nep-ent New Economics Papers
on Entrepreneurship
Issue of 2010‒09‒11
nine papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Science-Based Business : Knowledge Capital or Entrepreneurial Ability? : Theory and Evidence from a Survey of Biotechnology Start-ups By Braguinsky, Serguey; Honjo, Yuji; Nagaoka, Sadao; Nakamura, Kenta
  2. Unraveling the Shift to the Entrepreneurial Economy By D.B. Audretsch; A.R. Thurik
  3. Measuring Business Ownership Across Countries and Over Time: Extending the COMPENDIA Data Base By André van Stel; Chantal Hartog; J. Cieslik Cieslik
  4. Export entrepreneurs : evidence from Peru By Freund, Caroline; Pierola, Martha Denisse
  5. Self-Selection into Export Markets by Business Services Firms: Evidence from France, Germany and the United Kingdom By Temouri, Yama; Vogel, Alexander; Wagner, Joachim
  6. Expected returns to stock investments by angel investors in groups By Ramon P. DeGennaro; Gerald P. Dwyer
  7. Venture Capital Investment in the Clean Energy Sector By Shikhar Ghosh; Ramana Nanda
  8. Bank credit, trade credit or no credit: Evidence from the Surveys of Small Business Finances By Cole, Rebel
  9. Female Entrepreneurship in Developing Countries By Minniti, Maria; Naudé, Wim

  1. By: Braguinsky, Serguey; Honjo, Yuji; Nagaoka, Sadao; Nakamura, Kenta
    Abstract: We present a model of science-based entrepreneurship where ideas initially produced by researchers with high-level knowledge capital may be developed by high-ability entrepreneurs. With moderate investment costs, startups continuously managed by inventors-founders coexist in equilibrium with startups that experience entrepreneurial turnover. The model predicts that startups managed by non-founder entrepreneurs would on average outperform the startups managed by their founders and that better functioning of the market for entrepreneurial talent should result in more entrepreneurial turnover in equilibrium which in its turn leads to more ideas being commercialized and higher rewards to successful startups. The predictions of the model are tested against a unique dataset drawing upon a representative sample of biotechnology startups in Japan and are found to be broadly supported in the data.
    Keywords: Science-based Business, Biotechnology, Start-ups, Entrepreneurship, Innovation
    JEL: O31 O32
    Date: 2010–09
  2. By: D.B. Audretsch (Institute for Development Strategies, Indiana University, U.S.A.); A.R. Thurik (Erasmus University Rotterdam and EIM, Zoetermeer, the Netherlands)
    Abstract: A recent literature has emerged providing compelling evidence that a major shift in the organization of the developed economies has been taking place: away from what has been characterized as the <I>managed economy</I> towards the <I>entrepreneurial economy</I>. In particular, the empirical evidence provides consistent support that (1) the role of entrepreneurship has significantly increased, and (2) a positive relationship exists between entrepreneurial activity and economic performance. However, the factors underlying this observed shift have not been identified in a systematic manner. The purpose of this paper is to suggest some of the factors leading to this shift and implications for public policy. In particular, we find that a fundamental catalyst underlying the shift from the managed to the entrepreneurial economy involved the role of technological change. However, we also find that it was not just technological change but rather involved a number of supporting factors, ranging from the demise of the communist system, increased globalization, new competition for multinational firms and higher levels of prosperity. Recognition of the causes of the shift from the managed to the entrepreneurial economy suggests a rethinking of the public policy approach. Rather than the focus of directly and exclusively on promoting startups and SMEs, it may be that the current approach to entrepreneurship policy is misguided. The priority should not be on entrepreneurship policy but rather a more pervasive and encompassing approach, policy consistent with an <I>entrepreneurial economy</I>.
    Keywords: entrepreneurship; economic regime switch; economic policy; new firms and startups; economic development; firm performance and market structure; globalization; new technologies
    JEL: E10 E60 H11 L1 L2 M13 O10
    Date: 2010–08–24
  3. By: André van Stel; Chantal Hartog; J. Cieslik Cieslik
    Abstract: Since several years EIM Business and Policy Research maintains a data base on business ownership rates across OECD countries, called COMPENDIA (COMParative ENtrepreneurship Data for International Analysis). EIM harmonizes raw numbers of business owners (self-employed), as published in the OECD Labour Force Statistics, towards a uniform definition. We define the business ownership rate as the number of owner-managers of unincorporated and incorporated businesses, as a fraction of the total labour force. Until recently, data in COMPENDIA were published for a group of 23 OECD countries, starting from 1972 onwards. However, in the most recent version of the data base time series for seven additional countries have been introduced for the first time, so that the COMPENDIA data base now covers 30 OECD countries. The current paper makes four contributions. First, we provide an update of the methodology used to harmonize business ownership rates across countries. In doing so, as a second contribution, we provide two extended country cases (Poland and the United States) which illustrate the many methodological pitfalls that have to be dealt with when measuring the number of business owners. Third, we present business ownership time series for 30 OECD countries including the new countries in our data base: Czech Republic, Hungary, Korea, Mexico, Poland, Slovak Republic, and Turkey. Fourth and finally, we pay considerable attention to the sizable differences in the level and development of business ownership since 1989 in four Central and East European transition economies in our data base: Czech Republic, Hungary, Poland, and Slovak Republic.  
    Date: 2010–08–31
  4. By: Freund, Caroline; Pierola, Martha Denisse
    Abstract: This paper examines firm entry and survival in exporting, and in products and markets not previously served by any domestic exporters. The authors use data on the nontraditional agriculture sector in Peru, which grew seven-fold from 1994 to 2007. They find tremendous firm entry and exit in the export sector, with exits more likely after one year and among firms that start small. There is also significant entry and exit in new markets. In contrast, such trial and error in new products is rare. New products are typically discovered by large experienced exporters and there is increased entry after products are discovered. The results imply that high sunk costs of entry are of concern for product discovery, especially for products that are not consumed domestically. In contrast, the tremendous entry and exit in exporting and in new markets suggests that initial sunk costs are relatively low. The authors develop a model that explains how entrepreneurs decide to export and to develop new export products and markets when there are sunk costs of discovery and uncertainty about idiosyncratic costs. The model explains many features of the data.
    Keywords: Markets and Market Access,Microfinance,Access to Markets,Economic Theory&Research,Debt Markets
    Date: 2010–08–01
  5. By: Temouri, Yama (Aston University); Vogel, Alexander (Leuphana University Lüneburg); Wagner, Joachim (Leuphana University Lüneburg)
    Abstract: This study reports results from an empirical investigation of business services sector firms that (start to) export, comparing exporters to firms that serve the national market only. We estimate identically specified empirical models using comparable enterprise level data from France, Germany, and the United Kingdom. Exporters are more productive and pay higher wages on average in all three countries. Results for profitability differ across borders – profitability of exporters is significantly smaller in Germany, significantly larger in France, and does not differ significantly in the UK. The results for wages and productivity hold in the years before the export start, which indicates self-selection into exporting of more productive services firms that pay higher wages. The surprising finding of self-selection of less profitable German business services firms into exporting does not show up among firms from France and the UK where no statistically significant relationship between profitability and starting to export is found.
    Keywords: business services firms, exports, self-selection, France, Germany, UK
    JEL: F14 D21 L80
    Date: 2010–08
  6. By: Ramon P. DeGennaro; Gerald P. Dwyer
    Abstract: Angel investors invest billions of dollars in thousands of entrepreneurial projects annually, far more than the number of firms that obtain venture capital. Previous research has calculated realized internal rates of return on angel investments, but empirical estimates of expected returns have not yet been produced. Although calculations of realized returns are a valuable contribution, expected returns, rather than realized returns, drive investment decisions. We use a new data set and statistical framework to produce the first empirical estimates of expected returns on angel investments. We also allow for the time value of money, which previous research has typically ignored. Our sample of 588 investments spans the 1972–2007 period and contains 419 exited investments. We conduct extensive tests to explore potential bias in the data set and conclude that the evidence in favor of bias is tenuous at best. Our results suggest that angel investors in groups can expect to earn returns that are on the order of returns on venture capital investments. Estimated net returns are about 70 percent in excess of the riskless rate per year for an average holding period of 3.67 years. This estimate is reasonable compared to Cochrane's (2005) estimate of 59 percent per year for venture capital investments, which tend to be in lower-variance, later-stage projects. Returns have a large variance and are heavily skewed, with many losses and occasional extraordinarily high returns.
    Date: 2010
  7. By: Shikhar Ghosh (Harvard Business School, Entrepreneurial Management Unit); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: We examine the extent to which venture capital is adequately positioned for the rapid commercialization of clean energy technologies in the United States. While there are several startups in clean energy that are well-suited to the traditional venture capital investment model, our analysis highlights a number of structural challenges related to VC investment in the sector that are particularly acute for startups involved in the production of clean energy. One of key bottlenecks threatening innovation in energy production is the inability of VCs to exit their investments at the appropriate time. This hurdle did exist in industries such as biotechnology and communications networking that faced a similar problem when they first emerged, but was ultimately overcome by changes in the innovation ecosystem. However, incumbents in the oil and power sector are different in two respects. First, they are producing a commodity and hence face little end-user pressure to adopt new technologies. Second, they do not tend to feel as threatened by potential competition from clean energy startups, given the market structure and regulatory environment in the energy sector. We highlight that the problem is unlikely to get solved without the active involvement of the government. Even if it does, historical experience suggests it may take several years.
    Date: 2010–08
  8. By: Cole, Rebel
    Abstract: In this study, we use data from the SSBFs to provide new information about the use of credit by small businesses in the U.S. More specifically, we first analyze firms that do and do not use credit; and then analyze why some firms use trade credit while others use bank credit. We find that one in five small firms uses no credit, one in five uses trade credit only, one in five uses bank credit only, and two in five use both bank credit and trade credit. These results are consistent across the three SSBFs we examine—1993, 1998 and 2003. When compared to firms that use credit, we find that firms using no credit are significantly smaller, more profitable, more liquid and of better credit quality; but hold fewer tangible assets. We also find that firms using no credit are more likely to be found in the services industries and in the wholesale and retail-trade industries. In general, these findings are consistent with the pecking-order theory of firm capital structure. Firms that use trade credit are larger, more liquid, of worse credit quality, and less likely to be a firm that primarily provides services. Among firms that use trade credit, the amount used as a percentage of assets is positively related to liquidity and negatively related to credit quality and is lower at firms that primarily provide services. In general, these results are consistent with the financing-advantage theory of trade credit. Firms that use bank credit are larger, less profitable, less liquid and more opaque as measured by firm age, i.e., younger. Among firms that use bank credit, the amount used as a percentage of assets is positively related to firm liquidity and to firm opacity as measured by firm age. Again, these results are generally consistent with the pecking-order theory of capital structure, but with some notable exceptions. We contribute to the literature on the availability of credit in at least two important ways. First, we provide the first rigorous analysis of the differences between small U.S. firms that do and do not use credit. Second, for those small U.S. firms that do participate in the credit markets, we provide new evidence regarding factors that determine their use of trade credit and of bank credit, and whether these two types of credit are substitutes (Meltzer, 1960) or complements (Burkart and Ellingsen, 2004). Our evidence strongly suggests that they are complements.
    Keywords: availability of credit; bank credit; capital structure; entrepreneurship; relationships; small business; SSBF; trade credit
    JEL: L11 J71 G32 M13 G21
    Date: 2010–03–15
  9. By: Minniti, Maria; Naudé, Wim
    Keywords: Women, Entrepreneurship, Developing Countries
    Date: 2010

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