nep-ent New Economics Papers
on Entrepreneurship
Issue of 2008‒07‒20
eleven papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Educational Attainment and Other Characteristics of the Self-Employed: An Examination using Data from the Panel Study of Income Dynamics By Chad Moutray
  2. Entrepreneurship and the Barrier to Exit: How Does an Entrepreneur-Friendly Bankruptcy Law Affect Entrepreneurship Development at a Societal Level? By Seung-Hyun Lee; Yasuhiro Yamakawa; Mike W. Peng
  3. The Impact of Risk Attitudes on Entrepreneurial Survival By Marco Caliendo; Frank Fossen; Alexander S. Kritikos
  4. Start-Ups by the Unemployed: Characteristics, Survival and Direct Employment Effects By Marco Caliendo; Alexander S. Kritikos
  5. Towards an Evolutionary Model of the Entrepreneurial Financing Process: Insights from Biotechnology Startups By T. VANACKER; S. MANIGART; M. MEULEMAN
  6. Uncovering Knowledge Structures of Venture Capital Investment Decision Making By Pankaj Patel; Rodney D’Souza
  7. Funding Self-Employment – The Role of Consumer Credit By Christoph Kneiding; Alexander S. Kritikos
  8. La orientación al mercado como determinante de la internacionalización de las nuevas empresas By Andreu Blesa; Diego Monferrer Tirado; María Ripolles Meliá
  9. Is Entrepreneurial Success Predictable? - An Ex-Ante Analysis of the Character-Based Approach By Alexander S. Kritikos; Marco Caliendo
  10. Why is it so Hard to Value Intangibles? Evidence from Investments in High-Technology Start-Ups By GAVIN C REID; JULIA A SMITH
  11. Rural and Urban Establishment Births and Deaths Using the U.S. Census Bureau’s Business Information Tracking Series By Lawrence A. Plummer; Brian Headd

  1. By: Chad Moutray
    Abstract: This study examines the relationship between education and the choice to become an entrepreneur. In doing so, it builds on previous research linking entrepreneurial activity with educationalattainment. Weaver, Dickson, and Solomon (2006), for example, survey the literature on this topic, and find that individuals with more education are more likely to be self-employed and successful. Brush and Manolova (2004) write that “human capital is the starting point for obtaining and developing other types of resources when a new venture is founded and directly influences its start-up process, survival, performance, and strategic direction.”
    Date: 2008
  2. By: Seung-Hyun Lee; Yasuhiro Yamakawa; Mike W. Peng
    Abstract: Does an entrepreneur-friendly bankruptcy law encourage more entrepreneurship development at a societal level? How does bankruptcy law affect entrepreneurship development around the world? Drawing on a real options perspective, we argue that if bankrupt entrepreneurs are excessively punished for failure, they may pass potentially high-return but inherently high-risk opportunities. Amassing a longitudinal, cross-country data base from 35 countries spanning ten years, we find that a lenient, entrepreneur-friendly bankruptcy law encourages entrepreneurs to take risks and thus let entrepreneurship prosper. Components of an entrepreneur-friendly bankruptcy law are: (1) the availability of a reorganization bankruptcy option, (2) the time spent on bankruptcy procedure, (3) the cost of bankruptcy procedure, (4) the opportunity to have a fresh start in liquidation bankruptcy, (5) the opportunity to have an automatic stay of assets, (6) the opportunity for managers to remain on the job after filing for bankruptcy, and (7) the protection of creditors at the time of bankruptcy.
    Date: 2008
  3. By: Marco Caliendo; Frank Fossen; Alexander S. Kritikos
    Abstract: Risk attitudes have an impact on not only the decision to become an entrepreneur but also on the survival and failure rates of entrepreneurs. Whereas recent research underpins the theoretical proposition of a positive correlation between risk attitudes and the decision to become an entrepreneur, the effects on survival are not as straightforward. Psychological research posits an inverse U-shaped relationship between risk attitudes and entrepreneurial survival. On the basis of recent waves of the German Socio-Economic Panel (SOEP), we examine the extent to which risk attitudes influence survival rates of entrepreneurs. The empirical results confirm that persons whose risk attitudes are in the medium range survive significantly longer as entrepreneurs than do persons with particularly low or high risks.
    Date: 2008–06
  4. By: Marco Caliendo; Alexander S. Kritikos
    Abstract: Supporting start-ups by unemployed persons with governmental programs became an important issue as benefits could include termination of unemployment and further job creation. However, it is feared that previously unemployed lack qualifications for entrepreneurship. We analyze potential effects based on a data-set containing a representative sample of 3,100 start-ups founded by unemployed in Germany. We find that these founders are motivated by push and pull factors. Using a proportional hazard duration model with unobserved heterogeneity allows us to analyze the characteristics which drive success of the businesses. While survival rates are high, the characteristics of the developed businesses are heterogeneous.
    Date: 2008–04
    Abstract: Using multiple longitudinal case studies of young biotechnology firms, we study differences in the financing process between high and low performing firms. Findings suggest that initial differences in the specialization of the investors with whom entrepreneurs affiliate early on, affect the ease with which firms attract (specialized) follow-on financing and firm performance. We demonstrate the role of the social context in shaping initial financing outcomes, as entrepreneurs limit their search for financing to one or a few investors with whom they have pre-existing ties. Additionally, our research provides a dynamic view of the financing process. We identify isolating mechanisms, including entrepreneurial learning and homophily and network considerations in investor syndication, which limit entrepreneurs when trying to adopt successful financing strategies implemented by competitors later on. A core contribution is that we theorize on evolutionary processes in the financing process. This new perspective advances our knowledge on dynamics in the financing process and opens multiple avenues for future research.
    Keywords: entrepreneurship; new venture finance; financing process; venture capital; performance
    Date: 2008–07
  6. By: Pankaj Patel; Rodney D’Souza
    Abstract: Studies on venture capital (VC) investment decision using espoused criteria and utility aggregation methods have shown mixed results. Using a latent decision structures approach from psychological scaling literature, we reduce random and systematic biases arising from VC decision environment. In addition, we further address such biases using a combination of parametric and nonparametric techniques and practitioner specified decision criteria on 143 funded and nonfunded business plans. Compared to previous studies that have emphasized the central role of the venture team in obtaining funding, we find that (a) a good venture team is critical for not rejecting a business plan but is less critical for funding a business plan (b) a good venture team has decreasing returns even for funded ventures, but favorable competitive conditions and market potential have increasing returns.
    Date: 2008
  7. By: Christoph Kneiding; Alexander S. Kritikos
    Abstract: In this paper we investigate whether consumer loans are used to finance business activities. We show that self-employed households particularly use personal overdrafts significantly more often than employee households. The difference remains when controlling for financial and non-financial household variables. Our findings are corroborated when analyzing the correlation between consumer loan take-ups and consumption of self-employed households. Intermingling of personal and business resources is more likely when the household is credit constrained; when the household head is younger; when the household head’s partner is employed; and when financial assets within the household are lower.
    Date: 2008–03
  8. By: Andreu Blesa (Universitat Jaume I); Diego Monferrer Tirado (Universitat Jaume I); María Ripolles Meliá (Universitat Jaume I)
    Abstract: The main aim of this study is to analyze the factors that can favor the international performance of new companies. Specifically, the paper studies the influence of market orientation on the generation of marketing capabilities, as well as the role of these capabilities in the international performance of international new ventures through the choice of high investment entry modes and geographical dispersion. The relationship of these variables to international performance is also analyzed. This model of influence has been confirmed in a sample of Spanish international new ventures by means of structural equations models. The results allow us to affirm a positive relationship between market orientation and marketing capabilities, and moreover, that these capabilities contribute to the choice of high investment entry modes. Finally, the analysis also presents a positive relationship between entry modes and the international performance of new companies. El principal objetivo de este trabajo es analizar los factores que favorecen el resultado internacional de las nuevas empresas. Se analiza la influencia de la orientación al mercado en la generación de capacidades de marketing. Asimismo se estudia el efecto de dichas capacidades en la elección del método de entrada y en la dispersión geográfica de los mercados. También se analiza la relación de estas variables en el resultado internacional. Dicho modelo de influencia ha sido contrastado en una muestra de nuevas empresas internacionales españolas mediante modelos de ecuaciones estructurales. Los resultados permiten afirmar que existe una relación positiva entre la orientación al mercado y las capacidades de marketing, y que dichas capacidades contribuyen a la elección de modos de entrada de alto compromiso de recursos y control. Finalmente, el análisis también presenta una relación positiva entre estos modos de entrada y el resultado internacional de las nuevas empresas.
    Keywords: Orientación al Mercado, Nuevas Empresas Internacionales, Creación de Empresas, Internacionalización Market Orientation, International New Ventures, Entrepreneurship, Internationalizatio
    Date: 2008–03
  9. By: Alexander S. Kritikos; Marco Caliendo
    Abstract: This paper empirically analyzes whether the character-based approach, which focuses on the personality structure and the human capital of business founders, allows prediction of entrepreneurial success. A unique data set is used consisting of 414 persons whose personal characteristics were analyzed by different methods, namely an one-day assessment center (AC) and a standardized questionnaire, before they launched their business. Results are partly unexpected and weaker than previous ex-post findings: first, we found correlations between the AC data and the questionnaire in one subgroup only. Second, the predictive power of the AC data is slightly better than that of the questionnaire, but lower than expected in theory. Interestingly, for those subgroups where the AC data have low predictive power, the questionnaire does better. Third, when success is measured in terms of employees hired, the character-based approach is a poor predictor.
    Date: 2008–01
    Abstract: The paper uses a range of primary-source empirical evidence to address the question: ‘why is it to hard to value intangible assets?’ The setting is venture capital investment in high technology companies. While the investors are risk specialists and financial experts, the entrepreneurs are more knowledgeable about product innovation. Thus the context lends itself to analysis within a principal-agent framework, in which information asymmetry may give rise to adverse selection, pre-contract, and moral hazard, post-contract. We examine how the investor might attenuate such problems and attach a value to such high-tech investments in what are often merely intangible assets, through expert due diligence, monitoring and control. Qualitative evidence is used to qualify the more clear cut picture provided by a principal-agent approach to a more mixed picture in which the ‘art and science’ of investment appraisal are utilised by both parties alike.
    Keywords: venture capital, high technology, accounting information, intangible assets, financial reporting.
    JEL: G11 G24 M41 O3
    Date: 2008–06
  11. By: Lawrence A. Plummer; Brian Headd
    Abstract: This paper serves two related purposes. First, we conduct a preliminary descriptive analysis of the establishment birth and death rates by rural and urban counties. This analysis gives a surprising result: when measured by the ecological and labor force method, the rural versus urban differences in the average rates of establishment births and deaths are extremely small. While the difference is statistically significant, on average, the general dynamic of economic activities is not a function of rural versus urban conditions. It is expected, though, that such a dynamic specific to a particular industry will show strong urban versus rural effects. This result has implications for the setting and study of economic development policy for both rural and urban areas, especially where such policies hinge on stimulating and supporting local entrepreneurial activity (i.e., “economic gardening”). Note that the ecological and labor force methods provided similar results, so the choice of method for analyzing birth rates has no significant impact on the results. Second, it documents a set of establishment birth and death (EBD) tabulations now available from the U.S. Census’ Company Statistics Division. In particular, we provide an overview of the Census database from which the tabulated data were extracted, summarize the information and variables in the data, and discuss several practical issues with using the EBD tabulations. Among these issues are the reliability of the data, the industry and county classifications used in reporting the data, and issues concerning statistical analysis in a spatial context. We also discuss how the EBD tabulations and other custom data orders can be obtained.
    Date: 2008

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