs
    Keywords: entrepreneurial opportunity, creation, knowledge, discovery, strategy
    JEL: L26 M13 D5
    Date: 2007–02
  2. By: Zoltan J. Acs; David Audretsch; Ronnie J. Phillips; Sameeksha Desai
    Abstract: What differentiates American capitalism from all other forms of industrial capitalism is a historical focus on both the creation of wealth (entrepreneurship) and the reconstitution of wealth (philanthropy). Philanthropy has been part of the implicit American social contract that continuously nurtures and revitalizes economic prosperity. Much of the new wealth created historically has been given back to the community to build many of the great social institutions that have paved the way for future economic growth. This entrepreneurship-philanthropy nexus has not been fully explored by either economists or the general public. The purpose of this paper is to suggest that American philanthropists—particularly those who have made their own fortunes—create foundations that, in turn, contribute to greater and more widespread economic prosperity through knowledge creation. Analyzing philanthropy sheds light on our current understanding of how economic development has occurred, as well as the roots of American economic dominance.
    Keywords: entrepreneurship, philanthropy, capitalism, knowledge
    JEL: D64 M13 M14
    Date: 2007–02
  3. By: Alicia Robb; Robert Fairlie
    Abstract: The differences between African-American business ownership rates and white business ownership rates are striking. Estimates from the 2000 Census indicate that 11.8 percent of white workers are self-employed business owners, compared with only 4.8 percent of black workers. Furthermore, black-white differences in business ownership rates have remained roughly constant over most of the twentieth century (Fairlie and Meyer 2000). In addition to lower rates of business ownership, black-owned businesses are less successful on average than are white or Asian firms. In particular, black-owned businesses have lower sales, hire fewer employees and have smaller payrolls than white- or Asian-owned businesses, on average (U.S. Census Bureau 2001, U.S. Small Business Administration 2001). Black firms also have lower profits and higher closure rates than white firms (U.S. Census Bureau 1997, U.S. Small Business Administration 1999). For most outcomes, the disparities are extremely large. For example, estimates from the 2002 Survey of Business Owners (SBO) indicate that white firms have average sales of $437,870 compared with only $74,018 for black firms.
    Date: 2006–12
  4. By: Alicia Robb; Robert Fairlie
    Abstract: Using confidential and restricted-access microdata from the U.S. Census Bureau, we find that Asian-owned businesses are 16.9 percent less likely to close, 20.6 percent more likely to have profits of at least $10,000, and 27.2 percent more likely to hire employees than whiteowned businesses in the United States. Asian firms also have mean annual sales that are roughly 60 percent higher than the mean sales of white firms. Using regression estimates and a special non-linear decomposition technique, we explore the role that class resources, such as financial capital and human capital, play in contributing to the relative success of Asian businesses. We find that Asian-owned businesses are more successful than white-owned businesses for two main reasons . Asian owners have high levels of human capital and their businesses have substantial startup capital. Startup capital and education alone explain from 65 percent to the entire gap in business outcomes between Asians and whites. Using the detailed information on both the owner and the firm available in the CBO, we estimate the explanatory power of several additional factors.
    Date: 2006–12
  5. By: Caselli, Francesco; Gennaioli, Nicola
    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.
    Keywords: deregulation; entry; legal reform
    JEL: G34 O11 O16
    Date: 2007–02
  6. By: Lundin, Nannan (Örebro University); Sjöholm, Fredrik (Research Institute of Industrial Economics); Ping, He (National Bureau of Statistics of China); Qian, Jinchang (National Bureau of Statistics of China)
    Abstract: Science & Technology (S&T) is high on the Chinese policy agenda but there are large uncertainties on the actual S&T development. For instance, previous studies tend to focus only on large and medium-sized enterprises (LMEs). The situation in Chinese small firms is far less explored. This paper aims to examine the role of S&T-based small firms. More precisely, we examine how much S&T that has been accounted for by small firms and how their S&T intensity differs across industries and ownership groups. We also analyze how various firm characteristics differ over size categories and S&T status. This study is based on newly processed micro level data provided by the National Bureau of Statistics with information on a large number of S&T indicators for small-, medium-, and large-sized manufacturing firms in China in 2000 and 2004. Our results suggest that small firms in Chinese S&T resemble their role in many other countries. They account for a comparably small share of total S&T and most small firms are not engaged in any S&T. However, those small firms that do engage in S&T tend to be more S&T intensive and have a higher output in terms of patents than larger Chinese S&T firms.
    Keywords: Technology; SMEs; China; S&T; R&D
    JEL: O30 O31 O53
    Date: 2007–02–06
  7. By: Salvatore Zecchini (University of Tor Vergata, Rome, Italy); Marco Ventura (ISAE - Institute for Studies and Economic Analyses)
    Abstract: Difficulties in finding appropriate financing weigh heavily on the ability to grow of Italy’s small enterprises, due to their narrow equity base and limited access to credit markets. The State Fund for guarantees to SMEs is one of the instruments used to overcome such difficulties. This essay provides the first evaluation of the impact of this Fund in terms of ability to increase the availability of credit, reduction of borrowing costs and financial sustainability. Extensive econometric tests have been carried out by comparing the performance of the SMEs that benefited from this guarantee with a control group made out of a sample of comparable firms. The findings confirm the presence of a causal relationship between the State guarantee and the higher debt leverage of guaranteed firms, as well as their lower debt cost. The guarantee instrument has proved to be an effective instrument, although it has had a limited economic impact because of its narrow capital base and selective approach.
    Keywords: SME, State-fund guarantee, credit rationing, causal effect, difference-in-difference.
    JEL: G14 G21 G28
    Date: 2006–12
  8. By: Eleonora Di Maria (University of Padova); Stefano Micelli (University of Venice)
    Abstract: Italian industrial districts are no longer self-contained systems of small firms, where firms' competitiveness is the result of physical proximity and links with global economy are limited to export sales. A new generation of firms is taking the lead, reshaping the form of districts through their innovative strategies focused on R&D, design and ICT. Most of these firms are leaders within their markets and organize their value chains by coupling district knowledge and competencies with opportunities offered by globalization processes. The rise of these open networks contributes to the transformation of industrial districts and the real drivers of the district firm's competitiveness. Based on a survey of 650 Italian SMEs from 41 Italian districts, the paper describes the characteristics of this new firm model, compared to the traditional district one. The paper also discusses implications for districts in terms of innovation dynamics and governance.
    Keywords: district firms, open networks, global value chain, innovation, governance
    Date: 2007–02
  9. By: Giannetti, Mariassunta; Yu, Xiaoyun
    Abstract: Casual observation suggests that capital allocation is often driven by favouritism and connections rather than by market mechanisms and information on future expected returns. We investigate when favouritism or markets emerge as an equilibrium outcome in the allocation of capital. We show that when information is unreliable and costly, financiers do not have incentives to investigate distant investment opportunities and allocate capital to entrepreneurs they are familiar with (favouritism). If the pool of saving is relatively small, favouritism can lead to an efficient allocation of investment. As the economy develops and its pool of saving increases, information production and the identification of distant investment opportunities (markets) become crucial for efficient investment decisions. Nevertheless, favouritism may emerge in equilibrium and investors may find it optimal to fund low quality entrepreneurs if they are familiar with them. Since competition for capital is low in an equilibrium with favouritism, entrepreneurs enjoy high rents. Thus, even high quality entrepreneurs may have no incentive to join markets with standards that foster information acquisition, but rather run inefficiently small firms.
    Keywords: competition for capital; exchange competition; finance and growth; information production
    JEL: G1 G3
    Date: 2007–02

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