nep-ent New Economics Papers
on Entrepreneurship
Issue of 2012‒03‒21
fifteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Small firm innovation performance and employee involvement By Andries, Petra; Czarnitzki, Dirk
  2. The Role of Employees for Post-Entry Firm Growth By Andreas Koch; Jochen Späth; Harald Strotmann
  3. Mobility of Skills and Ideas By Aloña Martiarena
  4. Entrepreneurship in Services and Socially Disadvantaged in India By Rajeev Dehejia; Arvind Panagariya
  5. The Impact of Consulting Services on Small and Medium Enterprises: Evidence from a Randomized Trial in Mexico By Mariam Bruhn; Dean Karlan; Antoinette Schoar
  6. Self-Employment, Wage Employment and Informality in a Developing Economy By Bennett, John; Rablen, Matthew D.
  7. Do Business Subsidies Facilitate Employment Growth? By Heli Koski; Mika Pajarinen
  8. Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital-backed Start-ups By Bing Guo; Yun Lou; David Pérez-Castrillo
  9. Certification effect and capital structure determinants in venture-backed companies By Alvaro Tresierra Tanaka; José Martí Pellón; Marina Balboa
  10. Smithian Growth Through Creative Organization By Legros, Patrick; Newman, Andrew F; Proto, Eugenio
  11. The Exploitation of Publicly Funded Technology By Link, Albert N.; Scott, John T.
  12. Corruption and the Efficiency of Capital Investment in Developing Countries By Conor M. O’Toole; Tarp, Finn
  13. Patent Citations, University Inventor Patents, and Survival in the German Laser Source Industry (1960-2005) By Luis F. Medrano E.
  14. Are complex innovators more persistent than single innovators ? An empirical analysis of innovation persistence drivers By Christian Le Bas; Nicolas Poussing
  15. Policies to stimulate innovation By Andrew Atkeson; Ariel T. Burstein

  1. By: Andries, Petra; Czarnitzki, Dirk
    Abstract: It is known that small firms rely mainly on the CEO's individual knowledge for developing innovations. Recent work suggests that this approach is inefficient since it underutilizes other employees' knowledge. We study to which extent using CEOs, managers and non-managerial employees' ideas enhances small firms' innovation performance. A Heckman selection model on 305 small firms shows that not only CEO's and managers', but also non-managerial employees' ideas contribute to innovation performance. However, contributions depend heavily on the individuals' area of expertise and on whether product or process innovation is desired. Our findings enrich the current view on the entrepreneurial team, but also warn against the implementation of one-size-fits-all employee involvement programs in small firms. --
    Keywords: Employee involvement,upper echelon,non-managerial employees,innovation performance,small firms
    JEL: M12 O31 O32
    Date: 2012
  2. By: Andreas Koch; Jochen Späth; Harald Strotmann
    Abstract: While the majority of existing studies on the determinants of post-entry firm growth focus on the role of the founders or on the impact of firm-specific characteristics like size, age or industry affiliation, a possible impact of the characteristics of a start-up’s workforce on post-entry growth has been widely neglected in the literature so far. Based upon a comprehensive panel dataset of establishments in Germany, this paper contributes to fill this gap and examines the role of the initial employment structure with respect to qualification, age, gender and nationality for post-entry employment growth measured both in terms of employees and in terms of full-time equivalents. Moreover, it is analyzed whether the use of flexible work forms like regular part-time and / or marginal employment in the year of foundation affects post-entry growth. Our empirical results confirm that in particular the initial qualification structure of a start-up’s employees matters for post-entry growth. Establishments using flexible work forms show higher post-entry growth with respect to total hours worked, but a significantly lower growth with respect to the number of employees.
    Keywords: start-ups, post-entry performance, firm growth, job quality, flexibility, human capital
    JEL: J24 L10 L25
    Date: 2012–02
  3. By: Aloña Martiarena
    Abstract: This paper examines and tests how the composition of human capital that workers acquire on-the-job determines the decision to found spinoffs and the know-how that entrepreneurs exploit in the new firm. I argue that given the different degree of specialisation in small and large firms, entrepreneurs emerging from small firms transfer knowledge from more diverse aspects of the business and create spinoffs more related to the main activity of the incumbent firm. Workers in large firms, however, benefit from higher returns to human capital that increase their opportunity costs to switch to an occupation that requires a different combination of skills. Since becoming an entrepreneur implies performing multiple tasks and makes part of their specialised skills unutilised, the minimum quality of the business idea at which they are willing to reveal the discovery is higher and, therefore, entrepreneurs emerging from large firms are of highest quality.
    Keywords: Spinoffs ; enrepreneurship ; human caital ; on-the-job learning ; firm performance
    JEL: L25 L26 J31 J33
    Date: 2012
  4. By: Rajeev Dehejia (Tufts University); Arvind Panagariya (Columbia University)
    Keywords: India, growth, entrepreneurship, socially disadvantaged, poverty, services
    Date: 2011–10
  5. By: Mariam Bruhn (World Bank); Dean Karlan (Economic Growth Center, Yale University); Antoinette Schoar (MIT)
    Abstract: We test whether managerial human capital has a first order effect on the performance and growth of small enterprise in emerging markets. In a randomized control trial in Puebla, Mexico, we randomly assigned 150 out of 432 small and medium size enterprises to receive subsidized consulting services, while the remaining 267 enterprises served as a control group that did not receive any subsidized training. Treatment enterprises were matched with one of nine local consulting firms and met with their consultants once a week for four hours over a one year period. Results from a follow-up survey, conducted after the intervention, show that the consulting services had a large impact on the performance of the enterprises in the treatment group: monthly sales went up by about 80 percent; similarly, profits and productivity increased by 120 percent compared to the control group. We also see a significant increase in the entrepreneurial spirit index for the treatment group, a set of questions designed to illicit the SME owners’ confidence in their ability to manage their business and deal with any future difficulties. However, we do not find any significant increase in the number of workers employed in the treatment group.
    Keywords: enterprise growth, entrepreneurship, managerial capital
    JEL: D21 D24 L20 M13 O12
    Date: 2012–02
  6. By: Bennett, John (Brunel University); Rablen, Matthew D. (Brunel University)
    Abstract: We construct a simple model incorporating various urban labour market phenomena obtaining in developing economies. Our initial formulation assumes an integrated labour market and allows for entrepreneurship, self-employment and wage employment. We then introduce labour market segmentation. In equilibrium voluntary and involuntary self-employment, formal and informal wage employment, and formal and informal entrepreneurship may all coexist. We illustrate the model by an example calibrated on Latin American data, examining individual labour market transitions and implications of education/training and labour market policies. To diminish informality, cutting the costs of formality is more effective than raising those of informality.
    Keywords: self-employment, wage employment, informality
    JEL: O17 J23
    Date: 2012–03
  7. By: Heli Koski; Mika Pajarinen
    Abstract: We use data from 15 508 Finnish companies with 10 or more employees for the years 2003-2008 to explore the relationship between employment growth and three endogenously determined business subsidy types (i.e. employment subsidy, R&D subsidy and the group of other business subsidies). We find a positive contemporary relationship between all business subsidy types and employment growth. In addition, our findings suggest that R&D subsidies further contribute to the firms’ employment for one year after and employment and other subsidies for three years after the reception of subsidies. After that, the differences between the subsidized and non-subsidized firms vanish. We further find in line with previous empirical studies that both product innovation and sales growth from a firm’s old products contribute to the firm’s employment growth. Innovation policy means successfully promoting product innovation should thus produce positive employment effects. Our empirical findings suggest that a positive employment effect of R&D subsidies is rather short-term though, and not likely a result of product innovation generated in the subsidized firms’ R&D projects.
    Keywords: Public subsidies ; enterprise policy ; industrial policy ; technology policy ; employment ; growth ; Finland
    JEL: J23 L10 L53 O25
    Date: 2012
  8. By: Bing Guo; Yun Lou; David Pérez-Castrillo
    Abstract: We propose a model of investment, duration, and exit strategies for start-ups backed by venture capital (VC) funds that accounts for the high level of uncertainty, the asymmetry of information between insiders and outsiders, and the discount rate. Our analysis predicts that start-ups backed by corporate VC funds remain for a longer period of time before exiting and receive larger investment amounts than those financed by independent VC funds. Although a longer duration leads to a higher likelihood of an exit through an acquisition, a larger investment increases the probability of an IPO exit. These predictions find strong empirical support.
    Date: 2012–01–25
  9. By: Alvaro Tresierra Tanaka (Facultad de Económicas); José Martí Pellón (Universidad Complutense de Madrid); Marina Balboa (Universidad de Alicante)
    Abstract: This paper analyzes changes in capital structure behavior in a sample of Spanish venture capital (VC) backed companies that may occur after a VC investment due to the certification effect provided by VC investors. Our results show significant changes in determinants such as tangibility, size and profitability. Regarding tangibility and size, the entry of an external investor eases the need to have neither tangible assets nor a large size to obtain additional debt financing. About the effect of profitability, the investments made after the initial VC investment do affect short-term profitability, but this situation is not linked to the restricted access to external debt. We find that VC investors contribute to unlisted growing companies by attracting other long-term sources of funds to continue their growth process. Este artículo analiza los cambios que pueden ocurrir en la estructura de capital de empresas que reciben capital riesgo una vez que han recibido dicha financiación, y que podrían deberse al efecto certificación que proporcionan los inversores de capital riesgo. Los resultados muestran cambios significativos en algunas de las variables determinantes de la estructura de capital, como los activos tangibles, el tamaño de la empresa, y su rentabilidad. En cuanto a las dos primeras variables, la entrada del inversor de capital riesgo relaja la necesidad tanto de poseer un volumen de activos tangibles elevado, como la de tener un tamaño empresarial grande para obtener financiación adicional a través de deuda. En cuanto a la rentabilidad, y aunque las inversiones que se realizan una vez que se ha recibido la financiación de capital riesgo tienen un efecto sobre la rentabilidad empresarial a corto plazo, no se encuentra que ello impida el acceso a financiación adicional a través de deuda. El trabajo muestra que los inversores de capital riesgo contribuyen a que las empresas no cotizadas consigan financiación de otras fuentes a largo plazo que les permita continuar con su proceso de crecimiento.
    Keywords: capital riesgo, estructura de capital, teoría del trade-off, valor añadido. capital structure determinants, venture capital, trade-off theory, value added.
    JEL: G32 G24
    Date: 2012–02
  10. By: Legros, Patrick (ECARES); Newman, Andrew F (Boston University); Proto, Eugenio (University of Warwick)
    Abstract: We consider a model in which appropriate organization fosters innovation, but because of contractibility problems, this bene t cannot be internalized. The organizational design element we focus on is the division of labor, which as Adam Smith argued, facilitates invention by observers of the production process. However, entrepreneurs choose its level only to facilitate monitoring their workers. Whether there is innovation depends on the interaction of the markets for labor and for inventions. A high level of specialization is chosen when the wage share is low. But low wage shares arise only when there are few entrepreneurs, which limits the market for innovations therefore and discourages inventive activity. When there are many entrepreneurs, the innovation market is large, but the rate of invention is low because there is little specialization. Rapid technological progress therefore requires a balance between these opposing effects, which occurs with a moderate relative scarcity of entrepreneurs and workers. In a dynamic version of the model in which a credit constraint limits entry into entrepreneurship, this relative scarcity depends on the wealth distribution, which evolves endogenously. There is an inverted-U relation between growth rates driven by innovation and the level of inequality. Institutional improvements have ambiguous effects on growth. In light of the model, we offer a reassessment of the mechanism by which organizational innovations such as the factory may have spawned the industrial revolution.
    Keywords: factory system, industrial revolution, technological change, contracts
    Date: 2012
  11. By: Link, Albert N. (University of North Carolina at Greensboro, Department of Economics); Scott, John T. (University of North Carolina at Greensboro, Department of Economics)
    Abstract: In this paper we focus on technology that resulted from R&D projects funded by U.S. Small Business Innovation Research (SBIR) Phase II awards. We ask: Is there evidence that strategic commercial agreements allow foreign firms to exploit the technologies developed through the SBIR program and funded by U.S. taxpayers? Based on descriptive information from Phase II SBIR-funded project data collected by the National Research Council within the National Academies, we conclude that SBIR funds for Phase II projects and the technologies associated with those projects are not, to a pronounced extent, benefiting foreign firms through agreements with SBIR firms or investors. In that sense, there is no evidence that the technologies developed with funds from U.S. taxpayers are, to any significant extent, being exploited by foreign firms through commercial agreements with SBIR firms.
    Keywords: Technology; Small Entrepreneurial Firms; SBIR Program; Strategic Agreements
    JEL: L24 L26 O32
    Date: 2012–03–13
  12. By: Conor M. O’Toole; Tarp, Finn
    Abstract: This paper considers the effect of corruption on the effciency of capital investment. Using firm-level level data from the World Bank enterprise surveys, covering 90 developing and transition economies, we consider whether the cost of informal bribe payments distorts the efficient allocation of capital by reducing the marginal return per unit investment. Using country estimates of fractionalization and legal origin as instruments, and controlling for censoring, we find that bribery decreases investment efficiency, as measured using both absolute and relative metrics of investment returns. The negative effect is strongest for domestic small and medium-sized enterprises while there is no significant effect on foreign and large domestic firms. We conclude that reducing the level and incidence of bribery by public officials would facilitate a more efficient allocation of capital. This in turn would support economic growth and development, particularly for small and medium-sized enterprises.
    Keywords: corruption, efficiency, rent-seeking, capital investmen
    Date: 2012
  13. By: Luis F. Medrano E. (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: The relationship between innovation and firm survival is analyzed for the population of German laser source producers from the beginning of the industry until 2005. Innovation effort is approximated by the generation of high quality patents in laser sources technology (IPC H01S) and by having patents with university inventors. Quality patents are defined as those in the upper quartile of the strongly right-skewed distribution of forward citations. Having quality patents is positive and statistically significantly associated with firm survival. New firms without relevant capabilities inherited at their birth may be capable of compensating for their lack of adequate pre-entry experience with corresponding innovative behavior. Having patents with university inventors is apparently not related to firm survival.
    Keywords: firm survival, patent citations, quality patents, university-inventor patents, innovation
    JEL: L25 M13 O30 O52
    Date: 2012–03–09
  14. By: Christian Le Bas (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Nicolas Poussing (CEPS/INSTEAD, 3, Avenue de la Fonte, 4364 Esch-sur-Alzette, Luxembourg)
    Abstract: This paper examines the persistence of innovation behaviour at the firm level (manufacturing and services sectors). We attempt to answer the question : does being successful in past innovation activities increase the probability of being successful in current innovation activities ? We contribute to the literature by explicitly distinguishing between single and complex innovation strategies. Using two waves of the Community Innovation Survey (2002–2004, 2006–2008) conducted in Luxembourg, the regressions show that complex innovators are more inclined to remain persistent innovators than single innovators. Within the group of single innovators pure product innovators have an advantage over pure process innovators. The results support the idea that the differences in innovation strategies across firms are important for understanding the firm innovation dynamics.
    Keywords: Innovation, Persistence, Single and Complex Innovators, CIS
    JEL: O31
    Date: 2012
  15. By: Andrew Atkeson; Ariel T. Burstein
    Date: 2011

This nep-ent issue is ©2012 by Marcus Dejardin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.