nep-ent New Economics Papers
on Entrepreneurship
Issue of 2008‒05‒05
five papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. The IPR System, Venture Capital and Capital Markets – Contributions and Distortions of Small Firm Innovation? By Jesper Lindgaard Christensen
  2. Adverse Selection, Credit, and Efficiency: the Case of the Missing Market By Alberto Martin
  3. The EU Framework Programs: Are they worth doing? By Dekker, Ronald; kleinknecht, A.H.
  4. Peripherality and the Impact of SME Takeovers By Foreman-Peck, James; Nicholls, Tom
  5. Foreign bank entry, institutional development and credit access: firm-level evidence from 22 transition countries By Rueda Maurer, Maria Clara

  1. By: Jesper Lindgaard Christensen
    Abstract: This study explores how capital markets, exemplified by venture capital, and recent trends in the patent system may influence innovation activity and the financing of small businesses. Specifically it is evaluated if there are costs and distortions of incentives related hereto. Additionally, the positive contribution of venture capital in the patenting process is investigated. It is found that trends at a macro economic level is nowadays of major importance for the patenting and innovation behaviour and financing of firms. Patenting has increased in scale, scope and trade volume, patents have become a strategic asset to an extent that may de-link it from innovation activities. The IPR-system may render distortions of innovation activities facilitated by these trends. These distortions may impose costs on the overall function of the innovation system, costs that are unequally distributed among firms as small firms are bearing most of the burdens. The results points to new perspectives on strategy that are important to management of firms and investment funds.
    Keywords: Small firms; venture capital; IPR
    JEL: O34 G24
    Date: 2008
  2. By: Alberto Martin
    Abstract: We analyze a standard environment of adverse selection in credit markets. In our envi- ronment, entrepreneurs who are privately informed about the quality of their projects need to borrow from banks. As is generally the case in economies with adverse selection, the competitive equilibrium of our economy is shown to be ine¢ cient. Under adverse selection, the choices made by one type of agents limit what can be o¤ered to other types in an incentive-compatible manner. This gives rise to an externality, which cannot be internalized in a competitive equilibrium. We show that, in this type of environment, the ine¢ ciency associated to adverse selection is the consequence of one implicit assumption: entrepreneurs can only borrow from banks. If an additional market is added (say, a .security market.), in which entrepreneurs can obtain funds beyond those o¤ered by banks, we show that the e¢ cient allocation is an equilibrium of the economy. In such an equilibrium, all entrepreneurs borrow at a pooling rate in the security market. When they apply to bank loans, though, only entrepreneurs with good projects pledge these additional funds as collateral. This equilibrium thus simultaneously entails cross- subsidization and separation between di¤erent types of entrepreneurs.
    Keywords: Adverse Selection, Credit Markets, Collateral, Screening
    JEL: D82 G20 D62
    Date: 2008–04
  3. By: Dekker, Ronald; kleinknecht, A.H.
    Abstract: Using CIS data from the Netherlands, Germany and France we test whether EU Framework programs do have effects on their participants' R&D input and innovative output. From our Heckman selection equations, we conclude that the FPs attract the "elite" of European innovators. The question is whether, after correction for self-selection, the programs have positive effects on innovative behaviour. This is hard to test meaningfully among large firms as EU funding is likely to cover only a minor share of their innovative activities. Analysing changes in R&D input we find that smaller firms increase their R&D input quite substantially after entering an EU FP program. Estimating equations that explain sales of innovative products, we find that firms that collaborate on R&D with clients, suppliers, competitors or public research institutes do not have increased sales of innovative products. We try to provide explanations for this counter-intuitive finding. Moreover, participation in an EU FP neither increases sales of innovative products. This result holds after numerous robustness checks. We argue that our insignificant outcomes do not necessarily imply that the FP programs are worthless. There is independent evidence that innovative projects funded by the EU FPs do, on average, involve more technical and scientific risks, they are more complex, and involve longer time horizons. Obviously, they are farer from market introduction which is not surprising, given the regulatory demand that EU FPs should be "pre-competitive". Against this background, we cannot exclude the possibility that an insignificant coefficient of FP participation in our equation on innovative output may still have a positive meaning.
    Keywords: innovation; R&D subsidies; collaborative R&D; CIS data; Netherlands; Germany; France
    JEL: O38 O57 O32 O31
    Date: 2008–05–22
  4. By: Foreman-Peck, James (Cardiff Business School); Nicholls, Tom
    Abstract: If large companies buy small dynamic enterprises, and move them to the headquarters. location or elsewhere, the process could suppress regional, or dependent, economy income and productivity. We investigate this hypothesis by analysing around 2 million observations of the UK enterprise- level Business Structure Database. Contrary to the experience of large firms, more productive small businesses are more subject to takeover. In addition, SMEs that have been acquired are also more likely to both exit and relocate to another region. This last finding however cuts both ways; a peripheral region or country may receive post-merger companies as well as lose them. With the exception of the core of London and the South East, British regions achieve an approximate numerical balance of relocations from SME takeovers.
    Keywords: SMEs; takeovers; regional development; exits; relocations
    JEL: L23 D21 R11
    Date: 2008–04
  5. By: Rueda Maurer, Maria Clara (Swiss National Bank)
    Abstract: In this paper I examine how the protection of creditors' rights influence the way in which foreign bank entry affects the access to credit of firms. Using a sample of more than 6000 firms in 22 transition countries I find that as bankruptcy proceedings become more inefficient foreign bank entry is more likely to crowd-out small and opaque firms. Conversely, as the protection of creditors' rights improve, the positive association between foreign banks and firms' credit constraints diminishes. These results are robust to controls for endogeneity of foreign banks. The interaction of foreign banks and the protection of creditors rights would explain the disparity of results obtained by previous studies: In countries with an adequate protection of creditor rights foreign bank entry may benefit all firms; By contrast, in countries with weak protection of creditor rights foreign bank entry is likely to result in a credit crunch.
    Keywords: Institutional development; Transition; Foreign Bank Entry; Information asymmetries; Small Business Lending.
    JEL: D82 G10 G21 G31
    Date: 2008–04–29

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