nep-ent New Economics Papers
on Entrepreneurship
Issue of 2008‒10‒21
fourteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. High-Technology Entrepreneurship in Silicon Valley Opportunities and Opportunity Costs By Robert Fairlie; Aaron Chatterji;
  2. Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain? By Edward L. Glaeser; William R. Kerr
  3. The Contribution of New Businesses to Regional Employment - An Empirical Analysis of the Direct Employment Effect By Michael Fritsch; Yvonne Schindele
  4. The Direct Employment Effects of New Businesses in Germany Revisited - An Empirical Investigation for 1976 - 2004 By Yvonne Schindele; Antje Weyh
  5. A Model of Quality Ladders with Horizontal Entry By Pedro Rui Mazeda Gil; Paulo Brito; Óscar Afonso
  6. Entrepreneurial Innovations in Network Industries By Pehr-Johan Norbäck; Lars Persson; Joacim Tåg
  7. Swedish Listed Family Firms and Entrepreneurial Spirit By Bjuggren, Per-Olof; Palmberg, Johanna
  8. The Growth and Decline of Small firms In Developing Countries By Alexander Coad; Jagannadha Pawan Tamvada
  9. The Principle of Subsidiarity and Innovation Support Measures By Arjan Lejour
  10. Training Propensity of Start-ups in Switzerland - A Study Based on Data for the Start-up Cohort 1996-97 By Spyros Arvanitis; Tobias Stucki
  11. Are Women More Credit Constrained? Experimental Evidence on Gender and Microenterprise Returns By de Mel, Suresh; McKenzie, David; Woodruff, Christopher
  12. Business start-ups and productive efficiency By Hakki Yazici
  13. Network Effects and Geographic Concentration of Industry By Zhu Wang; Daniel Yi Xu
  14. Les firmes entrepreneuriales en croissance ont-elles un système de gouvernance spécifique? By Peter Wirtz

  1. By: Robert Fairlie (University of California, Santa Cruz); Aaron Chatterji (Duke University);
    Abstract: The economic expansion of the late 1990s undoubtedly created many opportunities for business creation in Silicon Valley, but the opportunity cost of starting a business was also high during this period because of the exceptionally tight labor market. A new measure of entrepreneurship derived from matching monthly files from the Current Population Survey (CPS) is used to provide the first test of the hypothesis that entrepreneurship rates were high in Silicon Valley during the "Roaring 90s." Unlike previous measures of firm births based on large, nationally representative datasets, the new measure captures business creation at the individual-owner level, includes both employer and non-employer business starts, and focuses on only hi-tech industries. Estimates from the matched CPS data indicate that hi-tech entrepreneurship rates were lower in Silicon Valley than the rest of the United States during the period from January 1996 to February 2000. Controlling for the large concentration of immigrants and highly-educated workforce does not change the conclusion. Examining the post-boom period, we find that entrepreneurship rates in Silicon Valley increased from the late 1990s to the early 2000s. In contrast, trends in entrepreneurship rates in the United States were constant over this period. Although Silicon Valley may be an entrepreneurial location overall, the extremely tight labor market of the late 1990s, especially in hi-tech industries, may have suppressed business creation during this period.
    Keywords: entrepreneurship, Silicon Valley, hi-tech
    JEL: L26
    Date: 2008–09
  2. By: Edward L. Glaeser (Harvard University, John F. Kennedy School of Government; Faculty of Arts and Sciences); William R. Kerr (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: Why are some places more entrepreneurial than others? We use Census Bureau data to study local determinants of manufacturing startups across cities and industries. Demographics have limited explanatory power. Overall levels of local customers and suppliers are only modestly important, but new entrants seem particularly drawn to areas with many smaller suppliers, as suggested by Chinitz (1961). Abundant workers in relevant occupations also strongly predict entry. These forces plus city and industry fixed effects explain between sixty and eighty percent of manufacturing entry. We use spatial distributions of natural cost advantages to address partially endogeneity concerns.
    Keywords: Entrepreneurship, Industrial Organization, Agglomeration, Labor Markets, Input-Output Flows, Innovation, Research and Development, Patents.
    JEL: J2 L0 L1 L2 L6 O3 R2
    Date: 2008–10
  3. By: Michael Fritsch (Friedrich Schiller University Jena, School of Economics and Business Administration); Yvonne Schindele (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: We investigate regional differences in the contribution of newly founded businesses to regional employment. This is labeled the direct employment effect of new businesses. The analysis is at the spatial level of West German planning regions for the period 1984-2002. We find rather pronounced differences for the direct employment effect across regions. Regression analyses for explaining these differences show that the start-up rate, the education level of the regional workforce, and an entrepreneurial character of the regional technological regime have a positive impact on the direct employment effect of new businesses. The overall effect of population density is negative, but the marginal effect is positive for regions beyond a certain threshold. Our results suggest that the success of the new businesses is not at the expense of the incumbents but that direct and indirect employment effects of new businesses are positively interlinked.
    Keywords: Entrepreneurship, new business formation, regional development, direct employment effect
    JEL: L26 M13 O1 O18 R11
    Date: 2008–10–10
  4. By: Yvonne Schindele (Friedrich Schiller University Jena, School of Economics and Business Administration); Antje Weyh (Institute for Employment Research, IAB regional Saxony)
    Abstract: Based on an improved and extended database, the Establishment History Panel, we extend the analysis of Fritsch & Weyh (2006) by investigating the development of employment in German start-up cohorts for the period 1976 to 2004. We conïfirm the typical pattern of an initial increasing and then soon decreasing number of employees in start-up cohorts. Furthermore, we provide some of the first evidence for the "liability of aging" phenomena in Germany. Older firms face a relatively high risk of failure. Although only the largest 25% of the surviving entries grow in terms of employment, after 25 years the number of employees in these relatively large businesses strongly declines.
    Keywords: Employment change, new firms, start-up cohorts, liability of agibg
    JEL: D21 L10 L26 L29 M13
    Date: 2008–10–10
  5. By: Pedro Rui Mazeda Gil (CEMPRE and Faculdade de Economia, Universidade do Porto); Paulo Brito (Instituto Superior de Economia e Gestão and UECE, Universidade Técnica de Lisboa); Óscar Afonso (CEMPRE and Faculdade de Economia, Universidade do Porto)
    Abstract: We develop a multi-sector model of R&D-driven endogenous growth that merges the expanding-variety with the quality-ladders mechanism. The mechanism of expanding variety provides the flow of new firms (new product lines), whilst the mechanism of quality ladders provides the accumulation of non-physical capital (technological knowledge). The aim is to explore the view that, from the perspective of the households, wealth can be accumulated either by creating new firms or by accumulating capital, in a setting with no population growth. Differently from the standard expanding-variety literature, we allow for entry as well as exit of product lines from the market, view the creation of new product lines as a product development activity without positive spillovers, and postulate an horizontal entry mechanism that takes explicitly into account dynamic second-order effects. We perform a detailed comparative steady-state analysis and characterise qualitatively the local dynamics properties in a neighbourhood of the interior balanced-growth equilibrium. The model produces specific results with respect to the impact of changes in the entry-cost parameters and the fiscal-policy variables both in the aggregate growth rate and in the market structure and industry dynamics in steady state. We also conclude that the transitional dynamics is characterised by a catching-up effect, with an empirically reasonable speed of convergence under standard calibration.
    Keywords: endogenous growth, firm dynamics, transitional dynamics
    JEL: O41 D92 C62
    Date: 2008–10
  6. By: Pehr-Johan Norbäck (Research Institute of Industrial Economics (IFN)); Lars Persson (Research Institute of Industrial Economics (IFN)); Joacim Tåg (Research Institute of Industrial Economics (IFN))
    Abstract: In this paper, we study entrepreneurial innovations in an industry characterized by network effects. We show that the presence of network externalities tends to make the entrepreneur prefer sale to entry. Moreover, we also show that the incentive to innovate for entry decreases when network effects become stronger, whereas there is an increase in the incentive for innovation for sale. Moreover, we show that increasing the degree of industry-wide standardization furthers the goal of increasing entry by entrepreneurs. However, this may come at the cost of reducing the research intensity by reducing the bidding competition among incumbents over the innovations of entrepreneurs.
    Keywords: Entrepreneurship, Entry, Compatibility, Innovation, Network Effects, Standardization.
    JEL: D40 L10
    Date: 2008–09
  7. By: Bjuggren, Per-Olof (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Palmberg, Johanna (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper investigates the entrepreneurial spirit in Swedish listed family firms. We associate family firms with entrepreneurship in the sense that there is an identifiable person that takes the uninsurable risk in the sense of Knight. This paper analysis two questions: Do entrepreneurial family firms have a higher rate of growth and do they invest in a more profit maximizing fashion than other listed firms? The analysis shows that entrepreneurial family firms in general are smaller in terms of market value and investments than non-family firms. Moreover, the entrepreneurial family firms are the ones that makes the most efficient investments.
    Keywords: Entrepreneurship; Corporate Governance; Family Firms; Investments; Firm Performance
    JEL: C23 G30 L25 L26
    Date: 2008–10–13
  8. By: Alexander Coad; Jagannadha Pawan Tamvada
    Abstract: Empirical work on micro and small firms has focused on developed countries. The little work that exists on developing countries is all too often based on small samples taken from ad hoc questionnaires. The census data we analyze are fairly representative of the structure of small business in India. Consistent with prior research on developed countries, size and age have a negative impact on firm growth in the majority of specifications. The decision to export is a double-edged sword – if successful it can accelerate the growth of successful firms, but it can also increase the probability of decline. While proprietary ownership results in faster growth, enterprises managed by women are less likely to grow and more likely to decline. Although many small firms are able to convert knowhow into commercial success, we find that many others do not have any technical knowledge and some are unable to use it to their benefit.
    Keywords: Entrepreneurship, Developing countries, Micro and Small businesses, Firm growth, Firm age, Barriers to growth, Declining firms, Female entrepreneurs Length 32 pages
    JEL: L25 L26 O12
    Date: 2008–09
  9. By: Arjan Lejour
    Abstract: Innovation is a policy area in which the European Union (EU) has the competence to support, coordinate and supplement Member States’ policies according to the new Lisbon Treaty (2007). The Member States (MS) have the primacy in this area and the principles of subsidiarity and proportionality are applicable to decide whether EU support, coordination or supplementation of MS policies is justified.<BR> This paper presents a detailed subsidiarity test. It is applied to three innovation support measures as part of the Entrepreneurship and Innovation Programme of the Competitiveness and Innovation Framework Programme of the European Commission. These measures are access to finance for the start-ups and growth of SMEs and investment in innovation activities, networks in support of business and innovation-community grants (new Enterprise Europe Network), and the Intellectual Property Rights Helpdesk.
    Keywords: innovation policy; subsidiarity; European Union
    JEL: O38 H77 H87 F15
    Date: 2008–10
  10. By: Spyros Arvanitis (KOF, Swiss Economic Institute); Tobias Stucki (KOF, Swiss Economic Institute)
    Abstract: This study is based on data of a cohort of Swiss firms that were founded in 1996/97. In the year 2000 data were collected by means of a postal survey among those firms, which still existed by that time. In 2003 and 2006 two further surveys were conducted among the participants of the respective last study. In this study we analyzed, firstly, the determinants of the propensity to train apprentices of new firms and how they change with increasing firm age. Secondly, we investigated how a firm’s training propensity correlated with its labour productivity. To this end, we specified an equation for training propensity and an equation for labour productivity, which included as an additional production factor the endogenized propensity to train apprentices.
    Keywords: start-ups, training, innovation, firm age
    JEL: J24 O30
    Date: 2008–09
  11. By: de Mel, Suresh (University of Peradeniya); McKenzie, David (World Bank); Woodruff, Christopher (University of California, San Diego)
    Abstract: In a recent randomized experiment we found mean returns to capital of between 5 and 6 percent per month in Sri Lankan microenterprises, much higher than market interest rates. But returns were found to be much higher among men than among women, and indeed were not different from zero for women. In this paper, we explore different explanations for the lower returns among female owners. We find no evidence that the gender gap is explained by differences in ability, risk aversion, or entrepreneurial attitudes. Nor do we find that differential access to unpaid family labor or social constraints limiting sales to local areas are important. We do find evidence that women invested the grants differently from men. A smaller share of the smaller grants remained in the female-owned enterprises, and men were more likely to spend the grant on working capital and women on equipment. We also find that the gender gap is largest when we compare male-dominated sectors to female-dominated sectors, although female returns are lower than male returns even for females working in the same industries as men. We then examine the heterogeneity of returns to determine whether any group of businesses owned by women benefit from easing capital constraints. The results suggest there is a large group of high-return male owners and smaller group of poor, high-ability, female owners who might benefit from more access to capital.
    Keywords: microenterprises, gender, microfinance, randomized experiment
    JEL: O12 O16 C93
    Date: 2008–10
  12. By: Hakki Yazici
    Abstract: This paper studies efficient allocation of resources in an economy in which agents are initially heterogeneous with regard to their wealth levels and whether they have ideas or not. An agent with an idea can start a business that generates random returns. Agents have private information about (1) their initial types, (2) how they allocate their resources, and (3) the realized returns. The unobservability of returns creates a novel motive for subsidizing agents who have ideas but lack resources to invest in them. To analyze this motive in isolation, the paper assumes that agents are risk-neutral and abstracts away from equality and insurance considerations. The unobservability of initial types and actions implies that the subsidy that poor agents with ideas receive is limited by incentive compatibility: the society should provide other agents with enough incentives so that they do not claim to be poor and have ideas. The paper then provides an implementation of the constrained-efficient allocation in an incomplete markets setup that is similar to the U.S. Small Business Administration's Business Loan Program. Finally, the paper extends the model in several dimensions to show that the results are robust to these generalizations of the model.
    Keywords: Productivity
    Date: 2008
  13. By: Zhu Wang (Economic Research Department, Federal Reserve Bank of Kansas City.); Daniel Yi Xu (Department of Economics, New York University.)
    Abstract: This paper provides a theory of “family network”, in contrast to “local externalities”, to explain the geographic concentration of industry. For many industries, one most important source of entrants is spinoffs, who typically locate near parent firms and benefit from knowledge linkage and business relation within the family network. As a result, firms are more likely to enter and less likely to exit if they are associated with a large family. Using a unique dataset of US automobile industry in its early years, we identify six historically important production centers and sixty spinoff families. Our empirical analysis disentangles the effect of “family networks” from other “local externalities,” and provides strong evidence that it was the former rather than the latter that caused the geographic concentration of US automobile production.
    Keywords: Spinoffs, Entry and Exit, Geography of Industry
    JEL: J6 L0 R1
    Date: 2008–09
  14. By: Peter Wirtz (Université Lumière (Lyon 2) – COACTIS (EA 4161) et IFGE)
    Abstract: (VF)Sur la base d’un modèle générique de l’interaction entre système de gouvernance d’entreprise et espace discrétionnaire du dirigeant (Charreaux, 2008), le présent article propose un modèle spécifique de la gouvernance des firmes entrepreneuriales en hypercroissance. Ces dernières sont notamment supposées se distinguer par la présence d’un levier cognitif et comportemental fort. Une revue de la littérature empirique consacrée aux mécanismes de la gouvernance des firmes entrepreneuriales en croissance tend à confirmer cette intuition et conforte l’idée de la contingence des dispositifs de gouvernance en fonction des stades de développement. Pour l’entreprise en hypercroissance, le levier cognitif de la gouvernance apparaît comme relativement plus important que le levier disciplinaire.(VA)From a meta-model linking a firm’s corporate governance system to managerial discretion (Charreaux, 2008) the present article derives a specific corporate governance model of the high-growth entrepreneurial firm. A survey of the empirical literature on the governance of entrepreneurial firms confirms the plausibility of the theoretical framework, especially with respect to the cognitive dimension of corporate governance.
    Keywords: hypercroissance;gouvernance;espace discrétionnaire;levier cognitif;levier disciplinaire;high-growth;governance;managerial discretion;cognitive dimension;discipline.
    JEL: G3 M13
    Date: 2008–07

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