nep-ent New Economics Papers
on Entrepreneurship
Issue of 2012‒06‒25
eleven papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. The Cost of Friendship By Paul Gompers; Vladimir Mukharlyamov; Yuhai Xuan
  2. Self-Employment after Socialism: Intergenerational Links, Entrepreneurial Values, and Human Capital By Michael Fritsch; Alina Rusakova
  3. Evaluating the Determinants of Self-Employed Income Across Regional Economies: A Case-Study of the U.S. Southeast By Willis, David B.; Boys, Kathryn A.; Hughs, David W.; Swindall, Devin C.
  4. Knowledge Spillovers, Collective Entrepreneurship, & Economic Growth: The Role of Universities By Leyden, Dennis; Link, Albert N.
  5. How the Small Business Innovation Research (SBIR) Program Matters By Link, Albert N.; Scott, John T.
  6. Resource Wealth and Entrepreneurship: A Blessing or a Curse? By Mohammad Reza Farzanegan
  7. Marketing in smes: the role of entrepreneurial sensemaking By Bettiol, M; Di Maria, E; Finotto, Vladi
  8. Sex Imbalance, Marriage Competition, and Entrepreneurship: Evidence from rural China By Yuan, Yan; Rong, Zhao; Xu, Lihe
  9. Monitoring Costs, Credit Constraints and Entrepreneurship By Banerji, Sanjay; Raj, Rajesh S.N.; Sen, Kunal
  10. The Formal Sector Wage Premium and Firm Size for Self-employed Workers By Bargain, Olivier; El Badaoui, Eliane; Kwenda, Prudence; Strobl, Eric; Walsh, Frank

  1. By: Paul Gompers; Vladimir Mukharlyamov; Yuhai Xuan
    Abstract: This paper explores two broad questions on collaboration between individuals. First, we investigate what personal characteristics affect people’s desire to work together. Second, given the influence of these personal characteristics, we analyze whether this attraction enhances or detracts from performance. Addressing these problems in the venture capital syndication setting, we show that venture capitalists exhibit strong detrimental homophily in their co-investment decisions. We find that individual venture capitalists choose to collaborate with other venture capitalists for both ability-based characteristics (e.g., whether both individuals in a dyad obtained a degree from a top university) and affinity-based characteristics (e.g., whether individuals in a pair share the same ethnic background, attended the same school, or worked for the same employer previously). Moreover, frequent collaborators in syndication are those venture capitalists who display a high level of mutual affinity. We find that while collaborating for ability-based characteristics enhances investment performance, collaborating for affinity-based characteristics dramatically reduces the probability of investment success. A variety of tests show that the cost of affinity is not driven by selection into inferior deals; the effect is most likely attributable to poor decision-making by high-affinity syndicates post investment. Taken together, our results suggest that non-ability-based “birds-of-a-feather-flock-together” effects in collaboration can be costly.
    JEL: G24 G3 L14 L2
    Date: 2012–06
  2. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Alina Rusakova (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: Drawing on representative household data from the German Socio-Economic Panel, we examine the role of an early precursor of entrepreneurial development - parental role models - for the individual decision to become self-employed in the post-unified Germany. The findings suggest that the socialist regime significantly damaged this mechanism of an intergenerational transmission of entrepreneurial attitudes among East Germans with a tertiary degree that have experienced a particularly strong ideological indoctrination. However, we find a significant and positive relationship between the presence of a parental role model and the decision to become self-employed for less-educated people. For West Germans the positive relationship holds irrespective of the level of education.
    Keywords: Entrepreneurship, parental role models, human capital
    JEL: L26 Z1 D03
    Date: 2012–06–05
  3. By: Willis, David B.; Boys, Kathryn A.; Hughs, David W.; Swindall, Devin C.
    Abstract: Supporters claim that entrepreneurship is critical to building and sustaining the regional economies of urban and rural areas across the nation. Proponents argue that economic development practices that enhance and support entrepreneurship are essential because they cultivate innovation which, in turn, creates new jobs, new wealth, and a better quality of life. However, South Carolina’s real self-employed per capita income has decreased over the last decade. This downward trend highlights the need to examine the drivers of entrepreneurial income. The income of self-employed workers, as opposed to the number of self-employed, is critical to economic development because a major goal of economic policy is to increase incomes not just employment. Identifying and quantifying the personal, cultural, and economic factors that influence self-employed income provides policy makers with another tool to enhance economic development policies. This study uses data from the American Community Survey for South Carolina in both an ordinary regression approach and a quantile regression approach to investigate the relationship between individual entrepreneurial income and individual personal attributes, social/institutional assets available to the entrepreneur, and the regional economic environment the entrepreneur operates within. Personal attributes, such as education and sex, and the importance of self-employed income to total family income are significant variables in explaining income variation among self-employed individuals.
    Keywords: Consumer/Household Economics,
    Date: 2012–08–12
  4. By: Leyden, Dennis (University of North Carolina at Greensboro, Department of Economics); Link, Albert N. (University of North Carolina at Greensboro, Department of Economics)
    Abstract: This paper develops a formal context for understanding the role that universities play in facilitating the transmission of knowledge to private-sector firms so as to generate economic growth. To the degree the university seeks to act as a complement to private-sector firm-with-firm collaborative R&D, it needs to structure its programs so that firm revenues increase and firm R&D costs, if they rise at all (and a fall would be better), rise by a smaller proportion than revenues increase. Such a structure is consistent with university interests but requires that the university be subsidized. In the absence of such support, it is unlikely that the university will have much success. The university will have to cover its costs through a fee charged to participating firms, and that will result in university being seen as a substitute rather than a complement to firm-with-firm collaborative R&D. However, while there may be good reasons why such subsidization is rational from an efficiency perspective, such arguments, as current governmental fiscal pressures in the US and other countries reveal, may not be persuasive with legislatures. Hence, there is a fundamental policy tension.
    Keywords: Collective entrepreneurship; Knowledge spillovers; University collaboration
    JEL: D73 L26 O31
    Date: 2012–06–07
  5. By: Link, Albert N. (University of North Carolina at Greensboro, Department of Economics); Scott, John T. (Dartmough College)
    Abstract: This note describes several performance characteristics of the Small Business Innovation Research (SBIR) program. The numerical examples are based on our analysis of the 1,878 randomly selected projects conducted at firms that responded to the 2005 National Research Council survey. The data show that firms receiving SBIR funding are able to overcome the initial technology-based hurdles that small, entrepreneurial firms frequently face, thus facilitating a more permanent and possibly longer-term employment growth.
    Keywords: Small Business Innovation Research program; R&D; Employment growth
    JEL: L26 O31
    Date: 2012–06–07
  6. By: Mohammad Reza Farzanegan (University of Marburg)
    Abstract: Resource-rich countries of the Middle East and North Africa (MENA) have the highest youth unemployment rate in the world. While other parts of the world are experiencing an increasing trend in new firms’ formation as a potential solution for their unemployment problem, the MENA region has the lowest records in new business establishments. In this study, we investigate the reasons behind such a significant lag of the resource-rich countries in entrepreneurship. Panel data for more than 80 countries from 2004-2009 shows that higher dependence on resource rents reduces entrepreneurship activities. The decline is more significant in countries with higher levels of point resources such as oil and coal.
    Keywords: resource curse, entrepreneurship, panel data
    JEL: O13 Q32 M13
    Date: 2012
  7. By: Bettiol, M; Di Maria, E; Finotto, Vladi
    Abstract: Marketing literature has emphasized the factors hampering marketing planning and strategizing in small firms, in particular resource scarcity, lack of specialized structures and competences. Recent streams of literature in entrepreneurial marketing have nonetheless shown that small firms do engage in peculiar marketing strategies and activities that do not necessarily reflect codified processes observed in large organizations. Within this line of research, the article aims at contributing to extant theory in entrepreneurial marketing placing under scrutiny the generative moments of marketing strategies in small firms. Through the integration of literature in entrepreneurial marketing and in entrepreneurship and through the analysis of four case studies, the article proposes a conceptual framework that emphasizes the centrality of entrepreneurial sensemaking in small and medium-sized enterprises’ marketing strategies. We posit that entrepreneurs are engaged in the construction of interpretive frameworks that, when explicated and made accessible to consumers and stakeholders, legitimate novel business ideas and logics. These interpretive frameworks structure the content and processes of marketing activities. Theoretically, the article aims at contributing to the debate on marketing in small businesses shedding light on the processes underlying the formation of marketing strategies. Propositions are offered to guide future empirical research based on the proposed conceptual framework.
    Keywords: Entrepreneurship; Marketing; Sensemaking
    JEL: M31 M13
    Date: 2012–06–01
  8. By: Yuan, Yan; Rong, Zhao; Xu, Lihe
    Abstract: It is well acknowledged that the entrepreneurship is important to economic development. In this paper, we suggest a gender-related determinant of entrepreneurship, local sex imbalance. Using a 2009 rural finance survey, we examine how this imbalance influences the venturing at the household level in China. We find that households with a son in more sex-imbalanced villages are more likely to have a business. Further examination reveals that these households have any advantage in borrowing.
    Keywords: entrepreneurship, sex ratio, China, Community/Rural/Urban Development, Consumer/Household Economics, Farm Management, Financial Economics, J1, J2,
    Date: 2012
  9. By: Banerji, Sanjay (University of Nottingham); Raj, Rajesh S.N. (Centre for Multi-Disciplinary Development Research (CMDR)); Sen, Kunal (University of Manchester)
    Abstract: The vast majority of firms in developing economies are micro and small enterprises owned by families whose members also provide the labour to the units. Often, they fail to grow in size even with the relaxation of credit constraints. In this paper, we show that frictions in the labour market leading to monitoring costs tend to reduce the growth of the firm via two channels: (1) it forces the entrepreneur to devote more time on monitoring hired labour from outside family which curtails her time on productive activities leading to failures of firm's projects. (2) The need to pay a premium wage over the market rate in order to incentivize workers makes it costlier for the firm to expand in size via hiring outside labour. In this framework, we show that possibility of an inverted U- shaped relationship between the credit supply and the size of the firm, measured by hiring of non family labour, indicating frictions in the labour market may outweigh the effects of the easing of borrowing constraints of the firm. We then use a unique data-set comprising large nationally representative surveys of small and micro-enterprises in Indian manufacturing and find support for the existence of such a non-monotonic relationship attributed to both frictions in the credit and labour markets.
    Keywords: household enterprises, credit constraint, monitoring costs, entrepreneurship, India
    JEL: D22 G10 O16
    Date: 2012–05
  10. By: Bargain, Olivier (University of Aix-Marseille II); El Badaoui, Eliane (University Paris Ouest-Nanterre); Kwenda, Prudence (University College Dublin); Strobl, Eric (Ecole Polytechnique, Paris); Walsh, Frank (University College Dublin)
    Abstract: We develop a model where formal sector firms pay tax and informal ones do not, but informal firms risk incurring the penalty associated with non-compliance. Workers may enter self-employment or search for jobs as employees. Workers with higher managerial skills will run larger firms while workers with lower will manage smaller firms and will be in self-employment only when they cannot find a salary job. For these workers self-employment is a secondary/informal form of employment. The Burdett and Mortensen (1998) equilibrium search model turns out to be a special case that we amend by incorporating taxes and a penalty for non-payment of taxes. Our model is also consistent with some of the empirical literature in that the informal wage penalty does appear to be limited to low wage/skill workers while firm size is an important determinant of the employee formal sector premium. We test theoretical predictions using empirical evidence from Mexico and find that firm size wage effects for employees and self-employed workers are broadly consistent with the model.
    Keywords: informality, self-employment, Burdett and Mortensen model
    JEL: J31 O17
    Date: 2012–05
  11. By: Bat Batjargal
    Abstract: This study examines the effect of network’s structural holes, i.e., the absence of a link between two contacts who are both linked to an actor, on product development and profit growth of software ventures in two different institutional contexts of China and Russia. Using interview data of 159 software entrepreneurs in Beijing and Moscow, the study found that the effect of structural holes is contingent upon country institutional context and venture development stage. Specifically, structural holes have a positive main effect on product portfolio but a negative main effect on profit growth in the second revenue year - early stage of venture development. Structural holes are more useful in the Russian institutional context compared to the Chinese institutional context due to the polycentricity of institutions. The research implications of the findings are discussed.
    Keywords: entrepreneurship, networks, institutions, Russia, China
    JEL: L26 L29 L86 P20
    Date: 2012–05–01

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