nep-ent New Economics Papers
on Entrepreneurship
Issue of 2011‒02‒05
fourteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Personal Bankruptcy Law, Wealth and Entrepreneurship: Theory and Evidence from the Introduction of a "Fresh Start" By Fossen, Frank M.
  2. Competition and entrepreneurship as engines of growth. By Fazio, G.
  3. The relationship between start-ups, market mobility and employment growth: An empirical analysis for Dutch regions By André van Stel; Sierdjan Koster
  4. Gender, risk aversion and remuneration policies of entrepreneurs By Jan de Kok; Ingrid Verheul; Mirjam van Praag
  5. Social-Family Network and Self-Employment: Evidence from Temporary Rural-Urban Migrants in China By Zhang, Junfu; Zhao, Zhong
  6. The financial structure of startup firms: the role of assets, information, and entrepreneur characteristics By Paroma Sanyal; Catherine L. Mann
  7. Firm Failure and Relationship Lending: New Evidence from Small Businesses By José Eduardo Gómez-González; Nidia Ruth Reyes
  8. Building New Plants or Entering by Acquisition? Estimation of an Entry Model for the U.S. Cement Industry By Hector Perez-Saiz
  9. Can SME Policies Improve Firm Performance? Evidence from an Impact Evaluation in Argentina By Victoria Castillo; Alessandro Maffioli; Ana P. Monsalvo; Sofía Rojo; Rodolfo Stucchi
  10. Verifying the state of financing constraints: evidence from U.S. business credit contracts By Ralf R. Meisenzahl
  12. Job Creation by Firms in Denmark By Ibsen, Rikke; Westergård-Nielsen, Niels
  13. Identifier les différents paliers de croissance en TPE et PME et aider à les franchir By Laure Ambroise; Nathalie Claveau; Joy Courault; Alice Garnier; Emmanuel Kizilian; Muriel Perez; Isabelle Prim-Allaz; Martine Séville; Franck Tannery; Christine Teyssier; Laurent Vilanova
  14. Concorrenza senza equilibrio. La "scoperta imprenditoriale" nella Teoria Economica Austriaca By Marco, Passarella; Hervé, Baron

  1. By: Fossen, Frank M. (DIW Berlin)
    Abstract: A personal bankruptcy law that allows for a "fresh start" after bankruptcy reduces the individual risk involved in entrepreneurial activity. On the other hand, as risk shifts to creditors who recover less of their credit after a debtor's bankruptcy, lenders may charge higher interest rates or ration credit supply, which can hamper entrepreneurship. Both aspects of a more forgiving personal bankruptcy law are less relevant for wealthy potential entrepreneurs who still risk losing their wealth, but tend not to face higher interest rates because they provide collateral. This paper illustrates these effects in a model and tests the hypotheses derived by exploiting the introduction of a "fresh start" policy in Germany in 1999 as a natural experiment, based on representative household panel data. The results indicate that the insurance effect of a more forgiving personal bankruptcy law exceeds the interest effect and on balance encourages less wealthy individuals to enter into entrepreneurship.
    Keywords: personal bankruptcy law, insolvency, entrepreneurship, fresh start
    JEL: K35 G33 L26
    Date: 2011–01
  2. By: Fazio, G.
    Abstract: The thesis aims to bridge topics traditionally belonging to different areas of the subject: competition and entrepreneurship coming from microeconomics and industrial organization; and growth, from macroeconomics. It centres around the notion that market structure and conduct affect performance and hence growth. Firms optimize by anticipating changes in consumers' demand and in suppliers' behaviour, which are a function of the market structure and its changes. Market-entry can be explained by the level of competition in a market which can be altered by the implementation of specific policies (for instance, the way a competition authority handles mergers). Failing to have an appropriate antitrust regime will ultimately harm entrepreneurship since it will affect one's ability to understand and to handle the risks associated with launching a new venture. The thesis also explores how different definitions of entrepreneurship explain varying innovation mechanisms (neck-and-neck and leapfrogging) and how this dovetails with the structure and conduct within a market. For transition economies, we find that competition policy has played a growth-enhancing role and that this effect may be larger than the impact associated with privatization, and we also find evidence of policies' complementarities. These findings are also echoed by our individual-level analysis. We analyse the determinants of high growth expectations entrepreneurial entry (HGE) using individual data drawn on working age population, based on the Global Entrepreneurship Monitor surveys for the 1998-2004 period. We find that HGE is more likely to occur when the entrepreneur perceives a gap in the market with no other producers supplying the same product. This reinforces the theory that the amount of competition faced by an entrepreneur affects the rate of HGE and also provides a microeconomic foundation for the country-level growth effects described for transition countries.
    Date: 2010–11–28
  3. By: André van Stel; Sierdjan Koster
    Abstract: Recent literature suggests that two types of competition may contribute to macro-economic performance: the extent of new-firm entry and the extent of competition among incumbent firms. In the present paper we explain employment growth at the region-sector level using direct indicators for both these types of competition -the start-up rate and the market mobility rate- as main independent variables. While previous studies in this field measured competition among incumbent firms in an indirect way, we use a direct measure called market mobility. The empirical analysis reiterates existing results in that we find the long-term economic effect of start-ups to be bigger than the short-term effect. We also find empirical indications that this long-term effect consist of two significant parts. First, the most successful start-ups grow out to become high-growth firms, and second, the entry of new firms stimulates incumbent firms to perform better.  
    Date: 2011–01–24
  4. By: Jan de Kok; Ingrid Verheul; Mirjam van Praag
    Abstract: In theory, for many small and medium-sized enterprises the introduction of performance-related pay might be beneficial: if implemented properly, it could help enterprises in selecting, hiring and motivating the right employees for the right jobs. So far, however, performance-related pay in SMEs has received little academic attention. One of the few studies that examined determinants of performance-related pay amongst SMEs found support for the presence of gender effects; not only regarding the gender of the employees, but also regarding the gender of the entrepreneur. In this paper we have further investigated these  gender effects in remuneration policies. The central idea is that female and male entrepreneurs make different choices regarding their human resource management practices, including remuneration policies. Amongst others, these choices are related to the risk aversion of the entrepreneur as well as of the employees. Generally speaking, women are more risk averse than men. This may apply to entrepreneurs as well as to employees. This leads to various hypotheses that are tested empirically. Generally speaking, the results provide only limited support for our hypotheses. Our results are fairly consistent with the standard assumption that employees are risk averse (and female employees more than male employees) while employers (entrepreneurs) are not. At the same time, the support for our hypotheses is so limited that we have conducted a critical re-examination of our basic assumptions. This suggests that gender effects in remuneration policies may (also) be caused by gender differences in labour force attachment rather than in risk aversion.   
    Date: 2011–01–27
  5. By: Zhang, Junfu (Clark University); Zhao, Zhong (Renmin University of China)
    Abstract: We hypothesize that individuals with a larger social-family network are more likely to choose self-employment. We test this hypothesis using data on temporary rural-urban migrants in China. The size of a migrant’s social-family network is measured by the number of relatives and friends this migrant greeted during the past Spring Festival. Our empirical analysis faces two challenges. First, there is an endogeneity problem in that a migrant may want to develop and maintain a large social-family network exactly because he is self-employed. For this reason, a simple correlation between the probability of being self-employed and the size of the migrant’s social-family network cannot be interpreted as causal. Second, the size of the social-family network is measured using survey data, which is subject to measurement error. To overcome these problems, we take an instrumental variable (IV) approach. More specifically, we examine the distance an individual migrated when he first moved to a city and use this variable to instrument for the current size of the social-family network. We establish the credibility of the IV by emphasizing the unique institutional context of rural-urban migration in China and focusing on the sample of migrants who originally started as wage workers in urban areas and currently are not in their first jobs. Our IV results indeed show that a rural-urban migrant with a larger social-family network is more likely to be self-employed in the city. This finding is robust to alternative model specifications and various restrictions on the sample used in estimation.
    Keywords: social-family network, self-employment, rural-urban migrants
    JEL: J23 J61 D85
    Date: 2011–01
  6. By: Paroma Sanyal; Catherine L. Mann
    Abstract: Using the Kauffman Firm Survey, we examine how characteristics of a startup's assets, information about the startup, and entrepreneur attributes relate to financial structure at inception. Startups with more physical assets or those where the entrepreneurs have other similar businesses are more likely to use external debt in the financial structure since these assets have a high liquidation value. Startups with human capital embodied in the entrepreneur or intellectual property assets have a lower probability of using debt, consistent with the higher asset specificity and lower collateral value of these assets. Startups characterized as small, unincorporated, solo, first-time, or home-office-based are more likely to be financed by self, family and friends, and importantly through credit cards, as these have both highly specific assets and information opacity. More educated founders and non-African American founders are more likely to be financed by external sources. Controlling for other attributes of the startup, the financial structure of women-owned startups does not differ from that of other startups. Hi-tech startups' financial structure differs significantly from that of startups in other business sectors.
    Keywords: Small business - Finance
    Date: 2010
  7. By: José Eduardo Gómez-González; Nidia Ruth Reyes
    Abstract: We study the effect of relationship lending on small firms´ failure probability using a uniquely rich data set comprised of information on individual loans of a large number of small firms in Colombia. We control for firm-specific variables and find that small firms involved in long-term liaisons with commercial banks have a significantly lower probability of becoming bankrupt than otherwise identical firms not involved in a long-term credit relationship. We also find that small firms with multiple banking relationships face a lower failure hazard than otherwise identical firms involved in a unique long-term relationship.
    Date: 2011–01–23
  8. By: Hector Perez-Saiz
    Abstract: In many industries, firms usually have two choices when expanding into new markets: They can either build a new plant (greenfield entry) or they can acquire an existing incumbent. In the U.S. cement industry, the comparative advantage (e.g., TFP or size) of entrants versus incumbents and regulatory entry barriers are important factors that determine the means of expansion. Using a rich database of the U.S. Census of Manufactures (1963-2002), an entry game is proposed to model this decision and estimate the supply and demand primitives to determine the importance of these factors. Two policies that affect the entry behavior and industry equilibrium are considered: An asymmetric environmental policy that creates barriers to greenfield entry and a policy that creates barriers to entry by acquisition. In the counterfactual analysis it is found that a less favorable environment for acquisitions during the Reagan-Bush administration would decrease the acquired plants by 90% and increase greenfield entry by 21%. Also, the Clean Air Act Amendments of 1990 increased the number of acquisitions by 3.5%. Furthermore, my simulations suggest that regulations that create barriers to greenfield entry are less favorable in terms of welfare than regulations that create barriers to entry by acquisition. Finally, it is shown how the parameter estimates change with the traditional approach in the entry literature where entry by acquisition is not considered, and when using a simple OLS estimation.
    Keywords: Productivity; Market structure and pricing; Econometric and statistical methods
    JEL: L13 L40 L61
    Date: 2011
  9. By: Victoria Castillo (Ministry of Labor, Employment, and Social Security, Buenos Aires, Argentina); Alessandro Maffioli (Interamerican Development Bank, Washington, DC); Ana P. Monsalvo (Universidad Nacional de General Sarmiento, Buenos Aires, Argentina); Sofía Rojo (Ministry of Labor, Employment, and Social Security, Buenos Aires, Argentina); Rodolfo Stucchi (ECONFOCUS, Córdoba, Argentina)
    Abstract: This paper evaluates the impact of the Argentine SME support program PRE on employment, real wages, and exports. The program aimed at increasing the competitiveness of SMEs by co-financing up to fifty percent of expenditures in professional services and technical assistance. We use a unique panel dataset constructed with administrative records. We combine Propensity Score Matching and Difference in Differences methods to control for selection biases in the estimations. We find a positive and quantitatively important impact of the program on employment and a positive although smaller impact on real wages and the probability of exporting. We also find that the effect of the program on wages and the probability of exporting take place one year after beneficiaries receive the program. The effect of the program on employment takes place one, two, and even, three years after beneficiaries receive the program.
    Keywords: Public Policy Evaluation, SMEs, Employment, Wages, Exports, Argentina, Difference in Differences, Propensity Score Matching
    JEL: C23 H43 L25 O12 O54
    Date: 2010–12
  10. By: Ralf R. Meisenzahl
    Abstract: Which of the strategies for financing constraints in economic models is the most empirically plausible? This paper tests two commonly used models of financing constraints, costly state verification (Townsend, 1979) and moral hazard (Holmstrom and Tirole, 1997), using a comprehensive data set of US small business credit contracts. The data include detailed information about the business, its owner, bank balance sheet information, and the terms of credit. In line with the predictions of models of financing constraints, I find that an additional dollar of net worth accounts for about 30 cents of external finance. More than two thirds of the business credit contracts can be rationalized by one period debt contracts with costly state verification. The parameter values obtained in the costly state verification model imply bankruptcy costs of 28% of expected output and a rate of return ranging between 5% and 8% annually, which are consistent with studies on bankruptcy incidences and returns to entrepreneurial investment. The moral hazard model, however, performs poorly. The correlation between model implied interest rates and actual interest rates paid is close to zero because the bank variables emphasized by this model do not explain loan interest rates.
    Date: 2011
  11. By: Manuel García-Santana (CEMFI, Centro de Estudios Monetarios y Financieros); Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: In this paper we quantify the effects of the Small Scale Reservation Laws in India on the aggregate productivity, aggregate output and welfare of the Indian economy. To this end, we extend the span-of-control model by Lucas (1978) into a multi-sector setting and embed it into the neo-classical growth model. Our main theoretical contribution is to model the occupational choice within this framework. We fully calibrate our model to data from India for the early 2000’s. We find that lifting the Small Scale Reservation Laws would increase output per worker by 3.2 percent, capital per worker by 7.1 percent and aggregate TFP by 0.8 percent. Within manufacturing, output per worker would increase by 9.8 percent, capital per worker by 12.5 percent and TFP by 3.6 percent. Average firm size in manufacturing would raise from 19 to 69 employees. These are large numbers given that the size of the restricted sector is only 12 percent of manufacturing value added and 3 percent of total GDP. However, this conspicuous type of size-dependent policy cannot account for the large gap in manufacturing TFP existing between the US and India.
    Keywords: Firm size, TFP differences, occupational choice, multisector growth models.
    JEL: O41 O47 E23 L11 L26 J24
    Date: 2010–12
  12. By: Ibsen, Rikke (Aarhus School of Business); Westergård-Nielsen, Niels (Aarhus School of Business)
    Abstract: In this paper we will look at job creation and destruction in firms. We will answer the question if it is the large companies that create jobs, while the smaller companies are contributing much less. Or is it the young companies that create jobs? And who destroys the most jobs? In the crisis Denmark lost 186,000 jobs in the private sector. The question is where and how could these jobs be recreated. Are these issues specific to industries or are they universal? The data used is register data on workplaces and firms for the period 1980-2007. The base unit of data is the workplace. The company (firm) is the legal entity. A company can have many sites, and one of the ways companies can grow is by expanding with multiple sites. This can happen by mergers and acquisitions but can also happen by creating "daughter workplaces". It is therefore essential to look at workplaces and firms at the same time. A complication here is that firms switch ID over time because of change of ownership, mergers and divisions. Data must be corrected so that these administrative issues will not affect the survival of firms. The data are used in a way where we can cover firm birth and firm death, spin-offs and mergers. The analysis will make it possible to differentiate between net and gross creation of jobs because we can follow each single individual in and out of jobs. We have for Denmark found that size on its own does not have a big impact, but young firms are much more likely to contribute to a positive growth. For the U.S. it has been found that the growth in jobs comes from small businesses. A closer analysis though shows that the main factor here is the firm age. Thus, it is found that young firms net create the most jobs, but they are also responsible for the most job destructions.
    Keywords: job creation, job destruction, firm age, firm size, education, employer-employee data
    JEL: E24 L25 L26
    Date: 2011–01
  13. By: Laure Ambroise (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Nathalie Claveau (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Joy Courault (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Alice Garnier (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Emmanuel Kizilian (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Muriel Perez (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Isabelle Prim-Allaz (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Martine Séville (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Franck Tannery (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Christine Teyssier (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Laurent Vilanova (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne)
    Abstract: Dans un contexte tendu, plutôt que de constater ex post les défaillances des PME qui ne font qu'accélérer les difficultés économiques et sociales, le pari de la croissance devient une perspective nécessaire en vue de rouvrir le champ des possibles. Ce pari de la croissance revient à refuser toute fatalité dans la situation présente en considérant que toute entreprise dispose de marges de manœuvres sous certaines conditions si elle parvient à mobiliser des leviers qui soient en phase avec les objectifs des dirigeants. Partant de ces principes la CGPME et les AGEFOS PME Rhône-Alpes ont développé une action collective en Rhône Alpes intitulée « Paliers de Croissance ». Cette action collective, au lieu de tenir pour acquis un éventuel « plafond de verre » chez les dirigeants, vise au contraire à accompagner les dirigeants de PME dans le passage de paliers. Pour ce faire, il s'agit de leur permettre de retrouver une capacité stratégique d'action à l'instar de celle qui fut la leur lors de la création de leur entreprise, lors du lancement de nouvelles offres ou activités ou lors de l'ouverture vers des marchés internationaux. La perspective et le pari de la croissance ne tombent pas dans l'illusion que les PME devraient nécessairement devenir demain de grandes entreprises. Il s'agit au contraire de parvenir à les accompagner intelligemment en vue d'assurer une croissance soutenable, durable et pérenne qui offre une possibilité nouvelle afin d'éviter de subir les événements. Pour parvenir à mettre en place un tel accompagnement intelligent et positif, la CGPME et AGEFOS PME Rhône-Alpes ont considéré qu'il était au préalable nécessaire de mieux appréhender les conditions générales de croissance des PME en se méfiant des idées communément admises sur ces entreprises. Pour ce faire, au lieu de prolonger des complaintes sur les freins éventuels au développement, il s'est avéré nécessaire au contraire d'interroger les leviers de la croissance et les voies et moyens d'action possibles à favoriser. Cette approche, par le décadrage auquel elle invite, appelait un travail d'étude et d'enquête à grande échelle auprès des PME de la Région Rhône Alpes. C'est dans ce cadre que fut confiée une étude au centre de recherche en gestion COACTIS de l'Université de Lyon. Le présent rapport détaille les résultats de cette étude. Cette étude s'appuie sur l'élaboration par COACTIS d'une base de données présentant une richesse exceptionnelle à double titre : ­ D'une part, cette base comprend l'ensemble de la population des PME Rhône-Alpine (CA 2008 supérieur à 500 k€ et création antérieure à 2004) pour laquelle nous disposons des données financières Diane ; - D'autre part, cette base comprend des données concernant plus de 370 PME et 600 variables de nature plus qualitative recueillies à partir d'un questionnaire ad hoc. Cet échantillon constitue une base de données originale, riche et pertinente. La collecte de données, d'une ampleur rare, repose sur l'élaboration d'un questionnaire très complet sur l'entreprise et son environnement à la fois auto-administrable ou administrable en face-à-face . Le questionnaire était composé de 5 parties :  Informations générales sur l'entreprise  Environnement et marché(s) de l'activité principale de l'entreprise  Stratégie de l'entreprise  Organisation, ressources et outils  Dirigeant(s) et gouvernance Le contenu de cette étude visait à faire une analyse la plus complète possible de la croissance des entreprises et des types de croissance. De ce fait, nous avons tenté d'intégrer à ce travail l'ensemble des domaines fonctionnels de l'entreprise. En conséquence, le questionnaire est relativement long (environ 600 variables). Le contenu du questionnaire a initialement été proposé par les chercheurs COACTIS au regard :  Des entretiens qualitatifs déjà conduits par le centre de recherche COACTIS sur la thématique de la croissance ;  Une revue de la littérature académique ;  Des attentes spécifiques formulées par les partenaires. Le présent rapport est articulé en trois temps : 1. Présentation des 5 logiques-types de croissance des PME ; 2. Synthèse descriptive des caractéristiques et des logiques d'action par type de croissance PME ; 3. Analyse inter-type permettant de mieux définir les conditions générales de la croissance des PME
    Keywords: paliers de croissance; trajectoire ; croissance atone; forte croissance; hypercroissance; gazelle; PME; GRC; CRM; marketing solution; analyse de marché; performance; financement
    Date: 2010
  14. By: Marco, Passarella; Hervé, Baron
    Abstract: The aim of this paper is to supply both a description and an interpretation-key of the recent developments in the Austrian Economics, with particular attention for the role played by the concept of «entrepreneurial discovery». Without knowing exactly «what» he is looking for and without using a particular research method, the Austrian entre-preneur, like a modern buccaneer, peers at the horizon, waiting for new money profit opportunities.
    Keywords: Austrian Economics; Entrepreneurial Discovery Approach; Methodological Individualism
    JEL: D21 D81 D41 B53 B25
    Date: 2010–08

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