nep-ent New Economics Papers
on Entrepreneurship
Issue of 2008‒02‒16
twelve papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship By William Kerr; Ramana Nanda
  2. Cost of External Finance and Selection into Entrepreneurship By Ramana Nanda
  3. CREATIVITY IN ENTREPRENEURSHIP EDUCATION By Yar, Daniel; Wennberg, Karl; Berglund, Henrik
  4. Plural-entrepreneurial activity for a single start-up: a case study. By Thierry BURGER-HELMCHEN
  5. Gazelles as Job Creators – A Survey and Interpretation of the Evidence By Henrekson, Magnus; Johansson, Dan
  6. Peer Effects and Entrepreneurship By Ramana Nanda; Jesper B. Sorensen
  7. How do entrepreneurs in clusters contribute to economic growth? By Wennberg, Karl; Lindqvist, Göran
  8. Explaining Preferences and Actual Involvement in Self-Employment: New Insights into the role of Gender By Roy Thurik; Ingrid Verheul; Isabel Grilo
  9. Do Small Businesses Create More Jobs? New Evidence from the National Establishment Time Series By David Neumark; Brandon Wall; Junfu Zhang
  10. Exporting starters: starters with more ambition and higher achievement By Dick Snel; Jolanda Hessels
  11. Should Continued Family Firms Face Lower Taxes Than Other Estates? By Grossmann, Volker; Strulik, Holger
  12. Shifts in organizational form under a dual income tax system By Thor O. Thoresen and Annette Alstadsæter

  1. By: William Kerr (Harvard Business School, Entrepreneurial Management Unit); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: We study how US branch-banking deregulations affected the entry and exit of firms in the non-financial sector using establishment-level data from the US Census Bureau's Longitudinal Business Database. The comprehensive micro-data allow us to study how the entry rate, the distribution of entry sizes, and survival rates for firms responded to changes in banking competition. We also distinguish the relative effect of the policy reforms on the entry of startups versus facility expansions by existing firms. We find that the deregulations reduced financing constraints, particularly among small startups, and improved ex ante allocative efficiency across the entire firm-size distribution. However, the US deregulations also led to a dramatic increase in 'churning' at the lower end of the size distribution, where new startups fail within the first three years following entry. This churning emphasizes a new mechanism through which financial sector reforms impact product markets. It is not exclusively better ex ante allocation of capital to qualified projects that causes creative destruction; rather banking deregulations can also 'democratize' entry by allowing many more startups to be founded. The vast majority of these new entrants fail along the way, but a few survive ex post to displace incumbents.
    Keywords: banking, financial constraints, entrepreneurship, entry, exit, creative destruction, growth, deregulation.
    JEL: E44 G21 L26 L43 M13
    Date: 2006–12
  2. By: Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: This paper examines the extent to which the positive relationship between personal wealth and entry into entrepreneurship is due to financing constraints. I exploit a tax reform and use unique micro-data from Denmark to study how exogenous changes in the cost of external finance shape both the probability of entering entrepreneurship and the characteristics of those who become entrepreneurs. As expected, differences-in-differences estimates show that the entry rates for individuals who faced an increase in the cost of finance fell by 40% relative to those whose cost of external finance was unchanged. However, while some of the fall in entry was due to less wealthy individuals with high human capital (confirming the presence of financing constraints), the greatest relative decline in entry came from individuals with lower human capital, many of whom were above median wealth. This finding suggests that an important part of the positive relationship between personal wealth and entrepreneurship may be driven by the fact that wealthy individuals with lower ability can start new businesses because they are less likely to face the disciplining effect of external finance.
    Keywords: financing constraints, entrepreneurship, entry.
    JEL: D31 H24 J24 M13
    Date: 2008–01
  3. By: Yar, Daniel (University College of Borås); Wennberg, Karl (Dept. of Business Administration, Stockholm School of Economics); Berglund, Henrik (Chalmers University of Technology)
    Abstract: This paper uses social cognitive theory to investigate entrepreneurial intent among participants in graduate entrepreneurship programs. To the best of our knowledge, the paper is the first to investigate the importance of creativity in entrepreneurship education and theoretical models of entrepreneurial intentions. Specifically, we test whether students creative potential is related to their intention to engage in entrepreneurship. Theoretically derived hypotheses are tested using multiple and ordinal regression analyses. We find that high scores on a creativity test and prior entrepreneurial experiences were positively associated with entrepreneurial intentions, whereas perception of risks had a negative influence. Our theoretical predictors of entreprenurial intention received strong support, indicating that creativity should be considered in models of entrepreneurial intentions. Yet, the use of intentions as dependent variable has its know weaknesses in that we might not distinguish between 'dreamers' and 'doers'. The findings indicate that exercises in creativity can be used to raise entrepreneurial intentions of students in entrepreneurship education. Heterogeneity in creative styles among students also points to the problems of a ‘one-size-fits-all’ approach to entrepreneurship education.
    Keywords: Entrepreneurship education; intentions; creativity
    Date: 2008–01–01
  4. By: Thierry BURGER-HELMCHEN
    Abstract: Based on a longitudinal case study of a high tech start-up, this paper explores how different forms of entrepreneurship coexist and interplay to create a firm’s innovative dynamics. A particular focus is given to knowledge-based entrepreneurship linked to technological innovation and exploitation, service entrepreneurship, and organizational-marketing entrepreneurship. Findings suggest that firms can realize performance benefits when their members divide those entrepreneurial activities between themselves during the launching phase of the firm, and then adapt the configuration of the activities, and their behaviours into a managerial form during the expansion phase of the firm. Our work offers a dynamic view of the conditions a firm has to fulfil to survive in a knowledge-based environment and we analyse the process that produces a good integration of plural-entrepreneurship behaviours.
    Date: 2008
  5. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Ratio)
    Abstract: It is often claimed that small and young firms account for a disproportionately large share of net employment growth. We conduct a meta analysis of the empirical evidence regarding whether net employment growth rather is generated by a few rapidly growing firms – so-called Gazelles – that are not necessarily small and young. Gazelles are found to be outstanding job creators. They create all or a large share of new net jobs. On average, Gazelles are younger and smaller than other firms, but it is young age more than small size that is associated with rapid growth. Gazelles also seem to be overrepresented in services.
    Keywords: Entrepreneurship; Firm Growth; Flyers; Gazelles; High-growth Firms; Job Creation; Rapidly Growing Firms
    JEL: D21 L25 M13 O10 O40
    Date: 2008–02–08
  6. By: Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit); Jesper B. Sorensen (Graduate School of Business, Stanford University)
    Abstract: We examine whether the likelihood of entrepreneurial activity depends on the prior career experiences of an individual's co-workers. We argue that peers may increase an individual's likelihood of becoming an entrepreneur through two channels: by increasing the likelihood that an individual will perceive entrepreneurial opportunities, and by increasing his or her willingness to pursue those opportunities. Our analysis uses a unique panel dataset that allows us to track the career histories of individuals across firms. We find that an individual is more likely to become an entrepreneur if his or her co-workers have been entrepreneurs before, or if the co-workers' careers involved frequent movement between firms. Peer influences appear to be substitutes for direct experience: the effects are strongest for those without exposure to entrepreneurship in their family of origin, and for those who have engaged in little inter-firm mobility themselves. These effects are robust to attempts to address concerns about unobserved heterogeneity bias.
    Date: 2006–03
  7. By: Wennberg, Karl (Dept. of Business Administration, Stockholm School of Economics); Lindqvist, Göran (Dept. of Business Administration, Stockholm School of Economics)
    Abstract: This paper investigates the long-term survival and performance of new entrepreneurial firms, comparing firms located within regional clusters with those located outside of clusters.We use matched employee-employer databases to investigate all Swedish firms started in the telecom and consumer electronic s, financial services, information technology, medical equipment, and pharmaceuticals and biotech sectors (N = 4,397). We follow these firms from 1993 to 2002 and measure their contribution to local economic vitality in term of job creation, payment of taxes, and payment of salaries to employees. <p> Controlling for factors such as firm size, age, and absorptive innovative capabilities, we find strong empirical evidence that being located within a cluster has positive effects on the survival of new firms. We also find that clustered firm creates more jobs, higher tax payments, and higher wages to employees. The effects are consistent across alternative measures of agglomeration and different regional levels. <p> Thid study contributes to the literatures on entrepreneurship and economic geography. By measuring the economic contributions of clustered and non-clustered firms, the empirical evidence also provides support for basing economic policies on clusters.
    Keywords: Clusters; Entrepreneurship; Economic Development
    Date: 2007–06–07
  8. By: Roy Thurik; Ingrid Verheul; Isabel Grilo
    Abstract: This paper investigates why self-employment rates of women are consistently lower than those of men. It has three focal points: it discriminates between the preference for self-employment and actual involvement in self-employment for women and men. It uses a huge data set from about 8,000 individuals across 26 countries while probit equations are estimated explaining (the preference for) self-employment. And a systematic distinction is made between different ways in which gender can influence the preference for and actual involvement in self-employment, including moderation, mediation and direct effects. Using the Theory of Planned Behaviour we investigate effects of risk attitude,social norms, locus of control, perceptions of the entrepreneurial environment as well as that of an individual’s age and educational attainment. Findings show that the lower preference of women to become self-employed largely explains their relatively low involvement in self-employment and that – other things equal – women and men who express a preference for it, have equal chances of becoming self-employed. This paperis a new version of H200622, "Determinants of self-employment preference and realization of women and men in Europe and the United States"
    Date: 2008–01–29
  9. By: David Neumark; Brandon Wall; Junfu Zhang
    Abstract: We use a new database, the National Establishment Time Series (NETS), to revisit the debate about the role of small businesses in job creation. Birch (e.g., 1987) argued that small firms are the most important source of job creation in the U.S. economy, but Davis et al. (1996a) argued that this conclusion was flawed, and based on improved methods and using data for the manufacturing sector they concluded that there was no relationship between establishment size and net job creation. Using the NETS data, we examine evidence for the overall economy, as well as for different sectors. The results indicate that small establishments and small firms create more jobs, on net, although the difference is much smaller than what is suggested by Birch's methods. However, the negative relationship between establishment size and job creation is much less clear for the manufacturing sector, which may explain some of the earlier findings contradicting Birch's conclusions.
    JEL: J20 L25 L53
    Date: 2008–02
  10. By: Dick Snel; Jolanda Hessels
    Abstract: This mini report focuses on exporting starters in the Netherlands and deals with the following questions: What are the characteristics and behaviour of entrepreneurs that begin exporting right from the start and to what extent do they distinguish themselves from other starters? What are the characteristics of businesses that are export oriented from the very start and to what extent do these differ from the characteristics of other starting enterprises? What are the achievements of exporting starters compared to those of other starters? The EIM Starters Cohorts 1998-2000 (starters in the period 1998-2000) are the source of the information used in this report. Since the date of their establishment the enterprises in this group have been monitored by taking annual measurements. This has made it possible not only to examine the characteristics of entrepreneurs at the time at which they started, but alsoto review their achievements during a period of a number of years.
    Date: 2007–04–11
  11. By: Grossmann, Volker; Strulik, Holger
    Abstract: Inheritance taxes may induce heirs to discontinue family firms. Because firm dissolution incurs transaction costs, a preferential tax treatment of transferred family businesses seems to be desirable from a macroeconomic viewpoint. The support of dynastic succession, however, entails also a cost on the economy if firm continuation by less able heirs prevents entry into entrepreneurship. Here, we investigate analytically and quantitatively the trade-off between transaction costs saved and creative destruction prevented. We find that a unique general equilibrium exists at which, depending on the institutional setup, low-ability heirs either abandon (Type 1) or continue (Type 2) a family business. A calibration of the model with German data suggests that preferential tax treatment of family firms has severe negative consequences on macroeconomic performance if it causes a threshold crossing from Type 1 to Type 2 equilibrium. It also reveals that the targeted persons, i.e. the entrepreneurs that are caused to continue a business, always lose relative to their status in an economy without continuation-friendly tax policy.
    Keywords: Bequest Taxation, Creative Destruction, Entrepreneurship, Family Firms, Preferential Tax Treatment.
    JEL: H25 L26 J24
    Date: 2008–02
  12. By: Thor O. Thoresen and Annette Alstadsæter (Statistics Norway)
    Abstract: Evidence of owners of small businesses engaging in tax motivated shifts in organizational form is scarce. The main reason is lack of micro data enabling us to track tax-payers’ movements across organizational modes. By exploiting new panel data that combine information from several public registers, we observe Norwegian owners of small businesses and their organizational forms in the period from 1993 to 2003. Under the hypothesis that certain characteristics of the Norwegian dual income tax system encourage shifts into widely held corporations, we observe outcomes for different organizational form choices. We show that owners of small firms that became widely held corporations have higher income growth than those that remained in self-employment or as a closely held corporation.
    Keywords: income shifting; small businesses; organizational shifts; dual income tax
    JEL: H25 L22
    Date: 2008–02

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