nep-ent New Economics Papers
on Entrepreneurship
Issue of 2009‒02‒14
sixteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Why Do Individuals Choose Self-Employment? By Dawson, Christopher; Henley, Andrew; Latreille, Paul L.
  2. Switching Costs and Occupational Transition into Self-Employment By Henley, Andrew
  3. What makes start-ups out of unemployment different? By Schanne, Norbert; Weyh, Antje
  4. Financial Signaling by Innovative Nascent Entrepreneurs By David B. Audretsch; Werner Bönte; Prashanth Mahagaonkar
  5. New small firms and dimensions of economic performance By Shaffer , Sherrill; Hasan , Iftekhar; Zhou, Mingming
  6. Innovative Firms or Innovative Owners? Determinants of Innovation in Micro, Small, and Medium Enterprises By de Mel, Suresh; McKenzie, David; Woodruff, Christopher
  7. A Novel Approach to Incubator Evaluations: The PROMETHEE Outranking Procedures By Michael Schwartz; Maximilian Göthner
  8. Innovation Success of Non-R&D-Performers: Substituting Technology by Management in SMEs By Rammer, Christian; Czarnitzki, Dirk; Spielkamp, Alfred
  9. New Firm Formation and Economic Development in a Globalizing Economy By Koster, Sierdjan; Karlsson, Charlie
  10. Exporting quality: is it the right strategy for the Italian manufacturing sector? By Imbriani, Cesare; Morone, Piergiuseppe; Testa, Giuseppina
  11. Proximity and Innovation in Italian SMEs By Morone, Piergiuseppe; Petraglia, Carmelo; Testa, Giuseppina
  12. RELATIONSHIP LENDING - EMPIRICAL EVIDENCE FOR GERMANY By Memmel, Christoph; Schmieder, Christian; Stein, Ingrid
  13. Optimistic, but not in Control: Life-Orientation and the Theory of mixed Control By Diemo Urbig; Erik Monsen
  14. Geographic Proximity and Firm-University Innovation Linkages: evidence from Great Britain By Laura Abramovsky; Helen Simpson
  15. Regional Financial System and the Financial Structure of Small Firms By Prashanth Mahagaonkar; Swayan Chaudhuri
  16. Auf gute Nachbarschaft? Zentreninterne Netzwerkstrukturen und Determinanten von Wissenschaftskooperationen in deutschen Technologie- und Gründerzentren By Michael Schwartz; Christoph Hornych

  1. By: Dawson, Christopher (University of Wales, Swansea); Henley, Andrew (University of Wales, Swansea); Latreille, Paul L. (University of Wales, Swansea)
    Abstract: This paper undertakes an analysis of the motivating factors cited by the self-employed in the UK as reasons for choosing self-employment. Very limited previous research has addressed the question of why individuals report that they have chosen self-employment. Two questions are addressed using large scale labour force survey data for the UK. The first concerns the extent to which the self-employed are self-employed out of necessity, opportunity, lifestyle decision or occupational choice. The second concerns the extent to which there is heterogeneity amongst the self-employed on the basis of the motivations that they report for choosing self-employment. Factor analysis reveals a number of different dimensions of entrepreneurship on the basis of stated motivation, but with no evidence that being 'forced' into entrepreneurship through economic necessity is a significant factor. Motivation towards entrepreneurship is therefore highly multidimensional. Multivariate regression analysis is employed using a method to control for self-selection into self-employment. This reveals significant differences between men and women, with women concerned more with lifestyle factors and less with financial gain. Market-directed 'opportunity' entrepreneurship is more strongly associated with higher educational attainment. Those joining family businesses appear not to value prior educational attainment. Public policy to promote entrepreneurship therefore needs to be tailored carefully to different groups.
    Keywords: self-employment, entrepreneurship, motivation, occupational choice
    JEL: L26 J24
    Date: 2009–01
  2. By: Henley, Andrew (University of Wales, Swansea)
    Abstract: Contemporary dynamic theories of self-employment choice focus on occupational switching costs, and the risk associated with entrepreneurial income streams. However little or no previous research has addressed the question of what factors determine the length of time that it takes aspiring entrepreneurs to switch into self-employment. The existence of switching costs suggests that choice may be subject to 'hysteresis' (akin to investment under conditions of irreversibility and uncertainty). This paper presents empirical evidence on the dynamics of entrepreneurial transition drawing on data from Waves 8 to 16 of the British Household Panel Survey. The paper estimates a discrete-time duration model of the time between initial expressions of aspiration to transition into self-employment. The model incorporates measures of local economic volatility to capture uncertainty, as well as a range of demographic and background factors which may be associated with lower switching costs. Econometric results reveal that switching costs are lower for men, older individuals and graduates, as well as for those with prior entrepreneurial experience. Increased volatility in the local housing market is also found to be associated with slower transition, suggesting that information about the housing market may form an important indicator of uncertainty for aspiring entrepreneurs.
    Keywords: self-employment, entrepreneurship, switching costs, occupational choice
    JEL: J23 J24 C23
    Date: 2009–01
  3. By: Schanne, Norbert (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weyh, Antje (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "'What makes start-ups out of unemployment different?' To answer this question we formulate a theoretical sketch for start-up activity out of unemployment. Furthermore, we estimate spatial autoregressive models for the regional start-up rates out of unemployment as well as out of employment with German data from 1999 to 2004 at the NUTS3-level. Characteristics describing the populations of potential entrepreneurs as well as agglomeration externalities have a similar impact on both start-up rates. They are, however, affected in different ways by the regional wage level and the probability of entrepreneurial success. Moreover, the local impact of these determinants is amplified by spatial spillover and spatial feedback effects in particular for the start-up rate out of unemployment." (author's abstract, IAB-Doku) ((en))
    Keywords: Unternehmensgründung - Determinanten, Arbeitslose, berufliche Selbständigkeit, regionale Faktoren, Lohnhöhe, Persönlichkeitsmerkmale, regionale Verteilung
    JEL: C31 J23 M13 R12
    Date: 2009–01–29
  4. By: David B. Audretsch (Indiana University and Max Planck Institute of Economics, Jena, Germany); Werner Bönte (Bergische Universität Wuppertal and Max Planck Institute of Economics, Jena, Germany); Prashanth Mahagaonkar (Max Planck Institute of Economics, Jena, Germany)
    Abstract: External finance is central for nascent entrepreneurs, people in the process of starting new ventures. We argue that nascent entrepreneurs use patents and prototypes in order to signal their ability to appropriate the returns from their innovation as well as the project's feasibility. Our analysis of 900 nascent entrepreneurs finds that patents and prototypes increase the likelihood of obtaining equity finance. Thus, if signals are credible, innovation positively impacts external financing. Interestingly, entrepreneurs in planning versus early start-up stage portray different signaling effects, indicating that the relation between finance and innovation depends on the stage of a start-up lifecycle.
    Keywords: Innovation, Entrepreneurship, Finance, Information Asymmetries
    JEL: L26 M13 G14 G24 G32 O34
    Date: 2009–02–01
  5. By: Shaffer , Sherrill (University of Wyoming and Centre for Applied Macroeconomi Analysis, Australian National University); Hasan , Iftekhar (Lally School of Management, Rensselaer Polytechnic Institute and Bank of Finland); Zhou, Mingming (University of Alaska at Fairbanks)
    Abstract: Using data from US labour market areas, we quantify empirical associations between entry by small firms and a vector of economic performance measures encompassing levels, volatilities and growth rates of several income and employment variables. Distinct and robust associations are found for net and gross rates of entry. These results suggest a richer variety of effects of entry than previously documented, and point to several potential tradeoffs associated with entry by small firms.
    Keywords: growth; stability; employment; entry
    JEL: J23 M13 O10
    Date: 2009–01–21
  6. By: de Mel, Suresh (University of Peradeniya); McKenzie, David (World Bank); Woodruff, Christopher (University of California, San Diego)
    Abstract: Innovation is key to technology adoption and creation, and to explaining the vast differences in productivity across and within countries. Despite the central role of the entrepreneur in the innovation process, data limitations have restricted standard analysis of the determinants of innovation to consideration of the role of firm characteristics. We develop a model of innovation which incorporates the role of both owner and firm characteristics, and use this to determine how product, process, marketing and organizational innovations should vary with firm size and competition. We then use a new large representative survey from Sri Lanka to test this model and to examine whether and how owner characteristics matter for innovation. The survey also allows analysis of the incidence of innovation in micro and small firms, which have traditionally been overlooked in the study of innovation, despite these firms comprising the majority of firms in developing countries. More than one quarter of microenterprises are found to be engaging in innovation, with marketing innovations the most common. As predicted by our model, firm size is found to have a stronger positive effect, and competition a stronger negative effect, on process and organizational innovations than on product innovations. Owner ability, personality traits, and ethnicity are found to have a significant and substantial impact on the likelihood of a firm innovating, confirming the importance of the entrepreneur in the innovation process.
    Keywords: innovation, microenterprises, SMEs, development
    JEL: O31 L26
    Date: 2009–01
  7. By: Michael Schwartz; Maximilian Göthner
    Abstract: Considerable public resources are devoted to the establishment and operation of business incubators (BIs), which are seen as catalysts for the promotion of entrepreneurship, innovation activities and regional development. Despite the vast amount of research that has focused on the outcomes or effectiveness of incubator initiatives and how to measure incubator performance, there is still little understanding of how to determine incubators that are more effective than others. Based on data from 410 graduate firms, this paper applies the multi-criteria outranking technique PROMETHEE (Preference Ranking Organization Method for Enrichment Evaluation) and compares the long-term effectiveness of five technology-oriented BIs in Germany. This is the first time that outranking procedures are used in incubator evaluations. In particular, we investigate whether PROMETHEE is a well-suited methodological approach for the evaluation and comparisons in the specific context of business incubation.
    Keywords: Business Incubators; Evaluation; Performance Measures; PROMETHEE; Outranking
    JEL: C44 D81 L26 O38
    Date: 2009–01
  8. By: Rammer, Christian; Czarnitzki, Dirk; Spielkamp, Alfred
    Abstract: This paper investigates the impact of in-house R&D and innovation management practices on innovation success in small and medium-sized firms (SMEs). While there is little doubt about the significance of technology competence for generating successful innovations, inhouse R&D activities may be a particular challenge for SMEs due to high risk exposure, high fixed costs, high minimum investment and severe financial constraints. SMEs may thus opt for refraining from R&D and relying more on innovation management tools in order to achieve innovation success. We analyse whether such a strategy can pay off. Based on data from the German CIS we find that R&D activities are a main driver for innovation success if combined with external R&D, using external innovation sources or by entering into cooperation agreements. SMEs without in-house R&D can yield a similar innovation success if they effectively apply human resource management tools or team work to facilitate innovation processes.
    Keywords: Innovation Success, R&D, Innovation Management, SMEs
    JEL: L25 O31 O32 O38 O47
    Date: 2008
  9. By: Koster, Sierdjan (Urban and Regional Studies Institute, Groningen University); Karlsson, Charlie (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper provides an overview of how globalization can impact on new firm formation and its consequence on regional economic development. Although there is a large body of research on new firm formation, the economic context in which new firm formation takes place has received considerably less attention. Globalization, changes conditions for new firm formation and it may change the role of new firm formation in economic development. The main conclusion of this review is that there is very little concrete understanding about if and how globalization actually impacts on new firm formation. Thus, the conclusion of this paper is probably best read as suggestions for research that addresses the issue of new firm formation in a globalizing economy. We distinguish two main avenues for research. The first avenue is on the firm level and is concerned with the issue to what extent new firms are actually influenced by globalization. The second avenue is on the regional level and addresses the question if and how globalization will impact on the regional distribution of new firm formation. Although globalization may open up the world market for many regions, it is uncertain whether this will lead to a reshuffle of economic development, for example governed by developments in new firm formation. Competition is fierce and it is a question of which regions are ready to take the opportunities that globalization offers.
    Keywords: New Firm Formation; Economic Development; Regional Development; Globalizing; Economy; Innovation; Productivity; Growth; Employment Growth
    JEL: L10 M13 O10 R11
    Date: 2009–01–28
  10. By: Imbriani, Cesare; Morone, Piergiuseppe; Testa, Giuseppina
    Abstract: ABSTRACT: Recently, most European manufacturing firms have been engaged in a number of innovative activities to survive the growing competition coming from newly-industrialising countries. Italian manufacturing industry, which relies largely on SMEs, is struggling to regain competitiveness in global markets. In light of these stylised facts, we first investigate whether innovating activities and quality goods’ production enhance Italian SMEs’ probability to be exporter. Our findings suggest that both products’ quality and innovative activities affect considerably SMEs’ likelihood to export. Subsequently, using the Chow test, we find evidence for a structural break produced by quality, which results in substantial differences between high and low-quality firms. The former are more likely to export if they introduce product innovation, marketing innovation and/or organisational changes, the latter increase their chances of exporting when introducing process innovations and organisational changes.
    Keywords: SMEs; exports; innovative activities; quality; probit
    JEL: O31 C25 L1
    Date: 2008–12–19
  11. By: Morone, Piergiuseppe; Petraglia, Carmelo; Testa, Giuseppina
    Abstract: Abstract: In this paper we assess the relevance of both knowledge creation and diffusion processes in affecting Italian SMEs’ propensity to innovate. In doing so a knowledge production function (KPF) is estimated for a representative sample of small and medium manufacturing firms over the period 1998-2003. To account for endogeneity of R&D effort in the KPF, we estimate a Heckman selection model on R&D decisions and obtain two main results. First, we do not find the probability of being engaged in intramural R&D activities to be significantly related to firm size. Second, for those firms engaged in R&D activities, the intensity of R&D effort increases with firm size. Then, the KPF is estimated for three different samples of firms using a standard probit where the probability that SMEs will innovate depends upon intramural R&D effort, regional and industrial spillovers and a vector of interaction and control variables. The main results obtained from this second set of regressions are the following: first, we find the probability to innovate to be positively related to sectoral spillovers, the magnitude of such impact being decreasing in firms’ size. Second, knowledge diffusion via geographical proximity enhances the probability of the recipient firm to innovate only if it has an appropriate endowment of human capital.
    Keywords: Innovation; knowledge; spillovers; firm size
    JEL: L6 O3 C25
    Date: 2008–12–05
  12. By: Memmel, Christoph (Deutsche Bundesbank); Schmieder, Christian (European Investment Bank); Stein, Ingrid (Deutsche Bundesbank)
    Abstract: Relationship lending is a common practice in credit financing all over the world, notably also in the European Union, which has been assumed to be particularly beneficial for Small and Medium-Sized Enterprises (SMEs). During recent years, there has been the impression that relationship lending loses ground due to a change of the banks' business models, which could ultimately yield to a worsening of the business environment for corporates and SMEs. In this study, we investigate the determinants of relationship lending for Germany, where relationship lending traditionally plays an important role. Compared to previous studies, we refer to much more comprehensive data with information on more than 16,000 firm-bank relationships. Our findings confirm the assumption that relationship lending seems to be an important pillar for economic growth and employment: We find that the firms that are most likely to contribute to (future) economic growth, namely small and R&D-intensive firms, tend to choose a relationship lender. The same is observed for firms of high credit quality, independent of their size or R&D intensity. Furthermore, we also observe that the importance of relationship lending did not decrease since the mid 1990s.
    Keywords: Relationship banking; German banking system; SME
    JEL: G21 G32
    Date: 2008–05–20
  13. By: Diemo Urbig (Max Planck Institute of Economics, Jena, Germany); Erik Monsen (Max Planck Institute of Economics, Jena, Germany)
    Abstract: Why are some people more optimistic about their life than others? Literature on locus of control suggests that optimism is associated with the belief that one’s life outcomes are controlled by internal factors, such as ability, instead of external factors, such as powerful others or chance. Furthermore, some authors suggest that internal control beliefs interact with self-efficacy beliefs regarding their effects on outcome expectancies and thus optimism. We argue that it is not only self-efficacy that interacts, but efficacy beliefs about external factors, too. We further hypothesize that the effect of perceiving internal rather than external control on dispositional optimism depends on the difference between efficacy beliefs regarding internal and external factors. Since people can influence other people to be helpful, i.e., take proxy control, but are unlikely to influence chance, we extend this internal-versus-external view and suggest that the difference between perceived control by others and perceived control by chance affect dispositional optimism. In fact, we hypothesize that the effect of perceiving that it is other people who are in control, rather than chance, depends on the difference between efficacy beliefs regarding others and chance. A first empirical survey-based test produces substantial support for our theory. This is the first time control-efficacy interaction effects are shown for dispositional variables and for the three- dimensional construct of locus of control. We replicate a gender effect on correlations of dispositional optimism with self-reported risk taking and observe a gender effect for one of our new hypotheses.
    Keywords: Information, Knowledge, Uncertainty, Search, Learning, Information and Knowledge, Communication, Belief, Expectations, Speculations
    JEL: D8 D83 D84
    Date: 2009–02–02
  14. By: Laura Abramovsky; Helen Simpson
    Abstract: We investigate evidence for spatially mediated knowledge transfer from university research. We examine whether firms locate their R&D labs in proximity to university research departments, and whether those that do are more likely to co-operate with, or source information from universities in the course of their innovative activities. We find evidence that pharmaceutical firms locate their R&D facilities near to frontier chemistry research departments, consistent with accessing localised knowledge spillovers, but also linked to the presence of science parks. In industries such as chemicals and vehicles there is less evidence of immediate co-location with universities, but those innovative firms that do locate near to relevant research departments are more likely to engage with universities.
    Keywords: Innovation, Geography, spillovers, public research
    JEL: O3 R11 R13 I23
    Date: 2008–06
  15. By: Prashanth Mahagaonkar (Max Planck Institute of Economics, Jena, Germany); Swayan Chaudhuri (Newcastle University)
    Abstract: The capital structure of firms is known to be different not only due to firm characteristics but also to the sources of capital. Therefore, there is a need to understand the supply side effects on a firm´s capital structure. A small firm´s choice of financing sources may be limited by the supply-side financial endowment of the region. Small firms are known to be heavily reliant on internal finance and the quantity and price channels are expected to drive usage of debt. Our findings on 2000 small firms in England show that the quantity and price channels might work only for supply of very local capitals. Firms tend to prefer internal finance when semi-local or national institutions show higher commercial operational distance in their region. These results point out that semi-local and national institutions tend to drive away usage of debt due to monitoring costs or credit rationing, while very local institutions increase the usage of debt through quantity or price channels.
    Keywords: capital structure, regional financial system, information asymmetries, geography
    JEL: G24 G32 E5 N2 O18
    Date: 2009–02–01
  16. By: Michael Schwartz; Christoph Hornych
    Abstract: The article examines cooperation patterns of firms located in German business incubators (BIs) and technology centers. Based on cross-sectional data, the study explores the network activities within the tenant portfolio and the academic-industry linkages of the tenant firms. In this respect, we contribute to the literature on the impact of business incubation by explicitly considering differences regarding cooperation patterns between diversified and specialized incubator facilities. Contrary to common assumptions, we do not find a higher propensitiy for incubator-internal cooperation activities for firms located in specialized BIs. However, firms located in specialized BIs show significantly higher propensity to engage in academic-industry linkages compared to firms located in diversified incubators.
    Keywords: Business incubators; Science parks; Specialization; Diversification; Net- working; Academic-Industry-Linkages; Local technology policy
    JEL: D85 L26 M13 O38
    Date: 2009–01

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