nep-ent New Economics Papers
on Entrepreneurship
Issue of 2009‒04‒05
fourteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Key Characteristics of the Small Innovative Firm By Andersson, Martin; Lööf, Hans
  2. Entrepreneurial Finance and Non-diversifiable Risk By Hui Chen; Jianjun Miao; Neng Wang
  3. Risk Attitude and Investment Decisions across European Countries : Are Women More Risk Averse Investors Than Men? By Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer
  4. Adverse Selection and Risk Aversion in Capital Markets By Braido, Luis; da Costa, Carlos; Dahlby, Bev
  5. Angel investors and entrepreneurs: do they live happily ever after? By V. COLLEWAERT
  6. How does Tacit Knowledge Transfer Influence Innovation Speed? The Case of Science Based Entrepreneurial Firms By M. KNOCKAERT; D. UCBASARAN; M. WRIGHT; B. CLARYSSE
  7. The Age Effect in Entrepreneurship: Founder's Tenure, Firm;Performance, and the Economic Environment By Marco Cucculelli; Giacinto Micucci
  8. Innovation in New Zealand: Issues of Firm Size, Local Market Size and Economic Geography By Philip McCann; Les Oxley; Hong Shangqin
  9. The surprising use of credit scoring in small business lending by community banks and the attendant effects on credit availability and risk By Allen N. Berger; Adrian M. Cowan; W. Scott Frame
  10. The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure: Evidence from Dutch Panel Data By Degryse, H.A.; Goeij, P. C. de; Kappert, P.
  11. Geographic proximity and firm-university innovation linkages: evidence from Great Britain By Laura Abramovsky; Helen Simpson
  12. Credit market competition and the nature of firms By Nicola Cetorelli
  13. Bank Competition and Firm Growth in the Enlarged European Union By Gábor Pellényi; Tamás Borkó
  14. The Effects of Fiscal Incentives for R & D in Spain By Beatriz Corchuelo; Ester Martinez-Ros

  1. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Despite broad agreement on the strategic role of SMEs (Small and Medium Sized Enterprises) in industrial renewal processes, the lack of systematized and comprehensive information on the nature and level of small innovative firms is striking. This bias is partly explained by an empirical shadow created by the limited availability of good, detailed data for comparable firm-level analyses. Based on extensive matched databases, the purpose of this paper is to provide new insights into the roles of micro and small innovative firms in research-based as well as tradition-based manufacture. The data consists of close to 160 000 observations of manufacturing firms in Sweden over the period 2000-2006, including information on innovation activities captured by patent applications, firm characteristics, international trade and the regional milieu.
    Keywords: Innovation; Innovative Firms; Entrepreneurship; Small firms; Intellectual Property Rights; Technology Transfer; Location
    JEL: F43 L26 M13 O31 O34
    Date: 2009–03–25
  2. By: Hui Chen; Jianjun Miao; Neng Wang
    Abstract: Entrepreneurs face significant non-diversifiable business risks. We build a dynamic incomplete markets model of entrepreneurial finance to demonstrate the important implications of nondiversifiable risks for entrepreneurs' interdependent consumption, portfolio allocation, financing, investment, and business exit decisions. The optimal capital structure is determined by a generalized tradeoff model where leverage via risky non-recourse debt provides significant diversification benefits. More risk-averse entrepreneurs default earlier, but also choose higher leverage, even though leverage makes his equity more risky. Non-diversified entrepreneurs demand both systematic and idiosyncratic risk premium. Cash-out option and external equity further improve diversification and raise the entrepreneur’s valuation of the firm. Finally, entrepreneurial risk aversion can overturn the risk-shifting incentives induced by risky debt.
    JEL: E2 G11 G31 G32
    Date: 2009–04
  3. By: Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer
    Abstract: This study questions the popular stereotype that women are more risk averse than men in their investment decisions. The analysis is based on micro-level data from large-scale surveys of private households in five European countries. We enrich the conventional approach to examination of gender differences by explicitly controlling for investors' self-perceived risk aversion. Our results confirm the gender stereotype only partially. We find that women are less likely to hold risky assets. However, female owners of risky assets allocate an equal or even a higher share of their wealth to these assets than men. Our findings suggest that especially in case of women, the declared attitude toward financial risks may be misleading as it does not necessarily reflect the actual willingness to bear risks.
    Keywords: gender, risk aversion, financial behavior
    JEL: G11 J16
    Date: 2009
  4. By: Braido, Luis (Fundacao Getulio Vargas); da Costa, Carlos (Fundacao Getulio Vargas); Dahlby, Bev (University of Alberta, Department of Economics)
    Abstract: We generalize the Boadway and Keen (2006) model of adverse selection in a capital market to allow for risk aversion on the part of entrepreneurs. We show that the Boadway and Keen conclusion-that adverse selection leads to excessive investment-does not necessarily hold when entrepreneurs are risk averse. We use their framework, with the additional assumption of risk aversion, to analyze the effect of policies that would reduce entrepreneurs' reliance on debt or equity financing by outside investors. We show that such policies, by exposing entrepreneurs to more down-side risk, may reduce the level of investment in risky projects, increase inequality and potentially reduce social welfare.
    Keywords: adverse selection; capital markets; inefficiency; risk and entrepreneurship
    JEL: D82 G14 O16 O17
    Date: 2009–03–16
    Abstract: Adopting a multilevel approach, this study is one of the first to look into the factors that influence investors’ and entrepreneurs’ intentions to voluntarily remain with their businesses. Building on conflict theory, this paper examines how both perceived and latent conflicts (or perceived and actual incompatibilities) between angel investors and entrepreneurs affect their intentions to remain. Further, an assumption implicit to many entrepreneurial finance papers is also tested, namely that entrepreneurs want to outstay their investors. Using data gathered in two locations, the findings confirm this assumption and reveal a significant negative impact of both perceived and latent task conflicts, but not so for relationship conflicts.
    Date: 2009–01
    Abstract: The increased pressure put on public research institutes to commercialize their research results has given rise to an increased academic interest in technology transfer in general and science based entrepreneurial firms specifically. By building on innovation speed and knowledge literatures, this paper aims to improve understanding of how tacit knowledge can be effectively transferred from the research institute to the science based entrepreneurial firm. More specifically, we assess under which conditions tacit knowledge contributes to the generation of innovation speed, which is a crucial success parameter for technology based ventures. Using an inductive case study approach, we show that tacit knowledge can only be transferred effectively when a substantial part of the original research team joins the new venture as founders. Our analysis also reveals that the mere transfer of tacit knowledge is insufficient to ensure the successful commercialization of technology. Commercial expertise is also required on the condition that the cognitive distance between the scientific researchers and the person responsible for market interaction is not too large. Our findings have implications for science based entrepreneurs, technology transfer officers, venture capitalists, policy makers and the academic community.
    Keywords: science based entrepreneurial firms; tacit knowledge; technology transfer; innovation speed; cognitive distance
    Date: 2009–01
  7. By: Marco Cucculelli (Universit… Politecnica delle Marche, Department of Management and Insutrial Organization); Giacinto Micucci (Banf of Italy)
    Abstract: This paper tests the effect of founder's tenure on firm performance by taking into account the impact of the changes occurring in the economic environment. We use a large dataset of founder-run firms that includes, in addition to financial data, company data directly collected through a survey of about 2,000 Italian firms. Unlike the negative relationship reported in most empirical papers, we found an inverted U-shaped relationship between founder-CEO tenure and firm performance. This relationship is strongly influenced by the characteristics of the environment in which the company competes: while experience plays a key role in fostering performance in less innovative and less competitive sectors, a dynamic environment makes the performance of the firm less responsive to the benefits of founder tenure. From the viewpoint of policy, growing environment dynamism calls for greater efficiency of the market for corporate control, in order to assure a continued match between skills of CEOs and the external environment.
    Keywords: ageing, changing environment, entrepreneurship, founder-run firms
    JEL: G34 J24 L25
    Date: 2009–03
  8. By: Philip McCann; Les Oxley (University of Canterbury); Hong Shangqin
    Abstract: In this paper we report empirical evidence from a mixed methods approach to investigating the drivers of innovation in New Zealand. The evidence comes from a primary questionnaire survey we conducted across seventy-five local firms plus fifteen face-to-face case study interviews. Our survey response data is analysed using four different types of probability models and the various models are all found to be largely consistent with each other. The insights from these estimation methods are then bolstered by detailed follow-up case studies of individual firms in different industries and product groups regarding their innovation and competition experiences. Our results from both forms of evidence-gathering suggest that in a small and isolated local market such as New Zealand, smallness in terms of firm size may not be an advantage for innovation. The reason appears to be that the notion of ‘small’ itself may have an absolute minimum threshold, below which translating entrepreneurship into innovation becomes problematic. As such, applying theories of local economic development to local economies which exhibit similar features to New Zealand may require us to adjust our thinking in order to take account of different absolute scale effects in different types of economies.
    Keywords: Innovation; New Zealand; SME; Economic Geography
    JEL: O31 O33 O38
    Date: 2009–04–01
  9. By: Allen N. Berger; Adrian M. Cowan; W. Scott Frame
    Abstract: The literature has documented a positive relationship between the use of credit scoring for small business loans and small business credit availability, broadly defined. However, this literature is hampered by the fact that all of the studies are based on a single 1998 survey of the very largest U.S. banking organizations. This paper addresses a number of deficiencies in the extant literature by employing data from a new survey on the use of credit scoring in small business lending, primarily by community banks. The survey evidence suggests that the use of credit scores in small business lending by community banks is surprisingly widespread. Moreover, the scores employed tend to be the consumer credit scores of the small business owners rather than the more encompassing small business credit scores that include data on the firms as well as on the owners. Our empirical analysis suggests that credit scoring is associated with increased small business lending after a learning period, with no material change in the quality of the loan portfolio. However, these quantity and quality results appear to vary depending on the way in which credit scores are implemented in the underwriting process. incompl s
    Keywords: banks, small business, credit scoring CL HG2567 A4A5
    Date: 2009
  10. By: Degryse, H.A.; Goeij, P. C. de; Kappert, P. (Tilburg University, Center for Economic Research)
    Abstract: We investigate small firms’ capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. We find that the capital structure decision of Dutch SMEs is consistent with the pecking order theory: SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. Furthermore, we document that profits reduce in particular short term debt, whereas growth increases long term debt. This implies that when internal funds are depleted, long term debt is next in the pecking order. We also find evidence for the maturity matching principle in SME capital structure: long term assets are financed with long term debt, while short term assets are financed with short tem debt. This implies that the maturity structure of debt is an instrument for lenders to deal with problems of asymmetric information. Finally, we find that SME capital structure varies across industries but firm characteristics are more important than industry characteristics.
    Keywords: Capital Structure;SMEs;pecking order theory;trade-off theory
    JEL: G32 G30
    Date: 2009
  11. By: Laura Abramovsky (Institute for Fiscal Studies); Helen Simpson (Institute for Fiscal Studies and CMPO, Bristol)
    Abstract: <p><p>We investigate evidence for spatially mediated knowledge transfer from university research. We examine whether firms locate their R&D labs near universities, and whether those that do are more likely to co-operate with, or source knowledge from universities. We find that pharmaceutical firms locate R&D 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, but those innovative firms that do locate near to relevant research departments are more likely to engage with universities.</p></p>
    Keywords: Innovation, geography, spillovers, public research
    JEL: O3 R11 R13 I23
    Date: 2009–01
  12. By: Nicola Cetorelli
    Abstract: Empirical studies show that competition in the credit markets has important effects on the entry and growth of firms in nonfinancial industries. This paper explores the hypothesis that the availability of credit at the time of a firm's founding has a profound effect on that firm's nature. I conjecture that in times when financial capital is difficult to obtain, firms will need to be built as relatively solid organizations. However, in an environment of easily available financial capital, firms can be constituted with an intrinsically weaker structure. To test this conjecture, I use confidential data from the U.S. Census Bureau on the entire universe of business establishments in existence over a thirty-year period; I follow the life cycles of those same establishments through a period of regulatory reform during which U.S. states were allowed to remove barriers to entry in the banking industry, a development that resulted in significantly improved credit competition. The evidence confirms my conjecture.Firms constituted in post-reform years are intrinsically frailer than those founded in a more financially constrained environment, while firms of pre-reform vintage do not seem to adapt their nature to an easier credit environment. Credit market competition does lead to more entry and growth of firms, but also to complex dynamics experienced by the population of business organizations.
    Keywords: Commercial credit ; Banking law ; Corporations - Finance ; Competition; firm dynamics, credit reform, imprinting
    Date: 2009
  13. By: Gábor Pellényi; Tamás Borkó
    Abstract: We examine the impact of bank competition and institutional factors on net firm entry in a sample of European manufacturing industries over the 1995-2006 period. Taking into account industry differences in the need for external finance, we find that bank competition helps firm entry. In addition, better institutions - especially legal structure and property rights - also have a positive impact, particularly through a better functioning financial system.
    Keywords: market structure, banks, market entry, manufacturing, financial development
    JEL: D4 G21 L11 L60 O16
    Date: 2009
  14. By: Beatriz Corchuelo; Ester Martinez-Ros
    Abstract: This paper explores the effect of fiscal incentives for R&D on innovation. Spain is considered one of the most generous countries in the OECD in fiscal treatment of R&D, yet our data reveal that tax incentives are little known and, especially, seldom used by firms. Restricting our empirical analysis to those firms that do report knowing about such incentives, we investigate the average effect of tax incentives on innovation, using both nonparametric methods (matching estimators) and parametric methods (Heckman’s two-step selection model with instrumental variables). First, we find that large firms, especially those that implement innovations, are more likely to use the tax incentives, while small and medium enterprises (SMEs) encounter some obstacles to using them. Secondly, the average effect of the policy is positive, but significant only in large firms. Our main conclusion is that tax incentives increase innovative activities by large and high-tech sector firms, but may be used only randomly by SMEs
    Keywords: R&D fiscal incentives, Matching methods
    JEL: O31 H25 H32
    Date: 2009–03

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