nep-ent New Economics Papers
on Entrepreneurship
Issue of 2009‒04‒25
thirteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Entrepreneurial Entry: Which Institutions Matter? By Aidis, Ruta; Estrin, Saul; Mickiewicz, Tomasz
  2. What is the Effect of the Current Financial Crisis on Venture Capital Financing? Empirical Evidence from US Internet Start-ups By Block, Joern; Sandner, Philipp
  3. Sources of Persistence in Regional Start-Up Rates - evidence from Sweden By Andersson, Martin; Koster, Sierdjan
  4. Reconceptualizing Entrepreneurial Exit: Divergent Exit Routes and Their Drivers By Wennberg, Karl; Wiklund, Johan; DeTienne, Dawn; Cardon, Melissa
  5. Unbounding entrepreneurial intents of university students: a multidisciplinary perspective By Aurora A.C. Teixeira; Rosa Portela Forte
  6. Which Immigrants Are Most Innovative and Entrepreneurial? Distinctions by Entry Visa By Jennifer Hunt
  7. University professors and research commercialization: An empirical test of the “knowledge corridor” thesis By Gabrielsson, Jonas; Politis, Diamanto; Tell, Joakim
  8. Are small business owners more successful in avoiding taxes: Evidence from Sweden By Hansson, Åsa
  9. Entrepreneurial Equity Financing and Securities Regulation: An Empirical Analysis By Cécile Carpentier; Jean-Marc Suret
  10. The Canadian Public Venture Capital Market By Cécile Carpentier; Jean-Marc Suret
  11. The evolution of Chinese entrepreneurial firms: Township-village enterprises revisited By Xu, Chenggang; Zhang, Xiaobo
  12. Small Nordic Enterprises - developing IPR in global competition By Iversen, Eric; Mäkinen, Iiro; Lööf, Hans; Oh, Dong-Hyun; Jespersen, Svend; Junge, Martin; Bech, Jonas
  13. Product Innovation Incentives: Monopoly vs. Competition By Marius Schwartz

  1. By: Aidis, Ruta (University College London); Estrin, Saul (London School of Economics); Mickiewicz, Tomasz (University College London)
    Abstract: In this paper we explore the relationship between the individual decision to become an entrepreneur and the institutional context. We pinpoint the critical roles of property rights and the size of the state sector for entrepreneurial activity and test the relationships empirically by combining country-level institutional indicators for 44 countries with working age population survey data taken from the Global Enterprise Monitor. A methodological contribution is the use of factor analysis to reduce the statistical problems with the array of highly collinear institutional indicators. We find that the key institutional features that enhance entrepreneurial activity are indeed the rule of law and limits to the state sector. However, these results are sensitive to the level of development.
    Keywords: entrepreneurship, property rights, access to finance
    JEL: L26 P14 P51 P37
    Date: 2009–04
  2. By: Block, Joern; Sandner, Philipp
    Abstract: Employing a large dataset regarding venture capital investments in US Internet firms, we analyze the effect of the current financial crisis on the venture capital market. Using regression analysis, we find that the financial crisis led to a 20% decrease in the average amount of funds raised per funding round. This effect, however, can only be found in later funding rounds. We argue that firms in later financing rounds that need capital to survive cannot avoid a deduction induced by the financial crisis, whereas firms that seek initial funding postpone their funding and expansion plans until the capital markets have stabilized. Furthermore, firms in later phases of the venture cycle are more likely to be negatively affected by the weak IPO market than firms seeking initial funding. Our results suggest that the financial crisis can lead to a severe "funding gap" in the financing of technological development and innovation.
    Keywords: Entrepreneurship; Financial Crisis; Venture Capital; Innovation Finance
    JEL: O30 L26 G24
    Date: 2009–04–21
  3. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Koster, Sierdjan (Urban and Regional Studies Institute, Faculty of Spatial Science, University of Groningen)
    Abstract: The relationship between start-up rates and regional economic development has been studied rather extensively in recent years. Dynamics in start-up rates have however received considerably less attention. In this paper we analyze the persistence of start-up rates across Swedish regions over a decade and analyze the sources of persistence. We find overall persistence in start-up rates. Start-up rates of a decade earlier are able to explain over 40 % of the variation in current start-up rates across regions. The paper introduces and tests two mechanisms that can account for persistence in start-up rates across regions: (i) path-dependence in start-up activity, such that there is a response mechanism between previous and current start-up activity and (ii) spatially ‘sticky’ and durable determinants of start-ups. A dynamic panel analysis applying the system GMM estimator of lagged start-up rates on current start-up rates, confirms that persistence in start-up activity can be explained by both effects. Using transition probability analysis and quantile regression techniques, we also show that there is a regional dimension in persistence.
    Keywords: entrepreneurship; start-ups; persistence; path-dependence; start-up dynamics; geography of entrepreneurship
    JEL: L26 O18 R11 R12
    Date: 2009–04–18
  4. By: Wennberg, Karl (Dept. of Business Administration, Stockholm School of Economics); Wiklund, Johan (Whitman School of Management); DeTienne, Dawn (Colorado State University); Cardon, Melissa (Pace University)
    Abstract: We develop a conceptual model of entrepreneurial exit which includes exit through liquidation and firm sale for both firms in financial distress and firms performing well. This represents four distinct exit routes. In developing the model, we complement the prevailing theoretical framework of exit as a utility-maximizing problem among entrepreneurs with prospect theory and its recent applications in liquidation of investment decisions. We empirically test the model using two Swedish databases which follow 1,735 new ventures and their founders over eight years. We find that entrepreneurs exit from both firms in financial distress and firms performing well. In addition, commonly examined human capital factors (entrepreneurial experience, age, education) and failure-avoidance strategies (outside job, reinvestment) differ substantially across the four exit routes, explaining some of the discrepancies in earlier studies
    Keywords: Entrepreneurial Exit; Prospect Theory; Human Capital
    Date: 2009–02–10
  5. By: Aurora A.C. Teixeira (CEF.UP, Faculdade de Economia, Universidade do Porto; INESC Porto); Rosa Portela Forte (CEF.UP, Faculdade de Economia, Universidade do Porto)
    Abstract: Entrepreneurial activities are seen as key drivers of innovation, job creation, and economic growth. Recent efforts are being pursued by several entities, including governments to promote entrepreneurial skills amongst the youngest. However, to design effective programs, policy makers have to uncover the determinants of entrepreneurship. To avoid that such efforts would be fruitless we argue that a multidisciplinary account of entrepreneurial intents among students is mandatory, circumventing past biased analysis towards business and engineering areas. Thus, in this paper we present the results of a survey to all final year university students of the largest Portuguese university. It encompasses a sample of 2431 students enrolled in 60 different undergraduate courses of 14 schools/faculties. Results evidence that the average entrepreneurial intents reaches a reasonable (by international standards) figure of 27%, with students enrolled in non-traditionally entrepreneurial focused areas – Humanities, Sports, Health and Sciences – and courses - Pharmacy, Veterinary, Law, Languages, History, History of the Arts and Archaeology, Sports, Biology and Chemistry, Dentistry - revealing higher entrepreneurial intents. Based on logit estimations, we further found that psychological factors, such as risk propensity, leadership profile, and creativeness, are the most important (positive) determinants of students’ entrepreneurial intents. Contextual factors (e.g., family background and professional experience) failed to emerge as critical factors in explaining students’ entrepreneurial intents - only business context emerged as important. Despite such results might at a first glance convey the idea that education policy for promoting entrepreneurship has limited application, we argue that it is not the case. What is required is different policy measures targeting students’ attitudes and behaviors in both business and non business areas, avoiding the long-established mistake of confining entrepreneurial education related programs within business schools.
    Keywords: Entrepreneurship; Intents; Students; Higher Education; Multidisciplinary; Portugal
    JEL: M13 I21 A22
    Date: 2009–04
  6. By: Jennifer Hunt
    Abstract: Using the 2003 National Survey of College Graduates, I examine how immigrants perform relative to natives in activities likely to increase U.S. productivity, according to the type of visa on which they first entered the United States. Immigrants who first entered on a student/trainee visa or a temporary work visa have a large advantage over natives in wages, patenting, commercializing or licensing patents, and publishing. In general, this advantage is explained by immigrants' higher education and field of study, but this is not the case for publishing, and immigrants are more likely to start companies than natives with similar education. Immigrants without U.S. education and who arrived at older ages suffer a wage handicap, which offsets savings to the United States from their having completed more education abroad. Immigrants who entered with legal permanent residence do not outperform natives for any of the outcomes considered.
    JEL: J61 O31
    Date: 2009–04
  7. By: Gabrielsson, Jonas; Politis, Diamanto; Tell, Joakim
    Abstract: There has been an increasing interest in the determinants and outcomes of successful technology transfer and commercialization of research results. In this study we test the validity of the “knowledge corridor” thesis for explaining the involvement of university professors’ in the early stages of research commercialization. Statistical analysis on a sample of 86 respondents from engineering, natural science and medical faculties in a large Swedish university shows that both entrepreneurial and private industry experience significantly influence their ability to spot and generate business ideas in their research. Moreover, we find that research based business idea generation increase at a faster rate for professors with private sector work experience who have more time for research in their positions. The article ends with a discussion of our empirical findings together with its implications for support activities related to technology transfer and commercialization of research results.
    Keywords: academic entrepreneurship, knowledge corridor, research commercialization
    JEL: O31 O32 O33 O34 O38 N5 O47 R58
    Date: 2009
  8. By: Hansson, Åsa (Department of Economics, Lund University)
    Abstract: It is commonly argued that high tax rates motivate individuals to start a business as it is easier to avoid and evade taxes if self-employed compared to employed. If this is the case we would expect small business owners to be more responsive to tax rate changes than employees. This study investigates how responsive existing small business owners are to tax rate changes by estimating the elasticities of taxable income, gross income and reported income from business ventures for small business owners and contrast them to corresponding elasticities for employees. This is done by using a particularly rich Swedish data set and the 1990/91 Swedish tax reform as a “natural experiment”. I find that small business owners’ taxable income is about twice as responsive to tax rate changes than employees’. When it comes to reported income from business ventures the difference between small business owners and employees are even greater. For gross disposable income, however, business owners are not more responsive. This is consistent with the hypothesis that small business owners have greater means to shift income between different income sources in order to avoid taxation.
    Keywords: Taxable income elasticities; tax avoidance
    JEL: H24 H26 J24
    Date: 2009–04–19
  9. By: Cécile Carpentier; Jean-Marc Suret
    Abstract: Securities regulation generally restrains entrepreneurial ventures from entering the stock market, to protect investors. Scholars and regulators contend that strong rules and requirements for listing are essential to prevent the stock market from failing. However, these constraints can also unduly impede the growth of new ventures. We use the exceptional case of Canada to examine the effects of the relaxation of regulatory constraints. In this country, firms can use the reverse takeover technique to list at a very early stage, without revenues, with a minimal size and even without writing a prospectus. This situation provides a unique opportunity to examine entrepreneurial ventures listed on a public market. The quality of firms, along with their post-listing operating performance and strategy, fate and market returns largely reinforce the view that strong listing requirements are essential. Easing these constraints does not seem to lead many good firms to growth and success. <P>La réglementation des valeurs mobilières interdit généralement l’accès au marché boursier des entreprises en démarrage, afin de protéger les investisseurs. Des universitaires et les organismes de réglementation prétendent que des règles strictes et des exigences fortes sont nécessaires pour éviter l’échec du marché. Toutefois, ces contraintes peuvent limiter de façon exagérée les possibilités de croissance des entreprises émergentes. Nous exploitons la situation très particulière du Canada pour étudier l’effet du relâchement des contraintes réglementaires. Dans ce pays, les entreprises émergentes peuvent entrer en Bourse au moyen de prises de contrôle inverses, alors qu’elles ne rapportent pas de revenus et présentent une capitalisation minime. Elles peuvent même échapper à l’obligation de préparer un prospectus. Cette situation permet d’étudier des entrepreneurs inscrits sur un marché public d’actions. La qualité des entreprises, de même que leur performance après l’accès en Bourse et leur stratégie indiquent qu’il semble nécessaire de maintenir des exigences élevées. Leur relâchement ne semble pas correspondre à l’accès en Bourse d’entreprises de qualité orientées vers la croissance et le succès.
    Keywords: securities regulation, entrepreneurial ventures, equity financing, reverse takeover, public policy., réglementation des valeurs mobilières, entrepreneurs, entreprises émergentes, émissions d’actions, prise de contrôle inversée, politique publique.
    Date: 2009–04–01
  10. By: Cécile Carpentier; Jean-Marc Suret
    Abstract: We describe and analyze how a stock exchange can be used to finance emerging companies and to assume the role usually played by private VCs. We find that the Canadian public VC market has a success rate which is approximately four times the corresponding rate for private VC. The public VC market provides approximately seven times as many new listings to the main market as private VCs. For a five-year horizon, the delisting rate of newly listed companies is much lower than the failure rate observed for the private VC sector in Canada. Finally, the comparison of the returns shows that the public VC market outperforms the private one. We conclude that a public VC market is indeed able to compete with a private one, even if it does not have the tools, skills and value added capabilities usually attributed to private VCs. <P>Nous décrivons et analysons l’utilisation d’un marché boursier pour le financement d’entreprises émergentes, alors que ce rôle est généralement dévolu aux investisseurs en capital de risque (le capital de risque privé). Le taux de succès de ce marché public de capital de risque Canadien est prés de quatre fois supérieur à celui mesuré pour le marché privé. Au Canada, le marché public amène sept fois plus de nouvelles inscriptions sur le marché principal, le TSX, que ne le fait le capital de risque privé. Pour un horizon de cinq ans, le taux de disparition des entreprises nouvellement inscrites sur la Bourse de croissance est beaucoup moindre que le taux d’échec rapporté par le capital de risque. Enfin, le rendement du marché public est largement supérieur à celui du marché privé du capital de risque. Nous en déduisons que le marché public du capital de risque est parfaitement capable de concurrencer le marché privé, même s’il ne dispose pas des outils, habiletés et moyens d’ajout de valeur que l’on associe généralement au capital de risque conventionnel.
    Keywords: Venture Capital, small business, stock market, Canada, securities regulation, public policy., Capital de risque, petites et moyennes entreprises, marché boursier, Canada, réglementation des valeurs mobilières, politiques publiques.
    Date: 2009–04–01
  11. By: Xu, Chenggang; Zhang, Xiaobo
    Abstract: "Township-village enterprises (TVEs) were a major engine of China's rapid rural industrialization in the past three decades. TVEs also played a key role in fostering entrepreneurship and served as a major stepping-stone for institutional changes when legal protections of private property rights were not in place and the state-owned enterprises (SOEs) were slow to react to changing market demand. As private ownership was gradually recognized legally, TVEs lost their edge in competing with private firms. In the past two decades, industrial clusters with a concentration of private entrepreneurial firms coordinated by local governments have emerged rapidly in many areas. The structures of such firms as TVEs and the subsequent clustering modes of production are an outcome of interaction with other local and macro environments. As the environment changes, a firm's organization and organizational structure may change as well." from authors' abstract
    Keywords: Cluster, Firm theory, Industrialization, Growth, Development strategies,
    Date: 2009
  12. By: Iversen, Eric (NIFU STEP Studies in Innovation, Research and Education, Oslo, Norway); Mäkinen, Iiro (ETLA, Research Institute of the Finnish Economy, Helsinki, Finland); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Oh, Dong-Hyun (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Jespersen, Svend (Centre for Economics and Business Research, CEBR, Copenhagen, Denmark); Junge, Martin (Centre for Economics and Business Research, CEBR, Copenhagen, Denmark); Bech, Jonas (Centre for Economics and Business Research, CEBR, Copenhagen, Denmark)
    Abstract: This paper presents the results of a pan-Nordic study to explore how small and medium-size enterprises use IPR. It is a pilot study that demonstrates a commonly developed approach designed to overcome the barriers that hinder study of IPR use by small firms. The pilot study focuses particularly on patenting, based on the common approach linking national business registries with patent applicants. This is the first cross-country project of its kind to develop and execute such an exercise. It applies available definitions and approaches to improve comparability in the Nordic area and with other efforts (such as the OECD patent name harmonization activity). The intention is to demonstrate how this cross-country approach can address the needs of policymakers in the Nordic countries for reliable and comparative information about IPR use among the smallest firms.
    Keywords: SMEs; patenting; firm size
    JEL: F43 L26 M13 O31 O34
    Date: 2009–04–18
  13. By: Marius Schwartz (Department of Economics, Georgetown University)
    Abstract: Arrow (1962) showed that a secure monopolist (unconcerned with preemption) has a weaker incentive than would a competitive firm to invest in a patentable process innovation. This paper shows that the ranking can be reversed for product innovations. Only the innovator sells the new product, a differentiated substitute for the old. Under alternative market structures considered, the old product is sold only by that same firm (two-product monopoly), only by a different firm (post-innovation duopoly), or in perfect competition. In an asymmetric Hotelling model, the innovation incentive under monopoly is greater than under duopoly if and only if the new product has the higher quality, and is always greater than under perfect competition. Classification-JEL Codes: D4, L1
    Date: 2009–04–02

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