nep-ent New Economics Papers
on Entrepreneurship
Issue of 2013‒09‒24
ten papers chosen by
Marcus Dejardin
University of Namur and Universite' Catholique de Louvain

  1. U.S. High-Skilled Immigration, Innovation, and Entrepreneurship: Empirical Approaches and Evidence By William R. Kerr
  2. Patent Commons, Thickets, and Open Source Software Entry by Start-Up Firms By Wen Wen; Marco Ceccagnoli; Chris Forman
  3. 'Entrepreneurs, Risk Aversion and Dynamic Firms' By Neus Herranz,; Stefan Krasa,; Anne P. Villamil
  4. New Firm Formation and the properties of local knowledge bases: Evidence from Italian NUTS 3 regions By Alessandra Colombelli; Francesco Quatraro
  5. The miracle of microfinance? Evidence from a randomized evaluation By Banerjee, Abhijit; Duflo, Esther; Glennerster, Rachel; Kinnan, Cynthia
  6. Risk-Adjusting the Returns to Venture Capital By Arthur Korteweg; Stefan Nagel
  7. The Impact of Venture Capital Investment Duration on the Survival of French IPOs By Sophie Pommet
  8. Innovation and the Financial Guillotine By Ramana Nanda; Matthew Rhodes-Kropf
  9. Growing out of the Crisis: Hidden Assets to Greece's Transition to an Innovation Economy By Herrmann, Benedikt; Kritikos, Alexander S.
  10. L’ambition est-elle la clé du succès ? Une étude de PME européennes By Cyrine BEN-HAFAIEDH; Anaïs HAMELIN

  1. By: William R. Kerr
    Abstract: High-skilled immigrants are a very important component of U.S. innovation and entrepreneurship. Immigrants account for roughly a quarter of U.S. workers in these fields, and they have a similar contribution in terms of output measures like patents or firm starts. This contribution has been rapidly growing over the last three decades. In terms of quality, the average skilled immigrant appears to be better trained to work in these fields, but conditional on educational attainment of comparable quality to natives. The exception to this is that immigrants have a disproportionate impact among the very highest achievers (e.g., Nobel Prize winners). Studies regarding the impact of immigrants on natives tend to find limited consequences in the short-run, while the results in the long-run are more varied and much less certain. Immigrants in the United States aid business and technology exchanges with their home countries, but the overall effect that the migration has on the home country remains unclear. We know very little about return migration of workers engaged in innovation and entrepreneurship, except that it is rapidly growing in importance.
    JEL: F15 F22 J15 J31 J44 L14 L26 O31 O32 O33
    Date: 2013–08
  2. By: Wen Wen; Marco Ceccagnoli; Chris Forman
    Abstract: We examine whether the introduction of a patent commons, a special type of royalty free patent pool available to the open source software (OSS) community influences new OSS product entry by start-up software firms. In particular, we analyze the impact of The Commons—established by the Open Source Development Labs and IBM in 2005. We find that increases in the size of The Commons related to a software market increase the rate of entry in the market by start-ups using a new product based on an OSS license. The marginal impact of The Commons on OSS entry is increasing in the cumulativeness of innovation in the market and the extent to which patent ownership in the market is concentrated.
    JEL: L86 O34
    Date: 2013–08
  3. By: Neus Herranz,; Stefan Krasa,; Anne P. Villamil
    Abstract: This paper conducts a theoretical and quantitative analysis of how entrepreneurs choose firm size, capital structure, default, and owner consumption to manage firm risk, including how these choices change with risk aversion. We decompose an entrepreneur’s default decision into three elements: the fraction of firm debt; the potential reduction in personal consumption from losing the firm; and the ratio of personal wealth to firm scale, which determines an entrepreneur’s ability to inject personal funds to continue operation. Data from the Survey of Small Business Finances is used to calibrate the model and estimate entrepreneur risk aversion. We determine the evolution of entrepreneur net worth, consumption, and firm assets over time. We find that many entrepreneurs have lower net worth and consumption than non-entrepreneurs with the same preferences, but the densities of the distributions of consumption and net-worth have wide upper tails. Thus, entrepreneurship can be a path toward great wealth and high consumption for the top quantiles of entrepreneurs.
    Date: 2013
  4. By: Alessandra Colombelli (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - Université Nice Sophia Antipolis [UNS] - CNRS : UMR6227); Francesco Quatraro (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis [UNS])
    Abstract: This paper investigates the relationship between the creation of new firms and the properties of the local knowledge bases, like coherence, cognitive distance and variety. By combining the literature on the knowledge spillovers of entrepreneurship and that on the recombinant knowledge approach, we posit that locally available knowledge matters to the entrepreneurial process, but the type of knowledge underlying theses dynamics deserve to be analyzed. The analysis is carried out on 104 Italian NUTS 3 regions observed over the time span 1995-2011. The results show that the complementarity degree of local knowledge is important, while increasing similarity yields negative effects. This suggests that the creation of new firms in Italy is associated to the exploitation of well established technological trajectories grounded on competences accumulated over time, although cognitive proximity is likely to engender lock-in effects and hinder such process.
    Keywords: New Firm Formation; Knowledge-Spillovers Theory of Entrepreneurship; Recombinant Knowledge; Knowledge Coherence; Variety; Cognitive Distance; Italy
    Date: 2013–07–20
  5. By: Banerjee, Abhijit; Duflo, Esther; Glennerster, Rachel; Kinnan, Cynthia
    Abstract: This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.
    Keywords: Microfinance
    JEL: D21 G21 O16
    Date: 2013–04
  6. By: Arthur Korteweg; Stefan Nagel
    Abstract: Performance evaluation of venture-capital (VC) payoffs is challenging because payoffs are infrequent, skewed, realized over endogenously varying time horizons, and cross- sectionally dependent. We show that standard stochastic discount factor (SDF) methods can be adapted to handle these issues. Our approach generalizes the Public Market Equivalent (PME) measure commonly used in the private-equity literature. We find that the abnormal returns from both VC funds and VC start-up investments are robust to relaxing the strong distributional assumptions and implicit SDF restrictions from the prior literature: VC start-up investments earn substantial positive abnormal returns, and VC fund abnormal returns are close to zero. We further show that the systematic component of start-up company and VC fund payoffs resembles the negatively skewed payoffs from selling index put options, which contrasts with the call option-like positive skewness of the idiosyncratic payoffs. Motivated by this finding, we explore an SDF that includes index put option returns. This results in negative abnormal returns to VC funds, while the abnormal returns to start-up investments remain large and positive.
    JEL: G12 G32
    Date: 2013–08
  7. By: Sophie Pommet (GREDEG CNRS; University of Nice-Sophia Antipolis, France)
    Abstract: Using a sample of 212 IPOs, this paper analyzes the impact of venture capital involvement on the survival time of French IPOs. We find that the ability of venture capitalists to improve the survival of companies is related to the duration of their investment. We show that venture capitalists do not create additional value if investment duration is too short while longer duration allows venture capitalists to monitor the firm efficiently. Our paper provides some interesting results that qualify the findings from empirical studies that highlight the absence of a positive effect of this financing on firm performance in France.
    Keywords: Venture capital, IPO, survival, France
    JEL: G24 G32
    Date: 2013–09
  8. By: Ramana Nanda; Matthew Rhodes-Kropf
    Abstract: Our paper demonstrates that while failure tolerance by investors may encourage potential entrepreneurs to innovate, financiers with investment strategies that tolerate early failure endogenously choose to fund less radical innovations. Failure tolerance as an equilibrium price that increases in the level of experimentation. More experimental projects that don't generate enough to pay the price cannot be started. In equilibrium all competing financiers may choose to offer failure tolerant contracts to attract entrepreneurs, leaving no capital to fund the most radical, experimental projects. The tradeoff between failure tolerance and a sharp guillotine helps explain when and where radical innovation occurs.
    JEL: G24 G39 O31
    Date: 2013–08
  9. By: Herrmann, Benedikt (European Commission); Kritikos, Alexander S. (University of Potsdam, DIW Berlin)
    Abstract: Greece's currently planned institutional reforms will help to get the country going with limited economic growth. With an economy based primarily on tourism, trade, and agriculture, Greece lacks an established competitive industry and an innovation-friendly environment, resulting in a low export ratio given the small size of the country and its long-time EU-membership. Instead, Greece exports only its nation's talent, with low returns. To become prosperous, the country must better capitalize on its Eurozone membership and add innovative sectors to its economic structure. Given Greece's hidden assets, such as the attractiveness of the country, a small number of strong research centers and an impressive diaspora in research, finance and business, we envision a Greek "Silicon Valley" and propose a ten point policy plan to achieve that goal.
    Keywords: innovation, Greece, growth strategy, entrepreneurship, innovation systems, regulatory environment
    JEL: L2 L26 O3 O4
    Date: 2013–09
  10. By: Cyrine BEN-HAFAIEDH; Anaïs HAMELIN (LaRGE Research Center, Université de Strasbourg)
    Abstract: Il existe différents types d’entrepreneuriats contribuant de façon plus ou moins importante au développement économique et à la création d’emplois. L’entrepreneuriat ambitieux, qui résulte en des entreprises à forte croissance, est rare mais possède un impact économique largement supérieur à l’activité entrepreneuriale en général ce qui participe à légitimer son étude. La recherche actuelle se focalise sur une ambition déclarative et en examine les effets à court-terme. Les résultats sont mitigés voire négatifs. Dans le cadre de la théorie du comportement planifié et sur la base du concept de croissance soutenable, nous introduisons la notion de comportement ambitieux pour décrire la réalisation d’une intention d’ambition. Puis, nous testons le lien entre un comportement ambitieux et la réalisation de l’ambition, au sens de croissance élevée, sur un échantillon de 1970 PME européennes. Les résultats montrent, de manière robuste, l’existence d’une relation positive significative entre l’adoption d’un comportement ambitieux et la réalisation de l’ambition. Nous testons également les effets modérateurs, sur cette relation, de l’ouverture du capital, de la présence d’une équipe entrepreneuriale, d’un style de management entrepreneurial et du dynamisme de l’environnement. Nous trouvons des résultats significatifs bien que parfois contre-intuitifs. Ce faisant, nos apports sont multiples. Tout d’abord, nous contribuons à la littérature sur la croissance des PME en examinant l’ambition comme déterminant de celle-ci. Puis, nous contribuons à l’étude de l’entrepreneuriat ambitieux en proposant une mesure de l’ambition qui nous semble plus révélatrice et opérationnelle que l’intention d’ambition utilisée dans la littérature actuelle. Enfin, nous offrons des pistes de réflexion quant aux facteurs favorisant la réalisation d’une ambition à travers notre examen des effets modérateurs de la relation entre un comportement ambitieux et sa réalisation effective. Les résultats de notre étude pourraient orienter les autorités publiques dans le cadre de leur politique de soutien à cet entrepreneuriat qualitatif.
    Date: 2013

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