nep-ent New Economics Papers
on Entrepreneurship
Issue of 2009‒09‒19
ten papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. What makes a high-growth firm? A probit analysis using Spanish firm-level data. By Paloma López-García; Sergio Puente
  2. Generalized barriers to entry and economic development By Saviotti, Paolo; Pyka, Andreas
  3. Entrepreneurship and aggregate merchandise trade growth in New Zealand By Richard Fabling; Lynda Sanderson
  4. Ability matching and survival of start-ups By Müller, Bettina
  5. Reform and Competitive Selection in China: An Analysis of Firm Exits By Qing Gong Yang; Paul Temple
  6. Financial distress and firm exit: determinants of involuntary exits, voluntary liquidations and restructuring exits By Balcaen,S.; Buyze, J.; Ooghe,H.
  7. Decision time in Belgium: an experiment as to how business angels evaluate investment opportunities By Joël Ludvigsen
  8. Entrepreneurial Attitudes and Behaviours in Small-Scale Dairy Farms in Turkey By Armagan, Goksel; Ozden, Altug
  9. Positional Advantage within Small Farms: Evidence from Illinois By Micheels, Eric T.; Gow, Hamish R.
  10. Theory and Evidence on Mergers and Acquisitions by Small and Medium Enterprises By Utz Weitzel; Killian J McCarthy

  1. By: Paloma López-García (Banco de España); Sergio Puente (Banco de España)
    Abstract: Many studies have established that a small number of firms, known as fast-growth firms or Gazelles, create most of the new jobs. In spite of the importance of this topic from a policy-point of view, most of those studies are descriptive and limited to a comparison of the characteristics of the high-growth group with respect to a control group of firms. This paper, on the other hand, performs a multivariate analysis of the determinants of the fast growth of Spanish firms controlling for the possible endogeneity of some variables. We use for that purpose a firm-level database with information for about 200,000 Spanish firms per year between 1996 and 2003. We find that being a start-up increases the probability of fast growth by more than 30 percentage points, conditioned on having survived over the period. Firms with initial higher relative wages and debt ratio, up to a certain point, also experience higher chances of fast growth. Hence, as it was established elsewhere, better access to finance and to human capital are key to increase the number and growth of Gazelles. We also find that high-growth firm sustain their expansion with relatively more debt and fixed-term contracts than the rest of the firms in the sample.
    Keywords: Gazelles, Job creation, Firm-level data
    JEL: J23 L11 L25
    Date: 2009–09
  2. By: Saviotti, Paolo; Pyka, Andreas
    Abstract: In this paper we are going to analyze the dynamics of barriers to entry at the international level. In our model economic development takes place and continues in the long run due to the emergence of new sectors, which can compensate for the diminishing ability of mature sectors to create employment and growth. Each new sector is created by a pervasive innovation, which creates a new market and into and out of which there are entry and exit of firms. Depending on the inter-temporal coordination of the maturation of older sectors and of the maturation of new ones our model can give rise to development paths with growth rates ranging from high to negative, to fluctuations, to bubbles and to chaos. In the construction of our model we found inspiration in a number of growth models, both endogenous and evolutionary as well as on empirical work on structural change. The model also bears some similarity of style to history friendly models. Its unique feature is that it gives rise to an endogenously variable number of sectors. Unless new sectors are exact substitutes of older ones the model gives rise to growing variety. In fact, the main objective for which the model was initially constructed was to test some propositions implying that variety growth is a necessary requirement for long term economic development. Within our model the ability to create new sectors at the right times is the crucial determinant of the growth potential of an economic system. Thus, inter country differences in the barriers to entry into new sectors can be expected to give rise to different rates of growth and in the end to increasingly skewed world income distribution.
    Keywords: Technological Change,Economic Development,Economic Variety,Entry Barriers
    Date: 2009
  3. By: Richard Fabling; Lynda Sanderson (Reserve Bank of New Zealand)
    Abstract: We present a descriptive analysis of firm-level merchandise trade, focussing on the role of entrepreneurial exporting behaviour. We document two aspects of the dynamics of trade – the contribution of novel export activity to aggregate trade growth and, conversely, the substantial exit rates of new trade relationships. The unique contribution of this paper lies in the detailed and comprehensive data we have available on market and product choices. Specifically, we make use of shipment-level goods trade data, linked to information for the universe of economically active New Zealand manufacturers,to examine trade at the firm-level and at the product-country-firm nexus. Our growth decomposition and survival analysis suggest several themes: (a) novel market entry is a significant contributor to aggregate export growth; (b) the study of international entrepreneurial behaviour should encompass not just de novo entrants, but the broad range of trade innovations initiated by incumbent exporters; (c) much expansion in trade appears to be incremental in nature; (d) despite this, such innovations appear to be inherently risky; and (e) experience and scale appear to be key factors in overcoming these risks (or at least proxies for such factors).
    JEL: D21 F10 L25
    Date: 2009–09
  4. By: Müller, Bettina
    Abstract: In this paper, I analyse how the survival of new firms is affected by the average ability level in the founding team, the team size, team members' homogeneity with respect to ability, and team members' heterogeneity with respect to education. As a theoretical basis, I apply the O-ring theory (Kremer (1993)). Using a rich employer-employee data set on the whole population of Danish firms founded in 1998, I find that the average ability level in a team and the team size have positive effects on firm survival. Having a team at all is the most crucial factor for the probability of survival of young firms. The degree of homogeneity with respect to ability and the degree of heterogeneity with respect to educations have no effect on the survival probability.
    Keywords: Entrepreneurship,firm survival,O-ring theory,start-ups
    JEL: D23 L25 L26 M13
    Date: 2009
  5. By: Qing Gong Yang (New Zealand Commerce Commission); Paul Temple (University of Surrey)
    Abstract: This paper considers aspects of the competitive selection process in China - firm entry, survival, and exit - in an important sector of manufacturing, looking in particular for changes resulting from the latest stage of reforms. Using industry survey data from a province in North-East China, we find substantial differences in the process between ownership types. By conducting a simple decomposition of the aggregate productivity growth and exploring the determinants of firm’s exit using a hazard rate model, we observe a substantial rate of churning of enterprises in the sector, and find that the competitive selection processes operate, for small and collectively owned enterprises (COEs), in a manner consistent with a private market economy. In contrast, such processes appear not to be functioning for state owned enterprises (SOEs). We conclude that competitive selection in China is not providing a sufficiently strong substitute for corporate governance based on ownership.
    Keywords: Competition; Exit; Productivity, Hazard Models
    JEL: C5 D2 L6 P5
    Date: 2009–09
  6. By: Balcaen,S.; Buyze, J.; Ooghe,H. (Vlerick Leuven Gent Management School)
    Abstract: This paper provides new insights on the determinants of firm exit after distress. Using nested logit models and a sample of 6118 distress-related exits from Belgium, we analyze the impacts of available and potential slack and the relative efficiency of voluntary liquidation, compared to acquisition and merger, on the type of exit. It appears essential to examine the type of exit outcome as a two-stage process. The first stage considers the fundamental distinction between voluntary and involuntary exit, the latter being the least favorable and most avoided exit strategy. In this situation, high levels of available and potential slack resources, as reflected by large cash holdings, strong group relations and low current leverage, increase the probability of voluntary exit. High slack allows distressed firms to avoid bankruptcy and decide on their exit process. In the second stage, and provided that exit is voluntary, voluntary liquidation is compared to restructuring exit (acquisition, merger or split) In this stage, a higher relative efficiency of voluntary liquidation compared to a restructuring exit, as indicated by absence of group relations, small firm size, high secured debt level and large cash holdings, increase the likelihood of voluntary liquidation and reduce the probability of a restructuring exit.
    Date: 2009–08–13
  7. By: Joël Ludvigsen (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.)
    Abstract: To what extent do business angels really understand their own decision process? This paper is the first in business angel research literature to use conjoint analysis to capture decision makers’ actual decision policies and to compare these results with their stated decision policies. Although more than twenty papers discussing the decision criteria of business angels have been published, most of these studies rely on post hoc methodologies (e.g. interviews and surveys) to capture the decision process. Post hoc methods assume that business angels can accurately introspect about their own decision processes, but studies from cognitive psychology suggest that decision makers are poor at introspecting. In addition, experiments in the venture capital industry have shown that venture capitalists are poor at introspecting and do not fully understand their decision processes. Taking cues from cognitive psychology, this paper starts with the hypothesis that, like venture capitalists, business angels do not fully understand their own decision processes. To test this hypothesis, an experiment including twenty-four Belgian business angels and using conjoint analysis is performed. The findings suggest that business angels are not good at introspecting about their own decision processes. Even within the confines of a controlled experiment, which greatly reduces the amount of information considered, business angels lacked strong understanding of how they made decisions.
    Keywords: business angels, decision making, entrepreneurial finance, investment evaluation, conjoint analysis
    JEL: G24 G11 M13
    Date: 2009–09
  8. By: Armagan, Goksel; Ozden, Altug
    Abstract: Dairy farms are quite important to transform Turkish livestock sector into being more productive and competitive in the process of EU integration. The purpose of this study is to determine the socio economic features of dairy farms in Turkey and to determine producersâ individual and management goals in the future. In addition, farmersâ level of participation related to the attitudes, behaviors and subjective norm components are determined and an entrepreneurship index is constructed to determine the factors that influence social economic characteristics of entrepreneurship. The material of the study consists of 167 surveys obtained from Cattle Breeders Association of Turkey in 17 cities through the postal mail in 2007. A five âLikert Scaleâ was used to determine behaviors and attitudes of farmers as well as descriptive statistics. In each category, factor weights were calculated based on factor analyses. Then, the social economic factors that determine entrepreneurship index were estimated using âLogistic Regressionâ. The results indicate that the primary goals of farmers are high income, enjoying the job, better life conditions, earning respect, utilizing the resources, better image, and producing high quality products. When entrepreneurial behaviors and attitudes are examined it was found that most of the farmers aim at earning high profit as a main goal and value dairy milk farming. The logistic regression shows that the factors that determine entrepreneur index are age, experience and area of feed crops.
    Keywords: Small-Scale Dairy Farms, Entrepreneur Index, Theory of Planned Behavior, Turkey, Consumer/Household Economics, Livestock Production/Industries, Production Economics, Q12, Q16,
    Date: 2009–08–20
  9. By: Micheels, Eric T.; Gow, Hamish R.
    Abstract: As the economic viability of small farms continues to be an issue facing policy makers and economists alike, a market orientation may be a valuable resource producers can develop as they compete in a marketplace dominated by larger firms. Marketing and strategy scholars have long established the importance of a market orientation in determining firm performance. More recently, scholars have studied the effect of these concepts in agriculture. Extending the literature of market orientation in agriculture, this study examines the concept of a positional advantage and its effect on performance using a sample of small farms in Illinois. Using a sample of 347 Illinois beef producers, we empirically measure and test the construct of positional advantage and test the relationship between positional advantage and subjective performance. Our results indicate that market orientation, entrepreneurship, innovation and learning are first-order indicators of positional advantage and that the positional advantage of a firm is positively related to firm performance.
    Keywords: Agriculture, innovation, market orientation, positional advantage, Farm Management, Production Economics, L11, L25, L26,
    Date: 2009–08–20
  10. By: Utz Weitzel; Killian J McCarthy
    Abstract: The theory of mergers and acquisitions (M&As) has been developed almost exclusively from the study of large deals by large firms. In this paper we argue that the behaviour and success of M&As by small and medium sized enterprises (SMEs) may be significantly different. Accordingly, we revisit established M&A theories, and develop a theoretical framework, and several testable hypotheses, regarding the distinctive features of SME M&As. Our empirical results support our expectations and show that, compared to large firms, acquiring SMEs: rely more intensively on external growth via M&As; are more likely to be withdrawn, suggesting that SMEs are more flexible, and more able to avoid deals that turn sour; and, finally, SME M&As are more likely to be financed with equity rather than debt, indicating that the influential financial pecking order theory is of less relevance to SMEs.
    Keywords: mergers, acquisitions, small and medium sized enterprises
    JEL: M13 G34
    Date: 2009–08

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