nep-ent New Economics Papers
on Entrepreneurship
Issue of 2011‒07‒21
eleven papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. How to Educate Entrepreneurs? By Graevenitz, Georg von; Weber, Richard
  2. Self-employment of rural-to-urban migrants in China By Giulietti, Corrado; Ning, Guangjie; Zimmermann, Klaus F
  3. Credit Guarantees and Subsidies when Lender has a Market Power By Karel Janda
  4. Rewarding my Self. Self Esteem, Self Determination and Motivations By Bruno, Bruna
  5. Audits or Distortions: The Optimal Scheme to Enforce Self-Employment Income Taxes By Eduardo Zilberman
  6. Entrepreneurship and Economic Growth: An Investigation into the Relationship between Entrepreneurship and Total Factor Productivity Growth in the EU By Andrzej P. Dabkowski
  7. What Financial Backers Expect from Business Plans: Effectual Versus Causal Logic By Olivier Daxhelet; Olivier Witmeur
  8. Venture-backed IPOs - grandstanding and clusterings By Grell, Kevin Berg
  9. Who's Afraid of a Globalized World? Foreign Direct Investments, Local Knowledge and Allocation of Talents By Giovanni Pica; José V. Rodriguez Mora
  11. PROFILE OF SME’S STRATEGIC ALLIANCE IN MALAYSIA By Mehdi Mohammadi Poorangi; Dr. Edward Wong Sek Khin

  1. By: Graevenitz, Georg von; Weber, Richard
    Abstract: Entrepreneurship education has two purposes: To improve students’ entrepreneurial skills and to provide impetus to those suited to entrepreneurship while discouraging the rest. While entrepreneurship education helps students to make a vocational decision its effects may conflict for those not suited to entrepreneurship. This study shows that vocational and the skill formation effects of entrepreneurship education can be identified empirically by drawing on the Theory of Planned Behavior. This is embedded in a structural equation model which we estimate and test using a robust 2SLS estimator. We find that the attitudinal factors posited by the Theory of Planned Behavior are positively correlated with students’ entrepreneurial intentions. While conflicting effects of vocational and skill directed course content are observed in some individuals, overall these types of content are complements. This finding contradicts previous results in the literature. We reconcile the conflicting findings and discuss implications for the design of entrepreneurship courses.
    Keywords: Entrepreneurship education; entrepreneurial intention; theory of planned behavior; structural equation models; two stage least squares.
    JEL: L11 L13 O34
    Date: 2011
  2. By: Giulietti, Corrado; Ning, Guangjie; Zimmermann, Klaus F
    Abstract: This paper focuses on the determinants of self-employment among rural to urban migrants in China. Two self-selection mechanisms are analysed: the first relates to the manner in which migrants choose self-employment or paid work based on the potential gains from either type of employment; the second takes into account that the determinants of the migration decision can be correlated with employment choices. Using data from the 2008 Rural-Urban Migration in China and Indonesia (RUMiCI) survey, a selection model with endogenous switching is estimated. Earnings estimates are then used to derive the wage differential, which in turn is used to model the employment choice. The procedure is extended to account for migration selectivity and to compare individuals with different migration background and employment histories. The results indicate that self-employed individuals are positively selected with respect to their unobserved characteristics. Furthermore, the wage differential is found to be an important driver of the self-employment choice.
    Keywords: European Union; rural to urban migration; selection bias magnets; self-employment; wages
    JEL: J23 J61 O15
    Date: 2011–07
  3. By: Karel Janda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Provision of credit guarantees or subsidies may remove an adverse selection leading to credit rationing. This paper concentrates on comparison of government budget costs of credit guarantees and subsidies in a monopolistic credit market. Di?erent opportunity costs among entrepreneurs, which re?ect di?erent mixes of general and human speci?c capital, generate di?erent outcomes in the model. As long as the participation costs of low-risk entrepreneurs are su?ciently close to the participation costs of high-risk entrepreneurs, the budget-cost minimizing government should prefer guarantees over interest rate subsidies as an intervention instrument.
    Keywords: credit; subsidies; guarantees
    JEL: D82 G18 H25
    Date: 2011–06
  4. By: Bruno, Bruna
    Abstract: The paper presents a model where the self esteem and the self determination mechanisms are explicitly modelled in order to explain how they affect the intrinsic motivation and its impact on individual choices. The aim is to reconcile different explanations (and consequences) of the motivation crowding theory in a unique theoretical framework where the locus of control is introduced in a one period maximisation problem and the intrinsic motivation is assumed as an exogenous psychological attitude. The analysis is based on the different effect of the self esteem mechanism on intrinsic motivation input oriented or output oriented. Results show that crowding out of intrinsic motivation depends on the self determination sensitivity and the individual belief about one’s own self.
    Keywords: intrinsic motivation; crowding out; self-esteem; self-determination.
    JEL: D11 D64 J22
    Date: 2011–07–13
  5. By: Eduardo Zilberman (Department of Economics PUC-Rio)
    Abstract: I investigate the optimal auditing scheme for a revenue-maximizing tax-collection agency that observes not only reported prots, but also the level of employment at each firm. Each firm is owned by a single entrepreneur whose managerial ability is random. The optimal auditing scheme is discontinuous and non-monotone in ability. In intermediate audit costs, less-productive entrepreneurs face auditing probabilities that increase in ability, whereas the ablest ones are not audited. I argue that if the optimal auditing scheme were adopted in practice, net revenue collected from nonfarm sole proprietors would increase by at least 59 percent.
    Date: 2011–07
  6. By: Andrzej P. Dabkowski
    Abstract: Endogenous growth theory assigns an important role for entrepreneurship in the process of economic development. This paper sets to formally test the impact of entrepreneurship on economic growth. Entrepreneurship is represented by a number of proxy variables, whereas Total Factor Productivity is used as a measure of economic growth. Panel data of 26 European countries repeatedly sampled over a period of 11 years is used to estimate a Random Effects model. This study finds that entrepreneurship contributes to growth moderately. It is not, nonetheless, a dominant force shaping changes in TFP growth rates. Business Birth Rate, Self-employment Rate, Business Investment and Labour Productivity Growth were all found to be highly significant. The article concludes that more encompassing measure of entrepreneurship needs to be developed, one that would reflect the complexity of the notion.
    Keywords: entrepreneurship, total factor productivity, economic growth, the EU
    JEL: O11 O30 O47 O52 L26
    Date: 2011–07
  7. By: Olivier Daxhelet; Olivier Witmeur
    Abstract: Aim of the Paper For years, business planning (BP) has played a central role in the teaching and practice of new venture creation. However, existing research has provided us with mixed results about its usefulness. Part of the argument against BP is that it relies on top-down logic while emerging bottom-up logic may be more relevant. Sarasvathy (2001) proposed that successful entrepreneurs tend to be effectual rather than causal. Sarasvathy & Wiltbank (2002) also suggested that business angels (BA) and venture capitalists (VC) tend to be more effectual than causal and should then pay less attention to BP. This paper has two objectives. It first checks to what extent different kinds of financial backers (i.e. BA, VC, and bankers) are generally causal or effectual in their thinking when they analyze new ventures. It then clarifies how greatly the content of the business plan prepared by an entrepreneur differs from one type of financial backer. Contribution to the literature This paper advances the literature on the use of BP, especially when entrepreneurs are searching for financial backing. It contributes to a better understanding of the expectations of different financial backers. This paper also clarifies under which conditions a traditional business plan is relevant to achieve financing and defines the type of critical information that must be included in the plan. Methodology The research in this paper is qualitative. We relied on in-depth structured interviews of eight Belgian financial backers: three commercial bankers, three VC, and two BA. The interviews followed a systematic and replicable model, which included the “venturing experience” developed by Sarasvathy & al. (2001). Results and Implications The three different types of financial backers, commercial bankers, venture capitalists (VC), and business angels (BA), all have clear distinctions that separate them from each other. Bas are more effectual than VCs, whereas commercial bankers are more causal. In addition, the content of the expected business plan usually differs between financial backers. BA and VC pay more attention to the entrepreneur, while commercial bankers pay more attention to financials and the plan itself. From a theoretical point of view, the research confirms the importance of adopting a contingent approach when analyzing the expectations and behavior of financial backers and what they mean by BP. For practitioners, the research contributes to the discussion about the usefulness of BP and confirms that it is not the time to ‘burn business plans’ since all financial backers are still willing to receive one. However, the results indicate that the time has come for the content of business plans to evolve in order to remain relevant.
    Date: 2011–07
  8. By: Grell, Kevin Berg (Department of Business and Economics)
    Abstract: The previous theoretical literature on IPOs has been carried out under the assumption of a free supply of new issues, emphasizing how the valuation and magnitude of new issues can be explained by mechanisms on the demand side. This model explains grandstanding and IPO clusterings based on supply side dynamics and adverse selection between venture capitalists and their investors. We derive the optimal divestment pattern of venture capitalists in the process of gaining reputation. From this we show how grandstanding and IPO clusterings are linked to financial constraints, and how competition for funding strengthens this result. Finally, we argue that the social loss in this context has three major components. Besides under- and overinvestment in new funds, some companies are divested too soon, in order for venture capitalists to signal good ability of project selection.
    Keywords: Venture capital; VC-backed IPOs; grandstanding
    JEL: D81 D82 G24
    Date: 2010–09–24
  9. By: Giovanni Pica; José V. Rodriguez Mora
    Abstract: We study the distributional effects of globalization within a model of heterogeneous agents where both managerial talent and knowledge of the local economic environment are required in order to become a successful entrepreneur. Agents willing to set up a firm abroad incur a learning cost that depends on how different the foreign and domestic entrepreneurial environments are. In this context, we show that globalization fosters FDI and raises wages, output and productivity. However, not everybody wins. The steady state relationship between globalization and income is U-shaped: high- and low-income agents are better off in a globalized world, while middle-income agents (domestic entrepreneurs) are worse off. Thus, consistently with recent empirical evidence, the model predicts globalization to increase inequality at the top of the income distribution while decreasing it at the bottom.
    Date: 2011
  10. By: Abd Razak Ahmad; Wan Fauziah Wan Yusoff; Haris Md Noor; Ahmad Kaseri Ramin (Faculty of Technology Management, Business and Entrepreneurship, Universiti Tun Hussein Onn Malaysia)
    Abstract: Rural entrepreneurship is acknowledged as an important component that contributes to the economic development of a country. In Malaysia, until recent much attention has been given by the government to ensure the success of the program. Nevertheless, the development of the program has not meeting the government plan. Therefore, this study aims to explore the rural entrepreneurship program in Johor. Specifically the objective of the study is to identify entrepreneurs’ understanding towards the program and the effectiveness of the programs. The data of the study was captured using structured questionnaires involving 32 rural entrepreneurs who had participated in the Ministry of Rural and Regional Development programs. The study revealed that level of understanding of the program was high. The mean score of the five measurements of understanding (promotion awareness, promotion content, suitability of the program, program content and program activities) was 4.4. In term of the effectiveness of the program, although overall mean score was at high level (3.7) two aspects; integration and coordination found to be less effective with the average score of 2.3 and 2.4 respectively . It can be concluded although the entrepreneurs highly understood about the program, the program need further improvement in term of integration and coordination. It is hoped that this study can provide some information that can be used by the respective ministry in enhancing the rural entrepreneurship development program in Malaysia
    Keywords: Entrepreneurship, Rural Entrepreneurship, Rural Areas
    JEL: M00
    Date: 2011–06
  11. By: Mehdi Mohammadi Poorangi; Dr. Edward Wong Sek Khin (Faculty of Business and Accountancy, University of Malaya)
    Abstract: In the third millennium, competition has become tough and unpredictable and all organizational regardless of their size and scope of operation are facing fierce competitive challenges. In management, one of the most reliable ways to cope with these challenges quickly and effectively is strategic alliance or partnership. Consequently, strategic alliance has attracted lots of attention from the researchers and managers over past years. Technically, strategic alliance is a systematic approach to share the resources, acquire more capabilities, and finally create cooperative and competitive advantages. This study addressed the concept of strategic alliance amongst Malaysian SMEs in different industries and tried to create a regulatory framework for the SME strategic alliance in Malaysia from a holistic view based on the statements of the sampled SMEs’ executives. The findings of the study showed that in conducting a strategic partnership program the first step must be selecting a potential partner and this process requires a full understanding of partners across two dimensions: 1. Resources and capabilities, and 2. Cost and risks. In addition, strategic alliance can shape domestically as well as internationally and also in the form of a network of multiple alliances and the tendency of an enterprise in forming such partnership programs indicate the attitude of executives toward the alliance. Finally, it also has been found that learning and sharing knowledge resources is a critical factor in success of any strategic alliance
    Keywords: strategic alliance, Small and medium enterprises (SMEs), resource based view (RBV)
    JEL: M00
    Date: 2011–06

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