nep-ent New Economics Papers
on Entrepreneurship
Issue of 2010‒08‒21
eleven papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Stars and Misfits: Self-Employment and Labor Market Frictions By Thomas Astebro; Jing Chen; Peter Thompson
  2. Using Self-employment as Proxy for Entrepreneurship: Some Empirical Caveats By Bjuggren, Carl Magnus; Johansson, Dan; Stenkula, Mikael
  3. Modelling the Determinants of Job Creation: Microeconometric Models Accounting for Latent Entrepreneurial Ability By Abdelfatah Ichou
  4. Who Starts with Open Source? Institutional Choice of Start-Ups in the German ICT Sector By Michael Fritsch; Sebastian von Engelhardt
  5. The Metropolitan Region of Campinas, Brazil: applying the technopolis framework By Lambais, Guilherme B. R.
  6. The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly By Kirschenmann, K.
  7. The Importance of Trust for Investment: Evidence From Venture Capital (Revision of DP 2009-43) By Bottazzi, L.; Da Rin, M.; Hellmann, T.
  8. Competitive, but too small - productivity and entry-exit determinants in European business services By Kox, Henk L.M.; Leeuwen, George van; Wiel, Henry van der
  9. Competition and Innovation: Pushing Productivity Up or Down? By Brouwer, E.; Wiel, H.P. van der
  10. Inheritance Law and Investment in Family Firms By ANDREW ELLUL; MARCO PAGANO; FAUSTO PANUNZI
  11. Financing Risk and Bubbles of Innovation By Ramana Nanda; Matthew Rhodes-Kropf

  1. By: Thomas Astebro (HEC Paris); Jing Chen (Department of Economics, Florida International University); Peter Thompson (Department of Economics, Florida International University)
    Abstract: Recent evidence has shown that entrants into self-employment are disproportionately drawn from the tails of the earnings and ability distributions. This observation is explained by a multi-task model of occupational choice in which frictions in the labor market induces mismatches between firms and workers, and mis-assignment of workers to tasks. The model also yields distinctive predictions relating prior work histories to earnings and to the probability of entry into self-employment. These predictions are tested with the Korean Labor and Income Panel Study, from which we find considerable support for the model.
    Keywords: entreprenuership; self-employment; jack-of-all trades; skill complementarity
    JEL: J24 L26
    Date: 2010–03
  2. By: Bjuggren, Carl Magnus (Linköping University); Johansson, Dan (The Ratio Institute); Stenkula, Mikael (Research Institute of Industrial Economics (IFN))
    Abstract: Research on entrepreneurship has received an increased amount of interest in recent years, with self-employment being used as the most common proxy for “entrepreneurship” in empirical studies. However, there are various ways of defining self-employment, making it a somewhat dubious proxy. This may flaw the analysis, especially in cross-country studies, since the documentation of data often is insufficient and difficult to access due to language barriers. We present an analysis of Swedish self-employment data. We show that the measurement of self-employment has changed over time to noticeably affect the reported number of self-employed in the two major statistical sources on self-employment. The reported development of self-employment sometimes differs diametrically depending on source. Sweden is occasionally erroneously reported to show the largest increase in self-employment in cross-country studies. Our study mimics the results of other country-specific analyses and we conclude that well-grounded conclusions require that the advantages and disadvantages of different statistical sources are recognized.
    Keywords: Labor Force Survey; RAMS; Self-employed; Self-employment; Entrepreneurship
    JEL: C81 C82 L26 M13
    Date: 2010–07–09
  3. By: Abdelfatah Ichou
    Abstract: During the last decades, most developed countries have shown a remarcable increase in entrepreneurship rates. Recent research suggests that this increase is, for a considerable part, caused by an increase in the share of solo self-employed. Nowadays, for example, more than half of all Dutch business owners are solo self-employed. This raises the question which factors determine whether an entrepreneur becomes an employer or remains solo self-employed. A recent study by EIM investigates the decision of entrepreneurs whether or not to become an employer and the decision of employers to hire a certain number of employees. The first decision is examined by estimating duration models that model the duration of the time spent as solo entrepreneur before the transition to employer is made. The estimations are performed on a panel of Dutch start-ups in 1998, 1999 and 2000. We find that entrepreneurs who founded a firm to improve their work-life balance are less likely to make the transition to employership. The remaining factors that we found to influence the employer decision do this all in a positive way. These factors include whether or not the entrepreneur has the objective to maximize revenue, experience within the industry in which he operates, his entrepreneurial experience, selfefficacy, risk attitude and the time that is spent in the company. We also find that the likelihood of becoming a job creator is positively related to the business cycle. The second decision is examined by estimating count models that model the number of employees that are hired in the first year of employership. We find that higher levels of educational, entrepreneurial experience and self-efficacy of the entrepreneur lead to a greater firm size. Another factor that increases firm size is innovativeness. The moment in time at which the transition from soloentrepreneur to employer is made, also plays are role. For the first few years we find a negative relationship with firm age, indicating that the faster the switch is made, the more personnel will be employed. Also, for the employee decision we find a positive relation with the business cycle.  
    Date: 2010–08–09
  4. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Sebastian von Engelhardt (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: We analyze the characteristics of new businesses in the German ICT industry, distinguishing them based on their choice between two IPR regimes: open source software (OSS) or closed source software (CSS). The share of new firms with an OSS-based business model has increased considerably over the last several years. OSS-based firms tend to be smaller (in terms of staff and capital) and experience less shortages of capital. Only older cohorts of OSS-intensive start-ups had more difficulty than their CSS counterparts in convincing potential financiers of their viability, indicating that OSS business models are now well established. We find no evidence that the lower entry barriers for OSS firms are particularly attractive to start-ups with low human capital endowment or to necessity-motivated entrepreneurs.
    Keywords: New business formation, institutions, open source, intellectual property rights, software industry
    JEL: D02 L17 L26 L86
    Date: 2010–08–04
  5. By: Lambais, Guilherme B. R.
    Abstract: This paper examines the potential of the Metropolitan Region of Campinas (MRC) for becoming a technopolis. Located an hour from São Paulo, in Southeastern Brazil, the MRC has been internationally recognized as an important world technological center. This paper maps the economic and technological environment of the region and develops an analysis of the strengths, weaknesses, opportunities and threats in the MRC with respect to entrepreneurship and becoming a technopolis. We begin by looking at selected high-technology industry and service sectors as well as the infrastructure supporting technological innovation and entrepreneurship in the form of research institutes, a research university (Unicamp), support groups, and three incubators. We then discuss the results of two surveys of companies associated with Unicamp or one of the incubators to determine the reliance of these companies on the MRC infrastructure for financing and marketing to networking and legal assistance, as well as their policy recommendations for improving entrepreneurship in the region. We conclude that the region is attractive to many companies and has great potential for future success as a technopolis due to its high levels of both hard and smart infrastructure, the strength of support available from a variety of local institutions, and the high level of economic activity in potentially innovative industrial and service sectors. However, there are several ways that the university, incubators, and public policies could better support entrepreneurship in the MRC. Specifically, an increase in public and private partnerships as well as greater capitalization options for start-ups are key areas the region could change to provide support for greater diversification of the start-ups in the area and further development of the MRC as a technopolis.
    Keywords: technology-based start-ups; entrepreneurship; innovation; incubation; economic development; Campinas
    JEL: O18 O32 O31
    Date: 2009–09
  6. By: Kirschenmann, K. (Tilburg University, Center for Economic Research)
    Abstract: This paper studies how credit constraints develop over bank relationships. I analyze a unique dataset of matched loan application and loan contract information and measure credit constraints as the ratio of requested to granted loan amounts. I find that the most important determinants of receiving smaller than requested loan amounts are firm age and size at the time of the first interaction between borrower and bank. Over loan sequences, credit constraints decease most pronouncedly in the beginning of relationships and for the initially young and small firms. Moreover, the structure of the dataset allows me to disentangle the demand and supply effects behind these observed credit constraints. I find that the gap between requested and granted loan amounts decreases because both sides converge. If previous credit constraints were large, requested amounts increase more moderately, while granted amounts increase more strongly than in the case of small previous constraints. The findings are a sign of the use of dynamic incentives at the bank side to overcome information problems when contracting repeatedly with opaque borrowers. The results further suggest that, particularly in the beginning of a bank relationship, borrowers learn from their previous experience with credit constraints and adjust their demand accordingly.
    Keywords: Credit constraints;relationship lending;small business lending;asymmetric information;learning
    JEL: D82 G20 G21 G30
    Date: 2010
  7. By: Bottazzi, L.; Da Rin, M.; Hellmann, T. (Tilburg University, Center for Economic Research)
    Abstract: We examine the effect of trust on financial investment and contracting decisions in a micro-economic environment where trust is exogenous. Using hand-collected data on European venture capital, we show that the Eurobarometer measure of trust among nations significantly affects investment decisions. This holds even after controlling for investor and company fixed effects, geographic distance, information and transaction costs. The national identity of venture capital firms’ individual partners further contributes to the effect of trust. Education and work experience reduce the effect of trust but do not eliminate it. We also examine the relationship between trust and sophisticated contracts involving contingent control rights and find that, even after controlling for endogeneity, they are complements, not substitutes.
    Keywords: Venture Capital;Social Capital;Trust;Financial Contracts;Corporate Governance.
    JEL: G24 G34 K22 M13
    Date: 2010
  8. By: Kox, Henk L.M.; Leeuwen, George van; Wiel, Henry van der
    Abstract: The paper investigates whether scale effects, market structure, and regulation determine the poor productivity performance of the European business services industry. We apply parametric and nonparametric methods to estimate the productivity frontier and subsequently explain the distance of firms to the productivity frontier by market characteristics, entry- and exit dynamics and national regulation. The frontier is assessed using detailed industry data panel for 13 EU countries. Our estimates suggest that most scale advantages are exhausted after reaching a size of 20 employees. This scale inefficiency is persistent over time and points to weak competitive selection. Market and regulation characteristics explain the persistence of X-inefficiency (sub-optimal productivity relative to the industry frontier). More entry and exit are favourable for productivity performance, while higher market concentration works out negatively. Regulatory differences also appear to explain part of the business services' productivity performance. In particular regulation-caused exit and labour reallocation costs have significant and large negative impacts on the process of competitive selection and hence on productivity performance. Overall we find that the most efficient scale in business services is close to 20 employees and that scale inefficiencies show a hump-shape pattern with strong potential scale economies for the smallest firms and diseconomies of scale for the largest firms. The smallest firms operate under competitive conditions, but they are too small to be efficient. And since this conclusion holds for about 95 out of every 100 European business services firms, this factor weighs heavily for the overall productivity performance of this industry.
    Keywords: productivity; frontier models; scale; industry dynamics; regulation; European Union; business services
    JEL: L8 C34 L1 R38
    Date: 2010–07–01
  9. By: Brouwer, E.; Wiel, H.P. van der (Tilburg University, Center for Economic Research)
    Abstract: This paper examines the relationship between competition, innovation and productivity for the Netherlands. We use industry level data aggregated from micro data as well as moments from firm level data for the period 1996-2006. We match innovation data from Community Innovation Survey with accounting data to link innovative activities with performance at the industry level. We find strong evidence for a positive impact of competition on Total Factor Productivity (TFP) at the industry level. Competition directly increases TFP by reducing X-ineficiencies and removing inefficient forms from markets, but also through more innovation. Nonetheless, there exists an inverted U- curve between competition and innovation for the Netherlands, at least for manufacturing industries. Yet, our results indicate that a negative effect of competition on productivity through lower innovation expenditures arises only at very high levels of competition.
    Keywords: competition;innovation;profit elasticity;productivity
    JEL: D40 L16 O31
    Date: 2010
  10. By: ANDREW ELLUL (Kelley School of Business); MARCO PAGANO (University of Naples Federico II,CSEF, EIEF and CEPR); FAUSTO PANUNZI (Bocconi University,FEEM, CEPR and ECGI)
    Abstract: Entrepreneurs may be legally bound to bequeath a minimal stake to non-controlling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of the permissiveness of inheritance law and data for 10,004 firms from 38 countries in 1990-2006, we find that stricter inheritance law is associated with lower investment in family firms, but does not affect investment in non-family firms. Moreover, as the model predicts, inheritance law affects investment only in family firms that experience a succession.
    JEL: G31 G32 G38
    Date: 2010
  11. By: Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit); Matthew Rhodes-Kropf (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: Investors in risky startups who stage their investments face financing risk -that is, the risk that later stage investors will not fund the startup, even if the fundamentals of the firm are still sound. We show that financing risk is part of a rational equilibrium where investors can flip from investing to not investing in certain sectors of the economy. We further demonstrate that financing risk has the greatest impact on firms with the most real option value. Hence, the mix of projects funded and type of investors who are active varies with the level of financing risk in the economy. We also highlight that some extremely novel technologies may in fact need `hot' financial markets to get through the initial period of diffusion. Our work underscores that financial markets may play a much larger and under-studied role in creating and magnifying bubbles of innovation in the real economy.
    Date: 2010–08

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