nep-ent New Economics Papers
on Entrepreneurship
Issue of 2009‒02‒28
twelve papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. The Entrepreneurial Adjustment Process in Disequilibrium By Andrew Burke; André van Stel
  2. Latina Entrepreneurship By Lofstrom, Magnus; Bates, Timothy
  3. Cultural Diversity and Entrepreneurship: A Regional Analysis for Germany By Audretsch, David B; Dohse, Dirk; Niebuhr, Annekatrin
  4. Financial Signalling by Innovative Nascent Entrepreneurs By Audretsch, David B; Bönte, Werner; Mahagaonkar, Prashanth
  5. Market Size and Entrepreneurship By Yasuhiro Sato; Takatoshi Tabuchi; Kazuhiro Yamamoto
  6. Who skims the cream of the Italian graduate crop? Wage-employment versus self-employment By Castagnetti, Carolina; Rosti, Luisa
  7. The dynamics of entrepreneurship in ICT: case of mobile phones downstream services in Kenya By Raphael Ngatia Kanothi
  8. Learning and Microlending By Drugov, Mikhail; Macchiavello, Rocco
  9. Labor Laws and Innovation By Acharya, Viral V; Baghai-Wadji, Ramin; Subramanian, Krishnamurthy
  10. Large Employers Are More Cyclically Sensitive By Moscarini, Giuseppe; Postel-Vinay, Fabien
  11. After They Graduate: An Overview of the Iowa State University Alumni Survey By Jolly, Robert W.; Yu, Li; Orazem, Peter
  12. Relaxed Dismissal Protection: Effects on the Hiring and Firing Behaviour of Small Firms By Stefan Bauernschuster

  1. By: Andrew Burke (Cranfield University, UK); André van Stel (University of Amsterdam)
    Abstract: The main contribution of entrepreneurship theory to economics is to provide an account of market performance in disequilibrium but little empirical research has examined firm entry and exit in this context. We redress this by modelling the interrelationship between firm entry and exit in disequilibrium. Introducing a new methodology we investigate whether this interrelationship differs between market ‘undershooting’ (the actual number of firms is below the equilibrium number) and ‘overshooting’ (vice versa). We find that equilibrium-restoring mechanisms are faster in over than in undershoots. The results imply that in undershoots a lack of competition between incumbent firms contributes to restoration of equilibrium (creating room for new-firm entry) while in overshoots competition induced by new firms (in particular strong displacement) helps restore equilibrium.
    Keywords: entry; exit; equilibrium; industrial organization; undershooting; overshooting
    JEL: B50 J01 L00 L1 L26
    Date: 2009–01–16
  2. By: Lofstrom, Magnus (Public Policy Institute of California); Bates, Timothy (Wayne State University, Detroit)
    Abstract: We utilize individual panel data from the 1996 and 2001 Survey of Income and Program Participation (SIPP) to analyze the relative success of self-employed female Hispanics. To allow for a meaningful comparison of earnings between self-employed and wage/salary employed women, we generate different earnings measures addressing the role of business equity. We compare earnings of Hispanic female entrepreneurs to both Latina wage/salary workers and to self-employed female non-Hispanic whites. Latina entrepreneurs are observed to have lower mean earnings than both white female entrepreneurs and Latina employees. However, our findings indicate that Latina entrepreneurs often do well, once differences in mean observable characteristics, such as education, are taken into account. Self-employed Latinas are estimated to earn more than observationally similar nonminority white female entrepreneurs and slightly less than observationally similar Latinas in wage/salary work.
    Keywords: Hispanic, self-employment, entrepreneurship, female, minority, Latina
    JEL: J15 J16 J31 L26
    Date: 2009–02
  3. By: Audretsch, David B; Dohse, Dirk; Niebuhr, Annekatrin
    Abstract: In this paper we investigate the determinants of entrepreneurial activity in a cross section of German regions for the period 1998-2005. Departing from the knowledge spillover theory of entrepreneurship, the focus of our analysis is on the role of the regional environment and, in particular, knowledge and cultural diversity. Our main hypothesis is that both, knowledge and diversity, have a positive impact on new firm formation. As the determinants of regional firm birth rates might differ considerably with respect to the necessary technology and knowledge input of new businesses, we consider start-ups at different technology levels. The regression results indicate that regions with a high level of knowledge provide more opportunities for entrepreneurship than other regions. Moreover, while sectoral diversity tends to dampen new firm foundation, cultural diversity has a positive and highly significant impact on technology oriented start-ups. This suggests that the diversity of people is more conducive to entrepreneurship than the diversity of firms. We conclude that regions characterized by a high level of knowledge and cultural diversity form an ideal breeding ground for technology oriented start-ups.
    Keywords: diversity; entrepreneurship; knowledge spillover
    JEL: M13 O18 R11
    Date: 2008–08
  4. By: Audretsch, David B; Bönte, Werner; Mahagaonkar, Prashanth
    Abstract: Innovative new ventures fail if they cannot attract resources needed to commercialise new ideas and inventions. Obtaining external resources is a central issue for nascent entrepreneurs - people who are in the process of starting new ventures. We argue in this paper that, a way to deal with this problem is to signal appropriability and feasibility of innovation to the financiers through patenting and prototyping activities, right in the early stages of the venture. We build a new dataset of over 900 nascent entrepreneurs with information on financing from conventional sources as well as business angels and venture capitalists. Our results suggest that patenting and prototyping increase the likelihood of obtaining external finance, especially equity. However, the most important determinant of debt is house ownership. This indicates that new start-ups need to protect their innovations and at the same time, should also prototype the intended product in order to obtain start-up finance. New ventures should therefore strategically use their innovativeness in order to obtain external finance.
    Keywords: Entrepreneurship; Finance; Information Asymmetries; Innovation
    JEL: G14 G24 G32 L26 M13 O34
    Date: 2009–02
  5. By: Yasuhiro Sato (Graduate School of Economics, Osaka University (Japan)); Takatoshi Tabuchi (Faculty of Economics, University of Tokyo (Japan)); Kazuhiro Yamamoto (Graduate School of Economics, Osaka University (Japan))
    Abstract: In order to examine the impacts of market size on entrepreneurship, we estimate a monopolistic competition model that involves entrepreneurial decision by using data on Japanese prefectures. Our results show that a larger market size measured by the population density leads to higher incentive of people to become entrepreneurs. a 10 percent increase in the population density increases the share of people who wish to become entrepreneurs by 2 percent. In contrast, the self-employment ratio is lower in prefectures with higher population density, which suggests that the market size has different impacts on the entrepreneurship in different stages.
    Keywords: market size, entrepreneurship, density economies, market expansion
    JEL: J62 L26 R12
    Date: 2009–02
  6. By: Castagnetti, Carolina; Rosti, Luisa
    Abstract: This paper tests whether the academic achievement is a significant determinant of the employment status in the Italian labor market: are the new entrepreneurs selected from the top or bottom end of the graduates ability distribution? Is the cream of the graduate crop pulled into self-employment by the higher expected earnings or are the individuals with lower degree score pushed into entrepreneurship by poor alternatives? Our data show a strong negative relation between academic achievement and self-employment status, i.e. we assess the skimming of the best graduates into wage and salary work.
    Keywords: Self-employment; Italy; Selection
    JEL: J31 J24
    Date: 2008–12–05
  7. By: Raphael Ngatia Kanothi
    Abstract: The research paper explores the extent to which mobile phones downstream services, defined here as those provided using the existing connectivity, are generating opportunities for entrepreneurship development in Kenya. After identifying the services of mobile payphones, money transfer and phone repair, the paper analyses the micro-enterprises providing them and their contribution to income and employment creation. It shows that majority of the enterprises providing the services are survivalists and they are characterised by minimal barriers to entry and therefore stiff competition. Those in growth-oriented category are characterised by barriers to entry and specialisation. These enterprises have made a notable contribution to the concerned households and the economy in form of employment opportunities, income generation and linkage with other sectors. They directly supported over 25,000 households in addition to the extra staff employed in them. Across the board the incomes of the operators improved after engaging in the enterprises. The enterprises also created opportunities for women, youth, people with disabilities and those with low or no education. To the economy, payphones have contributed to increasing the mobile phones coverage to 75% of the country; money transfer services have provided cheaper financial transactions and means of sending emergency funds; while repair services have enabled low income earners to remain connected even when they could not afford to buy new phones. The paper therefore concludes that mobile phones downstream services have generated entrepreneurial opportunities to many as well as contributing positively to the goal of fighting poverty.
    Keywords: mobile phones downstream services, enterprises, employment, income and the poor.
    Date: 2009
  8. By: Drugov, Mikhail; Macchiavello, Rocco
    Abstract: For many self-employed poor in the developing world, entrepreneurship involves experimenting with new technologies and learning about oneself. This paper explores the (positive and normative) implications of learning for the practice of lending to the poor. The optimal lending contract rationalizes several common aspects of microlending schemes, such as "mandatory saving requirements", "progressive lending" and "group funds". Joint liability contracts are, however, not necessarily optimal. Among the poorest borrowers the model predicts excessively high retention rates, the contemporaneous holding of borrowing and savings at unfavorable interest rates as well as the failure to undertake profitable and easily available investment opportunities, such as accepting larger loans to scale-up business. Further testable predictions can be used to interpret and guide the design of controlled field experiments to evaluate microlending schemes.
    Keywords: Credit Constraints; Group Lending; Microlending Schemes; Savings; Scaling-Up; Self-Discovery
    JEL: D14 O14 O16
    Date: 2008–10
  9. By: Acharya, Viral V; Baghai-Wadji, Ramin; Subramanian, Krishnamurthy
    Abstract: Can stringent labor laws be efficient? Possibly, if they provide firms with a commitment device to not punish short-run failures and thereby incentivize the pursuit of value-maximizing innovative activities. In this paper, we provide empirical evidence that strong labor laws indeed appear to have an ex ante positive incentive effect by encouraging the innovative pursuits of firms and their employees. Using patents and citations as proxies for innovation and a time-varying index of labor laws, we find that innovation is fostered by stringent labor laws, especially by laws governing dismissal of employees. We provide this evidence using levels-on-levels, changes-on-changes, and finally difference-in-difference regressions that exploit staggered country-level law changes. We also find that stringent labor laws disproportionately influence innovation in those sectors of the economy that are more innovation intensive. Finally, we find that while the overall effect of stringent labor laws is to dampen economic growth, laws that govern dismissal of employees are an exception: dismissal laws promote economic growth, consistent with the evidence that they encourage firm-level innovation.
    Keywords: Entrepreneurship; Growth; Labor laws; Law and finance; R&D; Technological change
    JEL: F30 G31 J5 J8 K31
    Date: 2009–02
  10. By: Moscarini, Giuseppe; Postel-Vinay, Fabien
    Abstract: We provide new evidence that large firms or establishments are more sensitive than small ones to business cycle conditions. Larger employers shed proportionally more jobs in recessions and create more of their new jobs late in expansions, both in gross and net terms. The differential growth rate of employment between large and small firms varies by about 5% over the business cycle. Omitting cyclical indicators may lead to conclude that, on average, these cyclical effects wash out and size does not predict subsequent growth (Gibrat's law). We employ a variety of measures of relative employment growth, employer size and classification by size. We revisit two statistical fallacies, the Regression and Reclassification biases, that can affect our results, and we show empirically that they are quantitatively modest given our focus on relative cyclical behavior. We exploit a variety of (mostly novel) U.S. datasets, both repeated cross-sections and job flows with employer longitudinal information, starting in the mid 1970's and now spanning four business cycles. The pattern that we uncover is robust to different treatments of entry and exit of firms and establishments, and occurs within, not across broad industries, regions and states. Evidence on worker flows suggests that the pattern is driven at least in part by excess layoffs by large employers in and just after recessions, and by excess poaching by large employers late in expansions. We find the same pattern in similar datasets in four other countries, including full longitudinal censuses of employers from Denmark and Brazil. Finally, we sketch a simple firm-ladder model of turnover that can shed light on these facts, and that we analyze in detail in companion papers.
    Keywords: Business Cycle; Firm Size; Gibrat's Law; Job flows
    JEL: E24 E32 J21 J63
    Date: 2009–02
  11. By: Jolly, Robert W.; Yu, Li; Orazem, Peter
    Abstract: This report provides a descriptive overview of the Iowa State University Alumni Survey. In late 2007, 25,000 Iowa State University alumni who received bachelor's degree between 1982 and 2006 were surveyed to obtain information on their career paths, employment status, further education, entrepreneurial activities, community engagement and current income. The on-line and written survey resulted in approximately 5,500 valid returns.
    Keywords: human capital, career path, bachelor's degree recipients, land-grant university, entrepreneurship, personal income, community engagement.
    Date: 2009–02–17
  12. By: Stefan Bauernschuster (University of Jena, Graduate College "The Economics of Innovative Change")
    Abstract: Small firms are seen as important drivers of dynamics and innovation. They need to be particularly flexible and be able to react quickly to new challenges. This paper uses the latest change in dismissal protection legislation in Germany as a natural experiment and tries to find causal effects on the hiring and firing behaviour of small firms. Using a difference-in-differences approach, I find only small but positive effects on the total number of hirings. However, there are substantial substitution effects from temporary contract hirings to permanent contract hirings. The results remain robust when using count data models and applying fixed effects specifications.
    Keywords: Employment Protection, Small Business, Worker Flows
    JEL: J38 K31 M21
    Date: 2009–02–20

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