nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒11‒03
fourteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Entrepreneurship and the City By Edward L. Glaeser
  2. Are Male and Female Entrepreneurs Really That Different? By Erin Kepler; Scott Shane
  3. Greasing the wheels of entrepreneurship? The impact of regulations and corruption on firm entry By Axel Dreher; Martin Gassebner
  4. A Real Options Model of Stepwise Entry into Self-Employment By Karl J. Wennberg; Timothy Folta; Frederic Delmar
  5. Small Business Growth: Searching for Stylized Facts By Brian Headd; Bruce Kirchhoff
  6. Die Arbeitsplatzeffekte von Gründungen - Ein Überblick über den Stand der Forschung By Michael Fritsch
  7. Financiers vs. Engineers: Should the Financial Sector be Taxed or Subsidized? By Thomas Philippon
  8. Small is Beautiful but Size Matters: The Asymmetric Impact of Uncertainty and Sunk Costs on Small and Large Businesses By Ghosal, Vivek
  9. SMES, FDI and financial constraints By De Maeseneire, W.; Claeys, T.
  10. A comparison of healthcare managers and entrepreneurs: investigating the change profile of two different sectors By Cools, E.; Van den Broeck, H.; Sioncke, G.
  11. Non-technological and Technological Innovation: Strange Bedfellows? By Schmidt, Tobias; Rammer, Christian
  12. Talent Utilization, a Source of Bias in Measuring TFP By Hosny Zoabi
  13. Financial Dependence and Firm Survival in Interwar Britain By David Chambers
  14. A Two-step Analysis of Standardized Versus Relationship Bank Lending to Small Firms By Polly Hardee

  1. By: Edward L. Glaeser
    Abstract: Why do levels of entrepreneurship differ across America's cities? This paper presents basic facts on two measures of entrepreneurship: the self-employment rate and the number of small firms. Both of these measures are correlated with urban success, suggesting that more entrepreneurial cities are more successful. There is considerable variation in the self-employment rate across metropolitan areas, but about one-half of this heterogeneity can be explained by demographic and industrial variation. Self-employment is particularly associated with abundant, older citizens and with the presence of input suppliers. Conversely, small firm size and employment growth due to unaffiliated new establishments is associated most strongly with the presence of input suppliers and an appropriate labor force. I also find support for the Chinitz (1961) hypothesis that entrepreneurship is linked to a large number of small firms in supplying industries. Finally, there is a strong connection between area-level education and entrepreneurship.
    JEL: R0
    Date: 2007–10
  2. By: Erin Kepler; Scott Shane
    Abstract: This report describes a statistical evaluation of the similarities and differences between male and female entrepreneurs and their ventures. The purpose of the study was to gain a better understanding of the extent to which entrepreneurship by men and women is different. Using data from the Panel Study of Entrepreneurial Dynamics, the sample included 685 new business people who indicated that they were in the process of starting a business in 1998 or 1999.
    Date: 2007
  3. By: Axel Dreher (KOF Swiss Economic Institute, ETH Zurich Switzerland and CESifo, Germany); Martin Gassebner (Department of Management, Technology, and Economics, ETH Zurich)
    Abstract: The paper investigates whether the impact of regulations on entrepreneurship depends on corruption. We first test whether regulations robustly deter firm entry into the markets. Our results show that some regulations are indeed important determinants of entrepreneurial activity. Specifically, more procedures required to start a business and larger minimum capital requirements are detrimental to entrepreneurship. Second, we test whether corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies. Our empirical analysis for a maximum of 43 countries over the period 2003-2005 shows that corruption is beneficial in highly regulated economies. At the maximum level of regulation among our sample of countries, corruption significantly increases entrepreneurial activity. Our results thus provide support for the ‘grease the wheels’ hypothesis.
    Keywords: corruption, start-ups, grease the wheels, entrepreneurship, regulation, doing business
    JEL: D73 F59 M13 L26
    Date: 2007–05
  4. By: Karl J. Wennberg; Timothy Folta; Frederic Delmar
    Abstract: This paper tests a real options model of stepwise entrepreneurial entry. We distinguish between part time and full time entry among the self employed in Swedish knowledge intensive industries. Two multinomial logit models tests the entry from employment to part- or full time entry in 1998, and to subsequent full time entry in 1999. The empirical evidence indicates the need to distinguish between part time and full time entry, something overlooked in earlier research. We find strong support for our notion that entrepreneurs used part time entry as a strategy to test the value of their conceived business opportunity without risking their full income. However, our hypothesis that entrepreneurs use a real options heuristic shaped by the uncertainty and the irreversibility of entry received only mixed support.
    Date: 2007
  5. By: Brian Headd; Bruce Kirchhoff
    Abstract: Using special tabulations from the U.S. Census Bureau, we use aggregate data to follow a cohort of firms over 10 years from their formation and the universe of existing firms to track their growth/decline in employment. We created a table to show the employment change categories for a cohort of new single establishment firms drawn from the 1992 universe of single establishment firms from 1992 to 2002. We also created tables to show the employment change categories for the universe of single establishment firms in the cohort defining declining and growing firms as separate sub-cohorts. Some industry detail is also described. We offer propositions related to firm growth and use data contained in the tables to seek verification.
    Date: 2007
  6. By: Michael Fritsch (Friedrich-Schiller Universität Jena, DIW-Berlin und Max-Planck-Institut für Ökonomik, Jena)
    Abstract: Von der Gründung von Betrieben bzw. Unternehmen können verschiedenartige Wirkungen ausgehen. Dabei bildet die Entwicklung der Gründungen selbst nur einen Teil dieser Effekte ab. Wesentlich bedeutender sind in der Regel die indirekten Wirkungen, insbesondere die durch das Auftreten neuer Anbieter induzierte Verbesserung der Wettbewerbsfähigkeit. Neuere Studien zeigen, dass sich die Wirkungen der Gründungen über längere Zeiträume entfalten. Dabei sind ausgeprägte regionale Unterschiede im Ausmaß der Effekte zu verzeichnen. Im Allgemeinen gehen vom Gründungsgeschehen positive Wirkungen auf die Arbeitsplatzentwicklung aus; unter bestimmten Bedingungen kann der Gesamteffekt aber auch negativ sein. Der Beitrag benennt offene Forschungsfragen und zieht Schlussfolgerungen für eine Politik der Gründungsförderung. <BR> <B>English abstract:</b> Start-ups of new businesses can influence employment in different ways. The indirect effects, particularly improvements of competitiveness that may result from the entry of new competitors, are often more important than the employment in the new businesses. Recent empirical studies have shown that the effects of new businesses evolve over a longer period of time. Pronounced regional differences in the impact of new businesses on employ ment have been found. In most cases the effects of new business formation on employment are positive, however, they may also be negative under certain circumstances. This contribution identifies important research questions and draws conclusions for a policy aimed at stimulating entrepreneurship.
    Date: 2007–10–24
  7. By: Thomas Philippon
    Abstract: I study the allocation of human capital in an economy with production externalities, financial constraints and career choices. Agents choose to become entrepreneurs, workers or financiers. Entrepreneurship has positive externalities, but innovators face borrowing constraints and require the services of financiers in order to invest efficiently. When investment and education subsidies are chosen optimally, I find that the financial sector should be taxed in exactly the same way as the non-financial sector. When direct subsidies to investment and scientific education are not feasible, giving a preferred tax treatment to the financial sector can improve welfare by increasing aggregate investment in research and development.
    JEL: E2 G18 G2 H2 O3 O41 O43
    Date: 2007–10
  8. By: Ghosal, Vivek
    Abstract: Against the backdrop of the theories developed in the real options and financing constraints literatures, this paper examines the impact of profit uncertainty and sunk costs on firms’ entry and exit decisions. For our empirical analysis, we compile an extensive dataset containing information on 267 U.S. manufacturing industries over a 30-year period containing industry-specific information on the number of firms and establishments, the size distribution of establishments, measures of sunk capital costs and profit uncertainty, among others. Our dynamic panel data estimates show that greater uncertainty about profits, especially in conjunction with higher sunk costs, results in (1) a marked decrease in the number of small firms and establishments; (2) a less skewed size distribution of firms and establishments; and (3) a marginal increase in industry output concentration. In sharp contrast, large establishments seem virtually unaffected. The results point to uncertainty in conjunction with sunk costs fundamentally affecting firms’ decision-making and altering the structure of industries by putting smaller businesses at a disadvantage.
    Keywords: Uncertainty; sunk costs; real options; financing constraints; decision-making; small businesses.
    JEL: L40 G10 O30 L11 D80
    Date: 2007–07
  9. By: De Maeseneire, W.; Claeys, T. (Vlerick Leuven Gent Management School)
    Abstract: This paper explores the problems experienced by small and medium-sized enterprises (SMEs) with international ambitions in gaining access to debt and equity finance for foreign direct investment (FDI) projects. We develop several arguments why such small businesses are expected to face severe financing constraints for foreign investments and provide an explorative empirical analysis of these issues for a sample of thirty-two Belgian SMEs. We find that the market of FDI finance for SMEs is subject to considerable capital market imperfections. The information problems, lack of collateral, the home bias of financiers and the capital gearing method used by banks to evaluate small firms' foreign projects give rise to financial constraints. The FDI finance gap hinders SMEs in their internationalization strategy and negatively affects their economic performance.
    Keywords: small business financing; SMEs; FDI; internationalization; financing constraints
    JEL: F21 F23 F34 G32 M13
    Date: 2007–10–01
  10. By: Cools, E.; Van den Broeck, H.; Sioncke, G. (Vlerick Leuven Gent Management School)
    Abstract: The aim of this study was to investigate the extent to which people from two different sectors are ‘armed’ to deal effectively with change. Change is apparently the only constant factor in current work surroundings. A crucial issue to manage change professionally is coping with the involved uncertainty. The individual manager plays an important role in this regard, as successfully coping with change is strongly influenced by the psychological predispositions of the individual experiencing the change. We compared Flemish entrepreneurs and healthcare managers on four traits (locus of control, self-efficacy, tolerance for ambiguity, proactive personality) and on cognitive styles (i.e., individual preferences for organising and processing information). Entrepreneurs (n = 177) scored significantly higher on all traits than healthcare managers (n = 60). Healthcare managers scored significantly higher on the knowing and planning style than entrepreneurs, but no significant differences were found for the creating style. With this study, we hope to enhance the knowledge about the influence of particular characteristics in organisational change processes and to give relevant insights to design effective change management programmes.
    Keywords: change management, leadership, cognitive styles, micro-perspective
    Date: 2007–10–01
  11. By: Schmidt, Tobias; Rammer, Christian
    Abstract: Non-technological innovation is an important element of firms’ innovation activities that both supplement and complement technological innovation, i.e. the introduction of new products and new processes. We analyse the spread of nontechnological innovation in firms, their relation to technological innovation, and their effects to firm performance and success with product and process innovation, using data from the German Community Innovation Survey conducted in 2005 (German CIS 4). Non-technological innovation is defined as the introduction of new organisational methods or the introduction of new marketing methods. We find that the determinants of a firm’s propensity to introduce technological and non-technological innovations are very similar and that both types are closely related. There are only small effects of non-technological innovation on a firm’ profit margin, which contrasts the strong effects to be found from technological innovation. However, non-technological innovation spurs success with product and process innovation terms of sales with market novelties and cost reductions from new processes.
    Keywords: organisational innovation, marketing innovation, effects of innovation, CIS 4
    JEL: L25 O30 O31
    Date: 2007
  12. By: Hosny Zoabi
    Abstract: This paper analyzes a model of economic growth that explains differences in economic structure across countries. It highlights the interplay between productivity, talents utilization and entrepreneurship incentives. The paper has two main results. First, it argues that when measuring human capital we ignore one dimension, which is \talents utilization". It is suggested then that, in development accounting, human capital is inaccurately measured. Second, it shows that the magnitude of talents utilization increases with the level of development. Thus, the paper suggests that talents utilization amplifies differences in productivity and contributes to the explanation of large observed international differences in per capita income.
    Keywords: Total factor productivity, talent utilization, human capital, factor accumulation
    JEL: L16 O11 O14 O33 O47
    Date: 2007
  13. By: David Chambers
    Abstract: Was the London Stock Exchange (LSE) little more than a Dickensian den of speculation, or did it make a contribution to industrial development in interwar Britain? The interwar stock market laboured under problems of weak disclosure, inadequate investor protection and ineffective underwriting. New manufacturing industries were the most vulnerable to resulting asymmetric information problems. Drawing on a new database of IPOs on the London Stock Exchange between 1919 and 1938, I conclude that new manufacturing firms were finance-constrained. Consistent with the Rajan-Zingales financial dependence hypothesis, this result reflects the weak interwar institutional environment. The disastrous IPO survival rates of the late 1920s provide further evidence of this weak environment. Yet, when issue activity rebounded strongly in the following decade, a dramatic improvement in survival ensued, due, in part, to the efforts of the LSE. This was an early example of the "light touch" regulatory approach for which London has subsequently become renowned.
    Keywords: IPOs, Survival, Regulation, Investment
    JEL: G3 G24 N2 L26
    Date: 2007
  14. By: Polly Hardee
    Abstract: Using the 1998 Survey of Small Business Finances and banking data to produce a bank-firm match, the author tests for evidence of standardized versus relationship lending methods in both total bank credit and credit emanating from the firm’s most important source of financial services, its primary bank. The author employs a two-step Heckman procedure to test the likelihood a small firm has bank debt, then, conditional upon having debt, the level of credit outstanding. By comparing the determinants of bank and firm characteristics of primary bank credit with credit from all bank sources, she finds that relationship lending is inherent within the primary bank, whereas competing bank sources tend to employ standardized lending techniques such as credit scoring. With respect to credit availability, however, no clear dominance of one method over the other prevails.
    Date: 2007

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