nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒06‒02
eight papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Entrepreneurs: Jacks of all Trades or Hobos? By Thomas Astebro; Peter Thompson
  2. International Financial Integration and Entrepreneurial Firm Activity By Laura Alfaro; Andrew Charlton
  3. When do Thick Venture Capital Markets Foster Innovation? An Evolutionary Analysis By Luca Colombo; Herbert Dawid; Kordian Kabus
  4. Learning by Investing: Evidence from Venture Capital By Sorensen, Morten
  5. SME Performance, Innovation and Networking Evidence on Complementarities for a Local Economic System By Massimiliano Mazzanti; Susanna Mancinelli
  6. Firm entry and liquidity By Lenno Uuskyla
  7. ‘Running in the Family’ The Evolution of Ownership,Control and Performance in German Familyowned Firms, 1903-2003 By Olaf Ehrhardt; Eric NOWAK; Felix-Michael WEBER
  8. Debt Structure and Bankruptcy of Financially Distressed Small Businesses By TSURUTA Daisuke; Peng XU

  1. By: Thomas Astebro (Rotman School of Management, University of Toronto); Peter Thompson (Department of Economics, Florida International University)
    Abstract: Human capital investment theory suggests that entrepreneurs should be generalists, while those who work for others should be specialists; it also predicts higher incomes for entrepreneurs with generalist skills. An alternative view predicts that those with greater taste for variety are more likely to become entrepreneurs and that entrepreneurs will see their incomes decrease with greater skill variety. Data from a survey of 830 independent inventors and 300 individuals from the general population confirm that inventor-entrepreneurs typically have a more varied labor market experience. However, the more varied their experience, the lower their household income. The results support the interpretation that both choice of entrepreneurship and investment in generalist skills are driven by a taste for variety.
    Keywords: Entrepreneurship, employment choice, skill, jack-of-all-trades, taste for variety.
    JEL: J24 L26
    Date: 2007–05
  2. By: Laura Alfaro; Andrew Charlton
    Abstract: We explore the relation between international financial integration and the level of entrepreneurial activity in a country. We use a unique firm level data set of approximately 24 million firms in nearly 100 countries in 2004 and 1999, which enables us to present both cross-country and industry level evidence. We establish robust cross-country correlations between increased international financial integration and the activity of entrepreneurs using various proxies for entrepreneurial activity such as entry, size, and skewness of the firm-size distribution and de jure and de facto measures of international capital integration. We then explore causal channels through which foreign capital may encourage entrepreneurship. We find evidence that entrepreneurial activity in industries which are more reliant on external finance is disproportionately affected by international financial integration, suggesting that foreign capital may improve access to capital either directly or through improved domestic financial intermediation. Second we find that entrepreneurial activity is higher in industries which have a large share of foreign firms or in vertically linked industries.
    JEL: F21 F23 F34 G15 G18 L26 O19
    Date: 2007–05
  3. By: Luca Colombo (DISCE, Università Cattolica); Herbert Dawid (Bielefeld University); Kordian Kabus (Bielefeld University)
    Abstract: In this paper we examine the trade off between different effects of the availability of venture capital on the speed of technological progress in an industry. We consider an evolutionary industry simulation model based on Nelson and Winter (1982) where R&D efforts of an incumbent firm generate technological know-how embodied in key R&D employees, who might use this know-how to found a spinoff of the incumbent. Venture capital is needed to finance a spinoff, and therefore the expected profits from founding a spinoff depend on how easily venture capital can be acquired. Accordingly, thick venture capital markets might have two opposing effects. First, incentives of firms to invest in R&D might be reduced and, second, if spinoff formation results in technological spillovers between the parent firm and the spinoffs, the generation of spinoff firms might positively influence the future efficiency of the incumbent's innovation efforts. We study how this tradeoff influences the effect of venture capital on the innovation expenditures, speed of technological change and the evolution of industry concentration in several scenarios with different industry characteristics.
    Keywords: Venture Capital, Technological Progress, R&D Effort, Spinoff, Industry Evolution
    JEL: O30 J30 L20
    Date: 2007–03
  4. By: Sorensen, Morten (University of Chicago GSB)
    Abstract: To understand the investment behavior of venture capital (VC) investors, this paper estimates a dynamic model of learning. Behavior reflecting both learning from past investments (exploitation) and anticipated future learning (exploration) are found to be prevalent, and the model's additional predictions about success rates and investment speeds are confirmed empirically. Learning is important, since it can create informational frictions, and it has potential implications for VCs' investments and organizations. VCs are found to internalize the value of learning, and this may help promote exploration beyond the levels sustained in standard capital markets, which is socially valuable.
    Keywords: Venture capital; Learning; Multi-armed bandit model
    JEL: D49 D83 G31
    Date: 2007–05–15
  5. By: Massimiliano Mazzanti (University of Ferrara); Susanna Mancinelli (University of Ferrara)
    Abstract: The paper addresses the relevancy of networking activities and R&D as main drivers of productivity performance and ouput innovation, for small and medium enterprises (SME) playing in a local economic system. Given the intangible nature of many techno organisational innovation and networking strategies, original recent survey data for manufacturing and services are exploited. The aim is to provide new evidence on the complementarity relationships concerning different networking activities and R&D in a local SME oriented system in Northern Italy. We first introduce a methodological framework to empirically test complementarity among R&D and networking, in a discrete setting. Secondly, we consequently present empirical evidence on productivity drivers and on complementarity between R&D and networking strategies, with respect to firm productivity and process/product output innovation. R&D is a main driver of innovation and productivity, even without networking. This may signify, in association with the evidence on complementarity, that firm expenditures on R&D are a primary driver for performance. The complementarity with networking is a consequential step. Networking by itself cannot thus play a role in stimulating productivity and innovation. It can be a complementary factor in situations where cooperation and networking are needed to achieve economies of scale and/or to merge and integrate diverse skills, technologies and competencies. This is compatible with a framework where networking is the public good part of an impure public good wherein R&D plays the part of the private-led driving force towards structural break from the business as usual scenario. Managers and policy makers should be aware that in order to exploit asset complementarity, possibly transformed into competitive advantages, both R&D and networking are to be sustained and favoured. our evidence suggests that R&D may be a single main driver of performance. Since R&D expenditures are associated with firm size, a policy sustain is to be directed towards firm enlargement. After a certain threshold firms have the force to increase expenditures. The size effect is nevertheless non monotonous. Then, but not least important, for the majority of firms still remaining under a critical size threshold, policy incentives should be directed to R&D in connection with networking, through which a virtuous circle may arise. It is worth noting that it is not networking as such the main engine. Networking elements are crucially linked to innovation dynamics; it is nevertheless innovation that explains and drives networking, and not the often claimed mere existence of local spillovers or of a civic associative culture in the territory. Such public good factors exist but are likely to evolve with and be sustained by firm innovative dynamics.
    Keywords: Firm Competitiveness, Innovation, R&D, Networking, Complementarity, Local Economic System
    JEL: D21 L25 O3 O14 Z13
    Date: 2007–04
  6. By: Lenno Uuskyla
    Abstract: This paper shows that fewer firms enter after a contractionary liquidity shock and that firm entry reacts quicker to liquidity than the economic activity indicator. The results are obtained by using Estonian data for the period 1995M1–2006M7. Various structural VAR and VECM models are exploited to identify the liquidity shock.
    Keywords: monetary transmission, firm entry, VAR, VECM, Estonia
    JEL: E52 C32
  7. By: Olaf Ehrhardt (University of Applied Sciences Straslund und Humboldt University Berlin); Eric NOWAK (University of Lugano); Felix-Michael WEBER (Elephant Equity, Munich)
    Abstract: In this study we analyze the evolution of ownership, control, and performance in German founding-family-owned firms over the last century. We employ a hand-collected matched sample of German stock companies founded before World War I and still in existence in 2003. Comparing family-owned and non-family-owned firms over the 100-year time-span, we are able to analyze a variety of variables including ownership, control, industries, bank relationships and performance, as well as the impact of intergenerational control transfers. We find that families are slow to give up ownership , and control of family businesses remains strong even after several generations. Family firms seem to outperform nonfamily firms in terms of operating performance, but performance declines over the generations.
    Keywords: Family firms, performance, ownership, control, German stock markets
    JEL: G32 N23 N24
    Date: 2004–07
  8. By: TSURUTA Daisuke; Peng XU
    Abstract: Using a large sample of financially distressed small firms in Japan, we find that a distressed firm goes bankrupt faster if it uses proportionately more trade credits. Financially distressed firms experiencing a sharp decrease in trade payables are also more likely to go bankrupt. This suggests that coordination failure among a large number of dispersed trade creditors contributes to the bankruptcy of financially distressed firms. This finding supports the hypothesis that suppliers have an incentive to acquire credit information on distressed firms, and are able to do so more quickly than banks. Accordingly, they withdraw credits more quickly because trade credits, unlike bank loans, are unsecured.
    Date: 2007–05

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