nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒08‒27
ten papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. The International comparability of Business Start-up Rates Final Report By Steven Vale
  2. Entrepreneurship and firm formation across countries By Quesada, Juan Manuel; Guillen, Mauro F.; Amit, Raphael; Klapper, Leora
  3. Entrepreneurship As Regional Development Catalyst By Lucio Cassia; Alessandra Colombelli
  4. Product Innovation, Export Entrepreneurship and Regional Characteristics - an analysis of innovation ideas in regions By Andersson, Martin; Johansson, Börje
  5. Gender Differences in Self-Employment in Finnish Regions By Hannu Tervo; Mika Haapanen
  6. Entrepreneurship in Pakistan By Nadeem Ul Haque
  7. Understanding Strategies of the Venture Capital Investors in Helping Their Portfolio Firms to Become International By Terttu Luukkonen
  8. Vesting and control in venture capital contracts By David R. Skeie
  9. Merger Policy, Entry, and Entrepreneurship By Robin Mason; Helen Weeds
  10. The relationship between the establishment age distribution and urban growth By R. Jason Faberman

  1. By: Steven Vale
    Abstract: Growing political and academic interest in entrepreneurship and business demography, and particularly the role and value of new businesses in national economies, is prompting various research projects on these topics. One of the main issues faced by researchers and policy makers is the current lack of international comparability of data on business start-up rates, which are often seen as key indicators of entrepreneurship and economic dynamism. This paper investigates this issue and concludes that current estimates are not typically comparable, for a number of reasons, which are presented in the form of a typology. On a more positive note however the paper notes that the basic data sources required to improve comparability exist and that significant progress can be made in this area in the short to medium term by encouraging the harmonisation of concepts. <BR>L'intérêt politique et académique croissant porté à l'entreprenariat et à la démographie des entreprises, en particulier le rôle et la valeur des nouvelles entreprises dans les économies nationales, ont relancé les divers projets de recherche sur le sujet. L'un de problèmes majeurs rencontré par les chercheurs et les décideurs est le manque de comparabilité des données concernant les taux des entreprises qui démarrent, ce dernier étant souvent considéré comme un indicateur clé de l'entreprenariat et du dynamisme économique. Ce document enquête sur ce sujet et conclura que les estimations disponibles ne sont pas typiquement comparables, pour beaucoup de raisons, qui sont présentées sous la forme d'une typologie. Cependant, de manière plus positive, ce document révèle que les sources de données basiques nécessaires à améliorer la comparabilité existent, et que des progrès significants peuvent être faits en la matière, à court et moyen terme, en encourageant l'harmonisation des concepts.
    Date: 2006–11–14
  2. By: Quesada, Juan Manuel; Guillen, Mauro F.; Amit, Raphael; Klapper, Leora
    Abstract: The World Bank Group Entrepreneurship Survey measures entrepreneurial activity around the world. The database includes cross-country, time-series data on the number of total and newly registered businesses for 84 countries. This paper finds significant relationships between entrepren eurial activity and indicators of economic and financial development and growth, the quality of the legal and regulatory environment, and governance. The analysis shows the importance of electronic registration procedures to encourage greater business registration. These results can guide effective policymaking and deliver new capabilities for identifying the impact of reforms.
    Keywords: E-Business,Competitiveness and Competition Policy,Business in Development,Business Environment,Banks & Banking Reform
    Date: 2007–08–01
  3. By: Lucio Cassia; Alessandra Colombelli
    Abstract: Entrepreneurship is more and more considered a key driver of economic performance. Recent works in the literature on this research area (see Saxenian, 1994; Audretsch and Keilbach, 2004; Cooke, 2004; Cassia, Fattore and Paleari, 2006) suggest that there is a positive link between entrepreneurship capital, regional economic performance and the creation of new firms and businesses. This kind of intangible assets promotes the spillover of knowledge, becoming crucial in building firms and regional innovation capability and strengthening learning capacities. Entrepreneurship is, thus, about change and innovation. In relation to these concepts, the aim of the paper is to highlight the entrepreneurial dimension behind the creation of firms formed around new business ideas in a knowledge-based economy, where value-relevant assets are expected to consist predominately of intangible and non-marketable assets. To this purpose, we focus on companies going public on the Alternative Investment Market (AIM), a market dedicated to young and growing companies in both science and non-science based industries. The AIM was launched in 1995, allowing to a large number of SME to go public in the UK, and, today, is recognized as the most successful secondary market in Europe, brought forward as an example by other stock exchanges in mainland Europe. In the paper we investigate the post-IPO performance of listed firms, during the period going from 1995 to 2002, with the aim, first, to highlight the determinants shaping that performance and influencing the local milieu and, secondly, to underline the role of entrepreneurship. The results of this work have some policy implications both at national and regional level. At the national level, policy makers should take into account the relevance of an efficient financial system, in particular the emerging role of secondary markets, and try to remove financial constraints that hamper the the prospect of new businesses. At the regional level, political intervention should aim to promote entrepreneurial activities, which ease the regional process of change, for example, by encouraging the propensity to risk and facilitating the access to external capital.
    Date: 2006–08
  4. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper focuses on how characteristics of regions pertaining to local information about product varieties and markets as well as networks for the transmission of information about innovation opportunities influence the arrival of innovation ideas to existing and potential entrepreneurs. We formulate a model where entrepreneurs or innovating firms introduce new products in a quasi-temporal setting. Market conditions are characterized by monopolistic competition between varieties belonging to the same product group, in which there is entry and exit of varieties. Firms innovate in response to the arrival of innovation ideas. To realize these ideas firms have to make an R&D investment and a firm’s decision to export a variety to a new market is associated with a market channel investment. The theoretical model is used as a reference when formulating two regression models, with which we estimate factors that can explain the introduction of new export varieties by firms in different regional milieus. In one model we examine the emergence of new export firms, and in the second model we investigate the appearance of new export varieties. Results are consistent with the assumption that knowledge and information flows have a positive influence on the frequency of arrival of innovation ideas to firms.
    Keywords: innovation ideas; exports; entrepreneurship; location; knowledge spillovers
    JEL: O31 R11 R12
    Date: 2007–08–08
  5. By: Hannu Tervo; Mika Haapanen
    Abstract: Many studies show that gender predicts entries into self-employment – females are typically a minority of self-employed. Men also have a higher probability of remaining in business than women. In many countries, however, females represent the fastest growing segment among the self-employed. The reasons that lead women and men to enter self-employment can be very different, and may also differ between regions. A well-known but little understood fact is that rates of entrepreneurship exhibit pronounced and persistent variations across regions. The specification and understanding of regional entrepreneurial environments remains a complex issue. The aim of this paper is to throw some light on gender differences in entrepreneurship in Finland and its regions. Are there gender differences in self-employment rates, and if there are, for what reason? How do female entrepreneurs differ from male entrepreneurs with regard to predicted income, personal and household characteristics, assets, prior activity and industry? What is the husband’s role in the household? Personal characteristics such as family size, marital status, and the presence and ages of children may play different role for women than they do for men. We intend to apply the structural probit model to female self-employment in order to test the hypothesis whether an individual is more likely to be self-employed the greater is the predicted relative income in self-employment. Our data set is based on a Longitudinal Census File and the Longitudinal Employment Statistics File constructed by Statistics Finland. Since 1987, the two basic files are updated annually in Finland. These two register-based data sets, together with some other registers, provide panel data on each resident of Finland, from which a 7 per cent random sample is taken for this study. The data set is very rich including hundreds and hundreds of variables for 1987-2002.
    Date: 2006–08
  6. By: Nadeem Ul Haque (Formerly Vice-Chancellor Pakistan Institute of Development Economics, Islamabad.)
    Abstract: Entrepreneurship is viewed by economists to be a combination of innovation and risk taking. When such activity thrives, high growth rates are achieved as well as opportunities offered to all segments of society, including the poor. The latter benefit form growth and employment as well as through opportunities for entrepreneurship. In Pakistan innovation and risk taking is severely inhibited by the intrusive role of government in the marketplace. From the early days of planning when protection and subsidy polic ies determined winners in the market place, entrepreneurship has been diverted to seeking government favours. Government economic policy also seeks to promote growth through a basically ‘mercantilist’ approach where domestic commerce through seriously neglect is heavily regulated. This sector either employs most of the poor or offers them entrepreneurial opportunities. Hence deregulating this sector could be a priority in and anti-poor strategy. The paper also argues that land distribution and city zoning and management have also evolved to further reinforce the prevalent rent seeking path to success. The result is that cities are by design not allowed to become clusters of commerce that will be entrepreneur friendly. These clusters of dense urban commerce are magnets of employment and opportunity for the poor. To develop an entrepreneurship culture in the country, the system of incentives (laws and policies) that promote rent seeking will have to be dismantled. This paper presents an analysis of the state of entrepreneurship/rent seeking prevailing in Pakistan. This analysis allows us to obtain and understanding of the kinds of reforms (including legislative changes) that are required to develop entrepreneurship.
    Keywords: Entrepreneurship, New Firm, Startups
    JEL: M13
    Date: 2007
  7. By: Terttu Luukkonen
    Abstract: This paper reports the findings of two empirical studies on the value-added of venture capital with special attention on promoting internationalisation of start-up firms. The first study is based on a survey of Finnish (and a few cross-border) venture capital organisations on the value-adding mechanisms they use with regard to their portfolio firms. The second study is based on interviews with Finnish biotechnology start-ups. Attention is paid specifically to the strategies of three different types of investors in early-stage high growth companies : 1) business angels, which can be regarded as informal venture capitalists, 2) private-sector venture capital firms and 3) public-sector venture capital organisations. Control of agency costs and risks provides a conceptual framework for analysing the strategies of the different investor types. The findings partially corroborate and partially refute the hypotheses made on the basis of theory and the two studies provide somewhat conflicting findings on the role and strategies of the different investor types. According to the venture capital survey, private sector venture capital firms were most actively engaged in ex post monitoring and ‘coaching’ of their portfolio firms in internationalisation, while according to the biotechnology study, business angels turned out to be most actively engaged. The paper discusses potential reasons for these divergent findings.
    JEL: G24 O16
    Date: 2007–08–17
  8. By: David R. Skeie
    Abstract: Vesting of equity payments to an entrepreneur, which is a form of time-contingent compensation, is very common in venture capital contracts. Empirical research suggests that vesting is used to help overcome asymmetric information and agency problems. We show in a theoretical model that vesting equity to an entrepreneur over a long period of time acts as a screening device against a bad entrepreneur type. But incomplete contracts due to hold-up by the venture capitalist imply that equity compensation, in the form of either short-term or long-term vesting, cannot provide standard contractible equity incentives for the entrepreneur to take an unobservable action involving effort. We introduce a new model of effort based on a verifiable choice of an effort-intensive project, for which the short-term vesting of equity can provide incentives, but which results in a trade-off between incentives and screening. Contingent control rights are a substitute for short-term vesting and provide the largest incentives for effort by fully protecting the entrepreneur from hold-up. We also show that a new link between equity cash flow claims and control rights is that residual equity control rights over the firm are necessary to protect residual equity claims from hold-up.
    Date: 2007
  9. By: Robin Mason; Helen Weeds
    Abstract: We assess the impact of merger policy on entry and entrepreneurship. Facing uncertainty about its prospects and foreseeing that it may wish to quit should profitability prove poor, a rational entrant considers possible exit routes. Horizontal merger reduces competition subsequently, lowering welfare in the short run, but also provides a valuable exit route. By facilitating exit and thus raising the value of entry, more lenient merger policy may stimulate entry sufficiently that welfare is increased overall. We calculate the optimal merger policy in the form of a low, but positive, profitability threshold below which a merger is permitted despite its adverse impact on post-merger competition. This may be viewed as an extension of the "failing firm defence" to include ailing, low profitability firms as well as imminently failing ones. The implications of strategic firm behaviour for the optimal policy are examined, and merger policy is compared with an entry subsidy.
    Date: 2007–08–17
  10. By: R. Jason Faberman
    Abstract: This paper presents new evidence on the relationship between a metropolitan area’s employment growth and its establishment age distribution. The author finds that cities with a relatively younger distribution of establishments tend to have higher growth, as well as higher job and establishment turnover. Geographic variations in the age distribution account for 38 percent of the geographic differences in growth, compared to the 32 percent accounted for by variations in industry composition. Differences are disproportionately accounted for by entrants and young (5 years or younger) establishments. Furthermore, the relationship between age and growth is robust to controls for urban diversity and education. Overall, the results support a microfoundations view of urban growth, where the benefits of agglomeration affect firms not through some production externality but through a process that determines which firms enter, exit, and thrive at a given location.
    Date: 2007

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