nep-ent New Economics Papers
on Entrepreneurship
Issue of 2011‒02‒26
nineteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Sex Ratios, Entrepreneurship, and Economic Growth in the People’s Republic of China By Shang-Jin Wei; Xiaobo Zhang
  2. Which Institutions Encourage Entrepreneurs to Create Larger Firms? By Estrin, Saul; Korosteleva, Julia; Mickiewicz, Tomasz
  3. Are Education and Entrepreneurial Income Endogenous and do Family Background Variables make Sense as Instruments? A Bayesian Analysis By Joern H. Block; Lennart Hoogerheide; Roy Thurik
  4. Does Quality Make a Difference? Employment Effects of High- and Low-Quality Start-Ups By Michael Fritsch; Alexandra Schroeter
  5. Institutions, Entrepreneurship and Channels to Sustained Economic Growth By Mo, Pak Hung
  6. Institutions and Entry: A Cross-Regional Analysis in Russia By Bruno, Randolph Luca; Bytchkova, Maria; Estrin, Saul
  7. Cream Skimming in Financial Markets By Patrick Bolton; Tano Santos; Jose A. Scheinkman
  8. Risk Attitudes and Profits among Small Enterprises in Nigeria By Judith Lammers; Daan Willebrands; Joop Hartog
  9. Venture Capital in Bank- and Market-based Economies By Adeline Saillard; Thomas Url
  10. Do best and worst innovative companies differ in terms of intellectual capital, knowledge and radicalness? By Carmen Cabello Medina; Antonio Carmona Lavado; Gloria Cuevas Rodríguez; Ana Pérez-Luño
  11. Selling, Passing on or Closing? Determinants of Entrepreneurial Intentions on Exit Modes By Martina Battisti; Hiroyuki Okamuro
  12. Bank-firm relations and the role of Mutual Guarantee Institutions during the crisis By Francesca Bartoli; Giovanni Ferri; Pierluigi Murro; Zeno Rotondi
  13. Contract Structure, Risk Sharing and Investment Choice By Greg Fischer
  14. Firm Entry, Inflation and the Monetary Transmission Mechanism By Vivien LEWIS; Céline POILLY
  15. What Do I Take With Me: The Impact of Transfer and Replication of Resources on Parent and Spin-Out Firm Performance By Rajshree Agarwal; Benjamin Campbell; April M. Franco; Martin Ganco
  16. Real Economic Development comes from Entrepreneurship By Swain, Larry B.
  17. Asymmetric Information in the Labor Market, Immigrants and Contract Menu By Kar, Saibal; Saha, Bibhas Chandra
  18. Innovation and demand in industry dynamics. By Francesco Bogliacino; Mario Pianta
  19. Entrepreneurs, Sticky Competition and the Schumpeterian Cobb-Douglas Production Function By Mo , Pak Hung

  1. By: Shang-Jin Wei; Xiaobo Zhang
    Abstract: China experiences an increasingly severe relative surplus of men in the pre-marital age cohort. The existing literature on its consequences focuses mostly on negative aspects such as crime. In this paper, we provide evidence that the imbalance may also stimulate economic growth by inducing more entrepreneurship and hard work. First, new domestic private firms – an important engine of growth – are more likely to emerge from regions with a higher sex ratio imbalance. Second, the likelihood for parents with a son to be entrepreneurs rises with the local sex ratio. Third, households with a son in regions with a more skewed sex ratio demonstrate a greater willingness to accept relatively dangerous or unpleasant jobs and supply more work days. In contrast, the labor supply pattern by households with a daughter is unrelated to the sex ratio. Finally, regional GDP tends to grow faster in provinces with a higher sex ratio. Since the sex ratio imbalance will become worse in the near future, this growth effect is likely to persist.
    JEL: E2 F3 F43 J1 J2 O1 O4
    Date: 2011–02
  2. By: Estrin, Saul (London School of Economics); Korosteleva, Julia (University College London); Mickiewicz, Tomasz (University College London)
    Abstract: We develop entrepreneurship and institutional theory to explain variation in different types of entrepreneurship across individuals and institutional contexts. Our framework generates hypotheses about the negative impact of higher levels of corruption, weaker property rights and especially intellectual property rights, and a larger state on entrepreneurs who plan to grow faster. We test these hypotheses using the Global Entrepreneurship Monitor surveys in 55 countries for 2001-2006, applying a multilevel estimation framework. We confirm our main hypotheses but we find no significant impact from intellectual property rights.
    Keywords: entrepreneurship, institutions, corruption, property rights, government, Global Entrepreneurship Monitor
    JEL: L26 D23 D84 J24 P11
    Date: 2011–02
  3. By: Joern H. Block (Centre for Advanced Small Business Economics, Erasmus University Rotterdam); Lennart Hoogerheide (Econometric Institute, Erasmus University Rotterdam); Roy Thurik (Centre for Advanced Small Business Economics, Erasmus University Rotterdam; EIM Business and Policy Research, Zoetermeer)
    Abstract: Education is a well-known driver of (entrepreneurial) income. The measurement of its influence, however, suffers from endogeneity suspicion. For instance, ability and occupational choice are mentioned as driving both the level of (entrepreneurial) income and of education. Using instrumental variables can provide a way out. However, three questions remain: whether endogeneity is really present, whether it matters and whether the selected instruments make sense. Using Bayesian methods, we find that the relationship between education and entrepreneurial income is indeed endogenous and that the impact of endogeneity on the estimated relationship between educa-tion and income is sizeable. We do so using family background variables and show that relaxing the strict validity assumption of these instruments does not lead to strongly different results. This is an important finding because family background variables are generally strongly correlated with education and are available in most datasets. Our approach is applicable beyond the field of returns to education for income. It applies wherever endogeneity suspicion arises and the three questions become relevant.
    Keywords: Education; income; entrepreneurship; self-employment; endogeneity; instrumental variables; Bayesian analysis; family background variables
    JEL: C11 L26 M13 J24
    Date: 2010–02–26
  4. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Alexandra Schroeter (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: This paper investigates the impact of new firms' quality on the magnitude of their employment effects. Our results clearly show that the quality of start-ups, measured by their affiliation with sectors and innovative industries, strongly influences the direct and the overall employment contribution of new firms. In particular, start-ups in manufacturing industries generate larger direct and overall growth effects than those in services. Moreover, new businesses in innovative manufacturing and in knowledge-intensive service industries make a larger direct contribution to employment than start-ups affiliated with other industries. We also find a relatively strong overall effect of new business formation in knowledge-intensive service industries. However, the impact of start-ups in innovative manufacturing industries on overall regional employment growth is not statistically significant, which may be mainly due to their rather small share in all start-ups and because they impact more on firms and employment in other regions than do start-ups in non-innovative manufacturing. Finally, we discuss the implications for entrepreneurship policy that can be derived from our findings.
    Keywords: Entrepreneurship, new business formation, innovative industries, regional development, entrepreneurship policy
    JEL: L26 M13 O1 O18 R11
    Date: 2011–02–15
  5. By: Mo, Pak Hung
    Abstract: In this paper, we build a simple model to integrate the findings and/or hypotheses in the diverse literatures related to economic development and growth. They include the literature on institutions attributed to Douglas North (1990), on entrepreneurs, innovations and technical progress attributed to Schumpeter (1934) and on the driving factors of economic growth in various theoretical and empirical contributions. The effort results in a comprehensive theory that is flexible enough to understand broad strategic lessons from diverse growth experiences across country and time. It is also specific enough to reveal the factors, channels, mechanism and the key to sustained economic growth.
    Keywords: Institution; Entrepreneurship; Tools Variety; Technology; Economic Growth
    JEL: O4
    Date: 2011–01
  6. By: Bruno, Randolph Luca (University of Birmingham); Bytchkova, Maria (London School of Economics); Estrin, Saul (London School of Economics)
    Abstract: We analyse a micro-panel data set to investigate the effect of regional institutional environment and economic factors on Russian new firm entry rates across time, industries and regions. The paper builds on novel databases and exploits inter-regional variation in a large number of institutional variables. We find entry rates across industries in Russia are not especially low by international standards and are correlated with entry rates in developed market economies, as well as with institutional environment and firm size. Furthermore, industries that, for scale or technological reasons, are characterised by higher entry rates experience lower entry within regions affected subject to political change. A higher level of democracy enhances entry rates for small sized firms but reduces them for medium or large ones.
    Keywords: entry rate, institutions, democracy
    JEL: L26 P31
    Date: 2011–02
  7. By: Patrick Bolton; Tano Santos; Jose A. Scheinkman
    Abstract: We propose an equilibrium occupational choice model, where agents can choose to work in the real sector (become entrepreneurs) or to become informed dealers in financial markets. Agents incur costs to become informed dealers and develop skills for valuing assets up for trade. The financial sector comprises a transparent competitive exchange, where uninformed agents trade and an opaque over-the-counter (OTC) market, where informed dealers offer attractive terms for the most valuable assets entrepreneurs put up for sale. Thanks to their information advantage and valuation skills, dealers are able to provide incentives to entrepreneurs to originate good assets. However, the opaqueness of the OTC market allows dealers to extract informational rents from entrepreneurs. Trade in the OTC market imposes a negative externality on the organized exchange, where only the less valuable assets end up for trade. We show that in equilibrium the dealers' informational rents in the OTC market are too large and attract too much talent to the financial industry.
    JEL: G1 G14 G18 G2 G24 G28
    Date: 2011–02
  8. By: Judith Lammers (University of Amsterdam); Daan Willebrands (SEO Economic Research); Joop Hartog (University of Amsterdam)
    Abstract: This paper analyses the effect of risk attitudes of firm owners on profits among micro and small enterprises (MSEs) in Lagos, Nigeria. Higher risk perceptions are shown to have a significant positive effect on profits, whereas risk propensity has a negative or no effect. Education, age, being male, and firm size are all positively related to profit, while young firms earn lower profits. Overall, the results suggest that being aware and dealing cautiously with risk leads to higher profitability.
    Keywords: entrepreneurship; risk perception; risk behavior; profit; MSEs
    JEL: D12 L25 L26
    Date: 2010–05–19
  9. By: Adeline Saillard (University of Paris I Panthéon-Sorbonne (CES), Paris School of Economics); Thomas Url (Austrian Institute of Economic Research)
    Abstract: The determinants of venture capital investment have attracted a significant amount of attention from both academics and policymakers. We use a version of the Keuschnigg-Nielsen model for venture-capital financed projects to condition our analysis on a reasonable set of exogenous variables but we focus on one determinant: financial market structure. The type of financial market structure (bank- or market-based) contributes substantially to explaining differences among countries with respect to the extent of venture capital investments in the initial business stages. We will use the cross country and time series variation from a panel of 19 industrialised countries to support the hypothesis that venture capital thrives within market-based financial systems and is confined to an ancillary role in bank-based systems.
    Keywords: Venture capital, financial market structure, local stock markets, panel data
    Date: 2011–02–21
  10. By: Carmen Cabello Medina (Department of Business Administration, Universidad Pablo de Olavide); Antonio Carmona Lavado (Department of Business Administration, Universidad Pablo de Olavide); Gloria Cuevas Rodríguez (Department of Business Administration, Universidad Pablo de Olavide); Ana Pérez-Luño (Department of Business Administration, Universidad Pablo de Olavide)
    Abstract: This paper differentiates “best innovative companies” from “worst innovative companies” and it takes into account three separate bodies of literature— intellectual capital, knowledge-based view, and innovation literatures. Based on a sample of 181 firms which belong to manufacturing and services industries, our findings show that best innovative performers companies (considering both financial and non-financial dimensions of innovation success) present systematically higher scores for all dimensions of intellectual capital: human, organizational and social capital) than worst innovation performers. Knowledge exchange and combination seems to be characteristic of most successful innovators, but no differences in systemic, tacit, complex and not observable knowledge have been found for these companies. Finally, regarding radicalness, firms with more innovation success provide new products or services that incorporates a new technology and new customer benefits (uniqueness), while firms with less innovation success laughs new products or services which are unfamiliar or difficult to understand by customers.
    Keywords: Mobile-shopping
    Date: 2011–01
  11. By: Martina Battisti; Hiroyuki Okamuro
    Abstract: Exit is an important part of the entrepreneurial lifecycle. In contrast to numerous previous studies on entry, however, little attention has been paid to entrepreneurial exit, and much less on exit modes thus far. Using a recent original survey data on small business owners in New Zealand, where a large majority of them prefer selling their firms when they exit, we empirically investigate the determinants of intended entrepreneurial exit modes: selling out, succession, or closure. Estimation results of multinomial logit analysis suggest that the intention to sell the business is significantly affected by the size and performance of the firm, the involvement of family and how the owner entered the business. Moreover, we find that the intention to liquidate the business is significantly affected by the size and performance of the firm and partly by family involvement in the business.
    Keywords: entrepreneurial exit, liquidation, small and medium enterprise (SME), New Zealand
    Date: 2010–10
  12. By: Francesca Bartoli (UniCredit Group); Giovanni Ferri (University of Bari); Pierluigi Murro (University of Bari); Zeno Rotondi (Unicredit Group)
    Abstract: We examine the role played by Mutual Guarantee Institutions (MGIs) in the lending policies undertaken by banks at the peak of the Great Crisis of 2007-2009. We address this issue by using a large database on Italian firms built from the credit files of UniCredit banking Group and focusing on small business. We provide an empirical analysis of the determinants of the probability that a borrowing firm will suffer financial tension and obtain two main innovative findings. First, we show that small firms supported by MGIs were less likely to experience financial tensions even at that time of utmost financial stress. Second, our empirical evidence shows that MGIs have played a signalling role beyond the simple provision of a collateral. This latter finding suggests that the information provided by MGIs turned out to be key for bank-firm relations as scoring and rating systems - being typically based on pro-cyclical indicators - had become less informative during the crisis.
    Keywords: financial crisis, bank-firm relationships, asymmetric information, credit guarantee schemes, small business finance, peer monitoring
    JEL: D82 G21 G30
    Date: 2011–01
  13. By: Greg Fischer
    Abstract: Few microfinance-funded businesses grow beyond subsistence entrepreneurship.This paper considers one possible explanation: that the structure of existingmicrofinance contracts may discourage risky but high-expected return investments.To explore this possibility, I develop a theory that unifies models of investmentchoice, informal risk sharing, and formal financial contracts. I then test thepredictions of this theory using a series of experiments with clients of a largemicrofinance institution in India. The experiments confirm the theoreticalpredictions that joint liability creates two inefficiencies. First, borrowers free-ride ontheir partners, making risky investments without compensating partners for thisrisk. Second, the addition of peer-monitoring overcompensates, leading to sharpreductions in risk-taking and profitability. Equity-like financing, in which partnersshare both the benefits and risks of more profitable projects, overcomes both of theseinefficiencies and merits further testing in the field.
    Keywords: investment choice, informal insurance, risk sharing, contract design, microfinance,experiment.
    JEL: O12 D81 C91 C92 G21
    Date: 2011–02
  14. By: Vivien LEWIS (Ghent University and Goethe University Frankfurt, IMFS); Céline POILLY (UNIVERSITE CATHOLIQUE DE LOUVAIN, IMMAQ, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper estimates a business cycle model with endogenous firm entry by matching impulse responses to a monetary policy shock in US data. Our VAR includes net business formation, profits and markups. We evaluate two channels through which entry may influence the monetary transmission process. Through the competition effect, the arrival of new entrants makes the demand for existing goods more elastic, and thus lowers desired markups and prices. Through the variety effect, increased firm and product entry raises consumption utility and thereby lowers the cost of living. This implies higher markups and, through the New Keynesian Phillips Curve, lower inflation. While the proposed model does a good job at matching the observed dynamics, it generates insufficient volatility of markups and profits. Estimates of standard parameters are largely unaffected by the introduction of firm entry. Our results lend support to the variety effect; however, we find no evidence for the competition effect.
    Keywords: entry, inflation, monetary transmission, monetary policy, extensive margin
    JEL: E32 E52
    Date: 2011–02–08
  15. By: Rajshree Agarwal; Benjamin Campbell; April M. Franco; Martin Ganco
    Abstract: Focusing on entrepreneurial ventures created by employees leaving a firm, our study examines the differential impact of knowledge transfer and knowledge spillovers on both parent and spin-out performance. While extant research often uses knowledge transfer and spillover interchangeably, our study distinguishes between the two based on the “rivalness” of the relevant knowledge. We theorize that both knowledge transfer (proxied by the size of the exiting employee team) and knowledge spillovers (proxied by the experience of the exiting employee team) will aid spin-out performance. However, knowledge transfer, being more rival, will have a greater adverse impact than knowledge spillovers on parent firm performance. Using U.S. Census Bureau linked employee-employer data from the legal services industry, we find support for our hypotheses. Our study thus contributes to extant literature by highlighting a key dimension of knowledge — rivalness — and the differential competitive dynamics effect of resources with varying degrees of rivalness.
    Date: 2011–02
  16. By: Swain, Larry B. (Deparment of Economics South Dakota State University)
    Date: 2010–11
  17. By: Kar, Saibal (Centre for Studies in Social Sciences, Calcutta); Saha, Bibhas Chandra (University of East Anglia)
    Abstract: Immigrant workers and their labor force participation in host countries have received critical attention in all concerned disciplines, principally owing to its strong implications for well-being of natives. The ageing population in many rich countries and several related and unrelated issues including global integration, pension provisions or security threats keeps immigration under continuous impact evaluation. However, of the several studies that dealt with patterns and consequences aspects of labor migration, only a handful discusses asymmetric information across transnational labor markets despite agreement that a standardized screening mechanism is unavailable. At the same time, several empirical studies show that immigrants are proportionally overrepresented in self-employment, vis-à-vis natives of equivalent skill levels. We try to explain this phenomenon based on asymmetric information in the host country labor market. We focus on the design of a contract menu by the employers, which when offered to a mixed cohort of immigrants facilitates self-selection in favor of paid employment or the outside option of self-employment/entrepreneurship. We also discuss countervailing incentives among the mixed cohort.
    Keywords: immigrants, asymmetric information, labor contracts, self-employment, incentive compatibility
    JEL: D82 J23 J24 J41 J61
    Date: 2011–02
  18. By: Francesco Bogliacino (European Commission); Mario Pianta (Department of Economics, Università di Urbino "Carlo Bo")
    Abstract: The links between three interconnected elements of the Schumpeterian sources of economic change are explored, conceptually and empirically, in this paper: the commitment of industries to invest profits in cumulative R&D efforts; the ability of industries’ R&D to lead to successful innovations; the impact of new products and processes on high entrepreneurial profits. We consider the nature and variety of innovative efforts – distinguishing in particular between strategies of technological and cost competiveness – and we introduce the role of demand in pulling technological change and supporting profits. We develop a simultaneous three-equation model and we test it at industry level – for 38 manufacturing and service sectors – on eight European countries over two time periods from 1994 to 2006. The results show that the model effectively accounts for the dynamics of European industries and highlights the interconnections between the different factors contributing to growth.
    Keywords: R&D, Innovation, Profits, Demand, System Three Stages Least Squares.
    JEL: L6 L8 O31 O33 O52
    Date: 2011
  19. By: Mo , Pak Hung
    Abstract: In this paper, we institute the role of entrepreneurs in technical progress and the mechanism of tools multiplication into the Cobb Douglas Production Function. After the advancements, the technology component in the function has technical meaning and is potentially observable. Unlimited technical progress becomes possible and automatic under sticky competitive markets. The coexistence of sustained growth, decline and stagnation across countries and time becomes obvious and the target of public policies for achieving sustained growth is also clear and precise.
    Keywords: Entrepreneur; Sticky Competition; Cobb-Douglas Production Function; Endogenous Growth; Technical Progress; Tools Variety
    JEL: D2 O4
    Date: 2011–01

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