nep-ent New Economics Papers
on Entrepreneurship
Issue of 2012‒09‒03
fourteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines By Edward L. Glaeser; Sari Pekkala Kerr; William R. Kerr
  2. Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development By Karlan, Dean S.; Knight, Ryan; Udry, Christopher
  3. Entrepreneurial Employee Activity: A Large Scale International Study By Niels Bosma; Erik Stam; Sander Wennekers
  4. Employee Compensation in Entrepreneurial Companies By Bengtsson, Ola; Hand, John R. M.
  5. The Returns to Education for Opportunity Entrepreneurs, Necessity Entrepreneurs, and Paid Employees By Frank M. Fossen; Tobias J.M. Büttner
  6. Who Creates Jobs? Estimating Job Creation Rates at the Firm Level By Peter Huber; Harald Oberhofer; Michael Pfaffermayr
  7. When High Tech ceases to be High Growth: The Loss of Dynamism of the Cambridgeshire Region By Erik Stam; Ron Martin
  8. Entrepreneurship, Knowledge, Space, and Place: Evolutionary Economic Geography meets Austrian Economics By Erik Stam; Jan Lambooy
  9. Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment By Andersen, Steffen; Nielsen, Kasper Meisner
  10. Financial Bootstrapping: a critical entrepreneurship skill By Anabela Schinck; Soumodip Sarkar
  11. How to evaluate the impact of academic spin-offs on regional development By Donato Iacobucci; Alessandra Micozzi
  12. Entrepreneurship in the Natural Food and Beauty Categories before 2000: Global Visions and Local Expressions By Geoffrey G. Jones
  13. It Takes Two to Tango: Entrepreneurship and Creativity in Troubled Times – Vietnam 2012 By Vu Dang Le Nguyen; Nancy K. Napier; Quan Hoang Vuong
  14. Leçons d'innovation sociale des micro-angels By Arvind Ashta; Glòria Estapé-Dubreuil; Jean-Pierre Hédou; Stéphan Bourcieu

  1. By: Edward L. Glaeser (Harvard University); Sari Pekkala Kerr (Wellesley College); William R. Kerr (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: Measures of entrepreneurship, such as average establishment size and the prevalence of start-ups, correlate strongly with employment growth across and within metropolitan areas, but the endogeneity of these measures bedevils interpretation. Chinitz (1961) hypothesized that coal mines near Pittsburgh led that city to specialization in industries, like steel, with significant scale economies and that those big firms led to a dearth of entrepreneurial human capital across several generations. We test this idea by looking at the spatial location of past mines across the United States: proximity to historical mining deposits is associated with bigger firms and fewer start-ups in the middle of the 20th century. We use mines as an instrument for our entrepreneurship measures and find a persistent link between entrepreneurship and city employment growth; this connection works primarily through lower employment growth of start-ups in cities that are closer to mines. These effects hold in cold and warm regions alike and in industries that are not directly related to mining, such as trade, finance and services. We use quantile instrumental variable regression techniques and identify mostly homogeneous effects throughout the conditional city growth distribution.
    Keywords: Entrepreneurship, Industrial Organization, Chinitz, Agglomeration, Clusters, Cities, Mines.
    JEL: L0 L1 L2 L6 N5 N9 O1 O4 R0 R1
    Date: 2012–08
  2. By: Karlan, Dean S.; Knight, Ryan; Udry, Christopher
    Abstract: Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of information about one’s own type, but willingness to experiment to learn one’s type, may lead to short-run negative expected returns to investments on average, with some outliers succeeding. To test the model we put forward first a motivating experiment from Ghana, and second a small meta-analysis of other experiments. In the Ghana experiment, we provide inputs to microenterprises, specifically financial capital (a cash grant) and managerial capital (consulting services), to catalyze adoption of investments and practices aimed towards enterprise growth. We find that entrepreneurs invest the cash, and take the advice, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. The small meta analysis includes results from 18 other experiments in which either capital or managerial capital were relaxed, and find mixed support for this theory.
    Keywords: business training;; consulting; credit constraints; entrepreneurship; managerial capital
    JEL: D21 D24 D83 D92 L20 M13
    Date: 2012–08
  3. By: Niels Bosma; Erik Stam; Sander Wennekers
    Abstract: This paper presents the results of the first large scale international comparative study of entrepreneurial employee activity (intrapreneurship). Intrapreneurship is a more wide-spread phenomenon in high income countries than in low income countries. At the organizational level, intrapreneurs have relatively high job growth expectations for their new business activities, as compared with independent young businesses. At the individual level, intrapreneurs are much more likely to have the intention to start a new independent business than other employees. However, at the country level there is a negative correlation between intrapreneurship and early- stage entrepreneurial activity. An explanation for these contrasting outcomes is the diverging effect of per capita income on intrapreneurship (positive effect) and early- stage entrepreneurial activity (negative effect). Underlying mechanisms include the role of larger firm presence, of higher education and of the opportunity costs of independent entrepreneurship.
    Keywords: entrepreneurial employee activity, intrapreneurship, independent entrepreneurial activity, economic development, institutions
    JEL: J83 L26 M13 O43 O57
    Date: 2012–08
  4. By: Bengtsson, Ola (Research Institute of Industrial Economics (IFN)); Hand, John R. M. (University of North Carolina Chapel Hill)
    Abstract: Despite the central role played by human capital in entrepreneurship, little is known about how employees in entrepreneurial firms are compensated and incentivized. We address this gap in the literature by studying 18,935 non-CEO compensation contracts across 1,809 privately-held venture-backed companies. Our key finding is that employee compensation varies with the degree to which VCs versus founders control the business. We show that relative to founder-controlled firms, VC-controlled firms pay their hired-on (i.e., non-founder) employees higher cash salaries, provide stronger cash and equity incentives, and have more formal pay policies in place. We also observe that founder employees earn less cash pay and face weaker cash incentives than do hired-on employees, but have stronger equity incentives. We propose that the compensation differences we identify arise because the preferences and capabilities of controlling shareholders significantly influence the quality of the human capital attracted and retained by the firm.
    Keywords: Venture capital; Entrepreneurship; Compensation contracts
    JEL: G24 J31 L26
    Date: 2012–08–13
  5. By: Frank M. Fossen; Tobias J.M. Büttner
    Abstract: We assess the relevance of formal education for the productivity of the self-employed and distinguish between opportunity entrepreneurs, who voluntarily pursue a business opportunity, and necessity entrepreneurs, who lack alternative employment options. We expect differences in the returns to education between these groups because of different levels of control. We use the German Socio-economic Panel and account for the endogeneity of education and non-random selection. The results indicate that the returns to a year of education for opportunity entrepreneurs are 3.5 percentage points higher than the paid employees' rate of 8.1%, but 6.5 percentage points lower for necessity entrepreneurs.
    Keywords: returns to education, opportunity, necessity, entrepreneurship
    JEL: J23 J24 J31 I20 L26
    Date: 2012
  6. By: Peter Huber (WIFO); Harald Oberhofer; Michael Pfaffermayr (WIFO)
    Abstract: This paper shows that applying simple employment-weighted OLS estimation to Davis – Haltiwanger – Schuh (1996) firm level job creation rates taking the values 2 and –2 for entering and exiting firms, respectively, provides biased and inconsistent parameter estimates. Consequently, we argue that entries and exits should be analysed separately and propose an alternative, consistent estimation procedure assuming that the size of continuing firms follows a lognormal distribution. A small-scale Monte Carlo analysis confirms the analytical results. Using a sample of Austrian firms, we demonstrate that the impact of small firms on net job creation is substantially underestimated when applying employment-weighted OLS estimation.
    Keywords: Job creation, DHS growth rate, firm size, firm age, Monte Carlo simulation
    Date: 2012–08–27
  7. By: Erik Stam; Ron Martin
    Abstract: This paper analyses mechanisms of decline and renewal in high-tech regions, illustrated with empirical evidence on the Cambridgeshire high-tech region in the UK. The paper contributes to ecological ('carrying capacity') and evolutionary (path dependence) theories of regional development. It provides a longitudinal, multilevel analysis of invention, firm, and industry dynamics and change in the supply and costs of resources in order to explain the decline of high-tech regions. While expansion of the Cambridgeshire high-tech region has been sustained over time, recently forces of decline have been stronger than those of renewal. Decline in employment has been most marked in the local telecommunications and biotech sectors, while the creation of variety by new firms has fallen off most strongly in the local IT software & services industry. Increasing diseconomies of agglomeration are in evidence, together with a contraction of finance that may have been a harbinger of financial stringency to come.
    Keywords: high-tech regions, industrial dynamics, innovation, entrepreneurship, cluster decline
    JEL: L22 M13 O31 R11
    Date: 2012–08
  8. By: Erik Stam; Jan Lambooy
    Abstract: In this paper we investigate the spatial aspects of the conditions of entrepreneurship on the one hand, and the consequences of entrepreneurship on the other hand. The consequences are the effects of individual interactions that may lead to the emergence of complex systems that are largely the "result of human action, but not of human design" (Hayek, 1967). These emergent systems have spatial coordinates and localized effects on the growth of knowledge and economic activity. The emergent systems - new organizations, institutions, industrial clusters, cities, and regions - in turn form the context for subsequent entrepreneurial actions. We show the strengths and opportunities of Austrian economics for the indeterminate dynamic analysis of entrepreneurship and evolving selection environments, and the spatial aspects of these processes and structures. We explicitly investigate the bridge between evolutionary economic geography and Austrian economics. The paper is structured as follows: in the second section, we introduce Austrian as well as evolutionary geographic treatments of entrepreneurship. In the third section we investigate entrepreneurship and its conditions of space and place. In the fourth section, we elaborate on the urban aspects of the conditions of entrepreneurship as it is approached in evolutionary theories. The fifth section centers on the spatial aspects of the consequences of entrepreneurship, with a particular focus on its impact on urban and regional development.
    Keywords: entrepreneurship, space, place, evolutionary economic geography, Austrian economics, regional development
    JEL: B52 B53 L26 M13 R11
    Date: 2012–08
  9. By: Andersen, Steffen (Department of Economics, Copenhagen Business School); Nielsen, Kasper Meisner (Department of Finance, Hong Kong University of Science and Technology)
    Abstract: We use a natural experiment in Denmark to test the hypothesis that aspiring entrepreneurs face financial constraints because of low entrepreneurial quality. We identify 304 constrained entrepreneurs who start a business after receiving windfall wealth and examine the performance of these marginal entrepreneurs. We find that constrained entrepreneurs have significantly lower survival rates and lower profits when compared with a matched sample of unconstrained entrepreneurs. These results are consistent with the hypothesis that the marginal entrepreneur is of low quality
    Keywords: entrepreneurship; natural experiments;
    JEL: L26
    Date: 2012–08–01
  10. By: Anabela Schinck (CEFAGE_UE); Soumodip Sarkar (CEFAGE_UE,Department of Management, University of Évora, Portugal)
    Abstract: Bootstrapping finance involving the use of resources to start and grow a venture at the lowest possible or even at no cost, acquires especial significance in times of a credit crunch. In this paper we explore, for the first time the use of bootstrap finance techniques in a small country European case. Based on a sample of ninety-nine Portuguese firms we first determine the most popular bootstrapping strategies, and then we test a set of hypotheses involving several socio-demographic and economic variables, some for the first time in the literature. The results yield some very interesting insights on small business strategies of non-conventional methods of financing. This paper also reveals how these strategies are related to characteristics of the small business owner, namely gender and education, as well as two business characteristics of the firm, that of firm size and internationalization.
    Keywords: Warrants: Entrepreneurship; financial bootstrapping; small firm financing.
    JEL: L26 M13 G31 G32
    Date: 2012
  11. By: Donato Iacobucci (Dipartimento di Ingegneria dell'Informazione, Università Politecnica delle Marche); Alessandra Micozzi (Dipartimento di Ingegneria dell'Informazione, Università Politecnica delle Marche)
    Abstract: The paper proposes a framework to evaluate the impact of academic spin-offs at regional level and applies it to the context of the Marche region (Italy). Spin-off creation is the most complex way of commercializing academic research, compared to licensing and R&D collaborations, but with the highest potential impact on the regional context. The empirical analysis shows that when measured in quantitative terms the impact of spin-offs on local economies is rather low; however, there are qualitative direct and indirect effects that must be taken into consideration. By focusing on providing R&D services, spin-offs play an important role in promoting the up-grading of the regional industrial system, which is mainly based on small and medium-sized firms in low and medium-tech sectors. Though not very successful in terms of growth and job creation in the short run, spin-offs provide an entrepreneurial experience for a high number of young researchers. We can expect that in the longer terms these people can play an important role within the local system in the start-up of new companies or as agents of innovation for established firms.
    Keywords: spin-offs, technology transfer, regional innovation system
    Date: 2012–08
  12. By: Geoffrey G. Jones (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: This working paper examines the creation of the global natural food and beauty categories before 2000. This is shown to have been a lengthy process of new category creation involving the exercise of entrepreneurial imagination. Pioneering entrepreneurs faced little consumer demand for natural products, and little consumer knowledge of what they entailed. The creation of new categories involved three overlapping waves of entrepreneurship. The first involved making the ideological case for natural products. This often entailed investment in education and publishing activities. Second, entrepreneurs engaged in the creation of industry associations which could advocate, as well as give the nascent industry credibility and create standards. Finally, entrepreneurs established retail stores, supply and distribution networks, and created brands. Entrepreneurial cognition and motivation frequently lay in individual, and very local, experiences, but many of the key pioneers were also highly globalized in their world views, with strong perception of how small, local efforts related to much bigger and global pictures. A significant sub-set of the influential historical figures were articulate in expressing strong religious convictions. The paper concludes that by the 1990s it was evident that the success of entrepreneurial pioneers in building the market for green products created a new set of issues, especially related to the legitimacy of their businesses and of the concept of greenness.
    Date: 2012–08
  13. By: Vu Dang Le Nguyen; Nancy K. Napier; Quan Hoang Vuong
    Abstract: Strikingly, most literature suggests that market competition will push firms to take creativity/innovation seriously as matter of death or survival. Using the data, we examined creativity methods (Napier and Nilsson, 2008; Napier, 2010) in conjunction with three influential cultural values – namely risk tolerance, relationship, and dependence on resources – to assess how they influence decisions of entrepreneurs.The primary objective of this study focuses on perceived values of entrepreneurship and creativity in business conducted within a turbulent environment. Our initial hypothesis is that a typical entrepreneurial process carries with it “creativity-enabling elements.” In a normal situation, when businesses focus more on optimizing their resources for commercial gains, perceptions about values of entrepreneurial creativity are usually vague. However, in difficult times and harsh competition, the difference between survival and failure may be creativity. This paper also examines many previous findings on both entrepreneurship and creativity and suggests a highly possible “organic growth” of creativity in an entrepreneurial environment and reinforcing value of entrepreneurship when creativity power is present. In other words, we see each idea reinforcing the other. We use data from a survey of sample Vietnamese firms during the chaotic economic year 2012 to learn about the ‘entrepreneurshipcreativity nexus.’ A data set of 137 responses qualified for a statistical examination was obtained from an online survey, which started on February 16 and ended May 24, 2012, sent to local entrepreneurs and corporate managers using social networks. The authors employed categorical data analysis (Agresti, 2002; Azen & Walker, 2011). Statistical analyses confirm that for business operation, the creativity and entrepreneurial spirit could hardly be separate; and, this is not only correct with entrepreneurial firm, but also well established companies. The single most important factor before business startup and during early implementation in Vietnam is what we call “connection/relationship.” However, businesspeople are increasingly aware of the need of creativity/innovation. In fact, we suggest that creativity and entrepreneurial spirit cannot be separated in entrepreneurial firms as well as established companies.
    Keywords: Creativity; Entrepreneurship; Economic Transition; Vietnam
    JEL: C42 M13 O31 P27
    Date: 2012–08
  14. By: Arvind Ashta (CEREN - Centre de Recherche sur l'Entreprise - Start entering a institution, university, grande ecole); Glòria Estapé-Dubreuil (CEREN - Centre de Recherche sur l'Entreprise - Start entering a institution, university, grande ecole); Jean-Pierre Hédou (CEREN - Centre de Recherche sur l'Entreprise - Start entering a institution, university, grande ecole); Stéphan Bourcieu (CEREN - Centre de Recherche sur l'Entreprise - Start entering a institution, university, grande ecole)
    Abstract: Les micro-entrepreneurs peuvent accroître leur capacité à s'endetter en prenant en même temps des participations, respectant ainsi des ratios de prudence et réduisant le stress. La micro-prise de participation a démarré en France en 1983 sous l'impulsion d'un mouvement socialement innovant, connu sous le nom de CIGALES. Nous envisageons l'évolution du mouvement des CIGALES sous un angle institutionnel, afin de comprendre comment ces clubs de micro-angels se sont multipliés, mais aussi pourquoi le mouvement n'a pas grandi plus vite et de façon plus globale. Nos résultats suggèrent que l'innovation "catalytique" exige non seulement de l'entrepreneur institutionnel qu'il collabore avec d'autres institutions complémentaires, mais aussi qu'il crée ces mêmes institutions. Les barrières à ce mouvement sont à la fois liées à des valeurs internes et aux contraintes institutionnelles externes. La compréhension de ce mouvement pourrait être utile aux efforts de développement à venir.
    Keywords: entrepreneur institutionnel, capital-risque, bonne fée des affaires, innovation catalytique, microfinance, micro-prise de participation
    Date: 2012–08–28

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