nep-ent New Economics Papers
on Entrepreneurship
Issue of 2013‒12‒29
seventeen papers chosen by
Marcus Dejardin
University of Namur and Universite' Catholique de Louvain

  1. A Theoretical Analysis of the Role of Social Networks in Entrepreneurship By Leyden, Dennis P.; Link, Albert N.; Siegel, Donald S.
  2. Knowledge and innovative entrepreneurship - social capital and individual capacities By Cantner, Uwe; Michael, Stuetzer
  3. House Prices, Household Leverage, and Entrepreneurship By Stefano Corradin
  4. Determinants of entrepreneurship. Is it all about the individual or the region? By Backman, Mikaela; Karlsson, Charlie
  5. Business Literacy and Development: Evidence from a Randomized Controlled Trial in Rural Mexico By Gabriela Calderon; Jesse M. Cunha; Giacomo De Giorgi
  6. Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France By Hombert, Johan; Schoar, Antoinette; Sraer, David Alexandre; Thesmar, David
  7. How Much Should an Investor Trust the Startup Entrepreneur? - A Network Model By Anna Klabunde
  8. Who Becomes the Winner? Effects of Venture Capital on Firms’ Innovative Incentives - A Theoretical Investigation By Matthew Beacham; Bipasa Datta
  9. Firm Size and the Risk/Return Trade-off By Lafrance, Amelie
  10. Mixing Business with Politics: Political Participation by Entrepreneurs in China By Feng, Xunan; Johansson, Anders C.; Zhang, Tianyu
  11. Exploration of Wisdom Ages: Firm survival By Backman, Mikaela; Karlsson, Charlie
  12. Age and firm growth. Evidence from three European countries By Navaretti , Giorgio Barba; Castellani , Davide; Pieri , Fabio
  13. Authenticity renewal – institutions, innovation systems, and Cognac evolution (when the rules of the game don’t change) By Moodysson , Jerker; Sack , Lionel
  14. Innovation Determinants over Industry Life Cycle By Tavassoli, Sam
  15. Firm Dynamics: Firm Entry and Exit in the Canadian Provinces, 2000 to 2009 By Baldwin, John R. Liu, Huju Wang, Weimin
  16. When Size Does Matter. Trends of SMEs Internationalization Strategies in Chinese Economy By Andrea Pontiggia; Tiziano Vescovi
  17. Wohlstandseffekte des Gründungsgeschehens By Schneck, Stefan; May-Strobl, Eva

  1. By: Leyden, Dennis P. (University of North Carolina at Greensboro, Department of Economics); Link, Albert N. (University of North Carolina at Greensboro, Department of Economics); Siegel, Donald S. (University at Albany, SUNY)
    Abstract: Entrepreneurship involves innovation and uncertainty. We outline a theory of entrepreneurship, which highlights the importance of social networks in promoting innovation and reducing uncertainty. Our findings suggest that this “social” aspect of entrepreneurship increases the probability of entrepreneurial success. The results also lend credence to theories of entrepreneurship that suggest that entrepreneurial opportunities are formed endogenously by the entrepreneurs who create them. We also consider the public policy implications of our findings.
    Keywords: Entrepreneurship; Social networks; Innovation; Technology
    JEL: O31 O32 O33 O38 Z13
    Date: 2013–12–17
  2. By: Cantner, Uwe; Michael, Stuetzer
    Abstract: A central development within the management literature has been the growth of nascent entrepreneur research analysing on--going venture start-up efforts and/or firms in gestation over time (Davidsson, 2006). New ventures have an important effect on economic development. They are credited for the transfer of innovations into the market (Schumpeter, 1934; Acs and Plummer; 2005) and creating regional employment (e.g. Fritsch and Mueller, 2004). Central questions in nascent entrepreneurship research concern the characteristics of the venture creation process and the factors affecting performance of these firms (for an overview see Davidsson, 2006). Among other factors considered in the literature, the social embeddedness of the entrepreneur has been found to play a pivotal role (Davidsson and Honig, 2003). Social capital enables entrepreneurs to access resources (Florin et al., 2003) or novel information (Uzzi, 1997) in order to create opportunities (Baker and Nelson, 2005). During the venture creation process, most firms suffer from substantial resource constraints (Shepherd et al., 2000) and use their personal networks as a means to access resources and information far below market price (Elfring and Hulsink, 2003). However, a sizeable gap exists in the burgeoning social capital literature on the subject of team start--ups. A most prominent finding is that team start--ups are more successful than solo start--ups (e.g. Lechler, 2001). One of the offered explanations is that entrepreneurs can combine their abilities and financial capital in a team, giving them an advantage above solo entrepreneurs (e.g. Gartner, 1985; Stam and Schutjens, 2006). Sometimes explicitly (e.g. Colombo and Grilli, 2005; Stam and Schutjens, 2006) but more often implicitly (e.g. Davidsson and Honig, 2003; van Gelderen et al., 2005), the same argument is applied to the usage of social capital, i.e. that the social capital from individual team members is combined to provide an advantage for teams over solo entrepreneurs. As yet, to our knowledge, no study has explicitly analysed whether, compared to solo entrepreneurs, more social capital is found within teams and whether this leads to their better performance. In this chapter, we approach these two questions and empirically explore the use of social capital of solo entrepreneurs and entrepreneurial teams during the venture creation process. In doing so, we refine the empirical concept of social capital in that we do not look at its mere existence but focus on its use in terms of concrete support (e.g. advice on the business plan, marketing, or research and development - R&D) for the entrepreneurs. We address two major research questions. The first concerns the differential use of social capital. Do solo entrepreneurs rely more often on social capital than new venture teams, or is it the other way around? How do both types of start--ups use social capital? More precisely, we investigate the relationship between social capital and other characteristics of the new venture and its founders (e.g. human capital). The second research question then turns to the effect of social capital on subsequent new venture performance. Appropriate hypotheses in this study are tested using a dataset of 456 start--ups in innovative industries in the German state of Thuringia. The reminder of this chapter is organized as follows. In Section 2, we review the theory and previous research on social capital in order to generate six testable hypotheses. In Section 3, we describe the dataset and the methods employed to measure the use of social capital. We then present (Section 4) the results of our analysis. The chapter concludes in Section 5, where we interpret and discuss the results and draw some conclusions.
    Keywords: Social capital, human capital, new businesses
    JEL: M13
    Date: 2103
  3. By: Stefano Corradin (European Central Bank)
    Abstract: This paper estimates the causal effect of changes in home equity and household leverage on entrepreneurship and business ownership. Using a large individual-level survey dataset, we show that higher home equity increases the probability of transition into entrepreneurship, while higher household leverage has a significantly positive effect on business equity ownership. These effects are stronger in "hot" housing markets where agents expect house prices to keep increasing in the future. Our results persist when we use the topological elasticity of housing supply to generate variation in home equity that is orthogonal to entrepreneurial choice.
    Date: 2013
  4. By: Backman, Mikaela (Centre of Excellence for Science and Innovation Studies (CESIS), Jönköping International Business School, & Centre for Entrepreneurship and Spatial Economics (CEnSE)); Karlsson, Charlie (CESIS - Centre of Excellence for Science and Innovation Studies, Jönköping International Business School)
    Abstract: It is well established at whatever spatial level studied that economic actors exhibit a strong tendency to cluster. Despite this fact many explanations to entrepreneurship only considers the personal characteristics of entrepreneurs. This is certainly not a satisfactory state-of-the-art. It is obvious that the influence of spatial factors must be considered carefully. In this pa¬per we illustrate empirically that variations in the rate of entrepreneurship are explained not only in terms of characteristics of entrepreneurs, such as education, sector of employment, occupation, experience and income but also by the characteristics of i) the localities where they worked before they became entrepreneurs, ii) the localities where they currently started their firm and iii) the regions where these localities are situated. The characteristics of locali¬ties include size, population density, firm density and type of locality (metropolitan, urban, semi-rural or rural). The estimations use a multi-level approach to decipher the how much of the variance that can be explained by the different levels (individual, locality and region). The data used in this study is micro-level data for Sweden provided by Statistics Sweden.
    Keywords: entrepreneurship; individual attributes; regional attributes; networks; micro-level; multi-level
    JEL: C21 J24 L26 R12
    Date: 2013–12–17
  5. By: Gabriela Calderon; Jesse M. Cunha; Giacomo De Giorgi
    Abstract: A large share of the poor in developing countries run small enterprises, often earning low incomes. This paper explores whether the poor performance of businesses can be explained by a lack of basic business skills. We randomized the offer of a free, 48-hour business skills course to female entrepreneurs in rural Mexico. We find that those assigned to treatment earn higher profits, have larger revenues, serve a greater number of clients, are more likely to use formal accounting techniques, and more likely to be registered with the government. Indirect treatment effects on those entrepreneurs randomized out of the program, yet living in treatment villages, are economically meaningful, yet imprecisely measured. We present a simple model of experience and learning that helps interpret our results, and consistent with the theoretical predictions, we find that "low-quality" entrepreneurs are the most likely to quit their business post-treatment, and that the positive impacts of the treatment are increasing in entrepreneurial quality.
    JEL: C93 I25 O12 O14
    Date: 2013–12
  6. By: Hombert, Johan; Schoar, Antoinette; Sraer, David Alexandre; Thesmar, David
    Abstract: We investigate how a large-scale French reform to reduce the risk from small business creation for unemployed workers, affects the composition of people who are drawn into entrepreneurship. New firms started in response to the reform are, on average, smaller, but have similar growth expectations and education levels compared to start-ups before the reform. They are also as likely to survive or to hire. However, there are large crowd-out effects: Employment in incumbent firms decreases by a similar magnitude as the number of new jobs created in start-ups. These results point to the importance of Schumpeterian dynamics when facilitating entry.
    Keywords: Entrepreneurship; Unemployment insurance; Crowding out
    JEL: G00
    Date: 2013–07–09
  7. By: Anna Klabunde
    Abstract: Trust is an important determinant of start-up fi nancing. In a simple agentbased model it is determined what the best trusting strategy is for a collective of investors and whether it is rational for an individual investor to deviate from this collective optimum. Trust depends on a measure of social distance and is the precondition for investment. Trust increases and decreases based on whether an investor is satisfied with the interest payments received from an entrepreneur. If an investor is dissatisfi ed, he terminates the relation with the entrepreneur. For assessing the quality of their own investments, investors communicate with other investors in a network-like structure. I find that, as a collective, it is best for investors to compare their returns critically in order to identify unproductive entrepreneurs, but to be tolerant regarding existing links to entrepreneurs in order not to terminate profitable relations because of minor productivity drops. However, it is optimal for an individual investor to deviate from this strategy and to be less easily disappointed, but to decrease trust in larger steps. In a sense, an individual investor can freeride on the others’ critical assessment. If all investors behave according to this latter strategy, too many unproductive firms remain in the market and the average investor’s return is lower than in the collective optimum.
    Keywords: Business angel investment; trust; entrepreneurship; agent-based simulation
    JEL: C63 G02 G24 L26
    Date: 2013–11
  8. By: Matthew Beacham; Bipasa Datta
    Abstract: It is well established in the empirical literature that venture capital (VC) plays an important role in the promotion of innovation at industry level and the professionalisation of firms at micro-level. Whilst the VC-to-success link has been well explored, the mechanism behind how and why certain venture-backed firms are apparently more successful is an important question that has been largely ignored within the majority of the literature. In this paper, we fill this gap by specifically analysing firms' pre- and post-VC investment decisions. By considering a two period, multi-stage game, we analyse whether VC spurs innovation (i) directly after being granted; (ii) indirectly by incentivising firms to increase initial research efforts to increase their chances of receiving VC funding and its associated benefits; or (iii) a combination of both. Our results show that VC has both direct and indirect effects on firms' innovation decisions regardless of whether the firm is successful in securing VC funding or not. Furthermore, we find that the commonly held assertion that venture capital spurs success is too simplistic: whilst venture capital spurs innovation amongst the lucky, chosen few, it unambiguously suppresses innovation of non-VC-backed firms, a result that has been overlooked in the empirical literature. The issue of `who becomes the winner' in the final product market however is ultimately dependent upon the extent of heterogeneity amongst firms. Further, we show that VC funding, equity stake and value-adding services all have impacts upon firms' incentives to invest in the first stage.
    Keywords: Venture capital, innovation, firm heterogeneity, investment and effort, strategic substitutes and complements
    JEL: G24 L13 L2 O31
    Date: 2013–12
  9. By: Lafrance, Amelie
    Abstract: The topic of firm size and performance continues to spark the interest of researchers and policy-makers. Small and medium-sized enterprises receive much of the attention, as they have the potential to grow significantly. However, compared with their larger counterparts, these firms are more likely to fail and are therefore riskier. Is risk important in explaining differences in profitability across firm size classes? This study uses a longitudinal firm-level dataset to examine determinants of profitability by firm size, with an emphasis on risk, or the volatility in rates of return. It builds on previous research that found firms with 10 to 20 employees tend to be the most profitable.
    Keywords: Business performance and ownership, Small and medium-sized businesses
    Date: 2013–12–19
  10. By: Feng, Xunan (Shanghai University); Johansson, Anders C. (Stockholm China Economic Research Institute); Zhang, Tianyu (Chinese University of Hong Kong)
    Abstract: We study how Chinese private entrepreneurs benefit from participating in politics. Using original hand-collected data on listed firms controlled by private entrepreneurs, we document a significant positive relationship between political participation and change in firm performance. We also provide evidence that the change in social status cannot explain the change in performance. We then identify several ways through which firms gain preferential treatment when the controlling entrepreneur participates in politics: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to regulated industries.
    Keywords: Political participation; Entrepreneurs; Corporate governance; Rent seeking; Debt financing; Tax burden; Government subsidies; Mergers and acquisitions; Regulated industries; China
    JEL: G30 G32 G34 H20 P26
    Date: 2013–12–17
  11. By: Backman, Mikaela (Centre of Excellence for Science and Innovation Studies (CESIS), Jönköping International Business School, & Centre for Entrepreneurship and Spatial Economics (CEnSE)); Karlsson, Charlie (Centre of Excellence for Science and Innovation Studies (CESIS), Jönköping International Business School, & Centre for Entrepreneurship and Spatial Economics (CEnSE))
    Abstract: Studies confirm a tendency where elder individuals are more prone to become entre¬preneurs. Their motives are numerous ranging from feeling social included to maintain the same income level. Interesting as such, this paper contributes to the existing literature by taking this one step further and examine the surviving of new and existing firms that are run by elder individuals (one-em¬ployee firms) or have a high share of elderly individuals. Elderly individuals are defined as those above the age of 55 or 64. The results show that the average marginal effect on the prob-ability of survival from individuals above 55 and 64 differs across firm size. Elderly individuals negatively influence the survival of smaller firms (below ten employees). For larger firms the negative effect from elderly individuals is smaller, zero or even positive. Exploring the data, we find that “elderly firms”, defined as firms that have a majority of employees above the age of 55 or above the age of 64, have a lower survival rate and lower average number of employees but a higher value added per employee.
    Keywords: ageing; firm survival; employer-employee matched data
    JEL: J14 L26 R12 R30
    Date: 2013–12–18
  12. By: Navaretti , Giorgio Barba (Department of Economics, Management and Quantitative Methods, University of Milan, Italy); Castellani , Davide (Department of Economics, Finance and Statistics, University of Perugia, Centro Studi Luca d'Agliano, Milan, Italy Halle Institute for Economic Research (IWH), Halle, Germany CIRCLE, Lund University, Sweden); Pieri , Fabio (Depto. de Economia Aplicada II (Estructura Economica), Universitat de Valencia, Spain)
    Abstract: This paper provides new insights on the dependence of firm growth on age along the entire distribution of (positive and negative) growth rates, and conditional on survival. Using data from the EFIGE survey, and adopting a quantile regression approach, we uncover evidence for a sample of French, Italian and Spanish manufacturing firms with more than 10 employees in the period from 2001 to 2008. After controlling for several firms’ characteristics, country and sector specificities we find that: (i) young firms grow faster than old firms, especially in the highest growth quantiles; (ii) young firms face the same probability of declining than their older counterparts; (iii) results are robust to the inclusion of other firms’ characteristics such as labor productivity, capital intensity, and the financial structure; (iv) high growth is associated with younger CEOs and other attributes which capture the attitude of the firm toward growth and change. The effect of age on firm growth is rather similar across countries.
    Keywords: firm growth; age; quantile regression
    JEL: L21 L25 L26 L60
    Date: 2013–12–18
  13. By: Moodysson , Jerker (CIRCLE, Lund University); Sack , Lionel (CIRCLE, Lund University)
    Abstract: This paper draws on observations from a long-established network in France, located around the town of Cognac – site of distilled beverages with the same name. Firms within this network have been successful in developing new types of products in the past decades, drawing on and diverging from the conservative culture upon which the region and beverage have built their reputation. The paper reveals that a thick institutional setting, which has been in place for more than a century and is being maintained to preserve the quality and authenticity of the Cognac product, also serve as enablers for new development among local firms
    Keywords: institutions; innovation; new entrants; regional innovation systems; entrepreneurship
    JEL: D21 D22 L23 O31
    Date: 2013–12–18
  14. By: Tavassoli, Sam (Industrial Economics, Blekinge Institute of Technology, Karlskrona, Sweden and CIRCLE, Lund University, Sweden)
    Abstract: This paper analyzes how the influence of firm-level innovation determinants varies over the industry life cycle. Two sets of determinants are distinguished: (1) determinants of a firm’s innovation propensity, i.e. the likelihood of being innovative and (2) determinants of its innovation intensity, i.e. innovation sales. By combining the literature emphasizing firms’ internal resources (micro level) with the research strand on the role of the industry context (meso-level), the paper develops hypotheses about the relative importance of firm-level innovation determinants over the industry life cycle. Estimation of a firm-level model of innovation in Sweden, while acknowledging the stage of the life cycle of the industry a firms belongs to, shows that the importance of the determinants of innovation propensity and intensity are not equal over the stages of an industry’s life cycle
    Keywords: Determinants of innovation; innovation intensity; innovation propensity; Industry Life Cycle (ILC); Community Innovation Survey (CIS4)
    JEL: F14 O31 O33
    Date: 2013–12–18
  15. By: Baldwin, John R. Liu, Huju Wang, Weimin
    Abstract: This paper describes the patterns of firm entry and exit across provinces in Canada, the relationship of these patterns to differences in industrial structure and the response of firm entry and exit to changes in the economic environment. Firm entry and exit play an important role in shaping industrial structure and dynamics. Although entry and exit are ubiquitous, new firms are often associated with new ideas and the provision of innovative goods and services that enhance competition and force incumbents to become more innovative and efficient. Studies have shown the considerable role played by entry and exit in resource reallocation and productivity improvement.
    Keywords: Business performance and ownership, Entry, exit, mergers and growth
    Date: 2013–12–10
  16. By: Andrea Pontiggia (Dept. of Management, Università Ca' Foscari Venice); Tiziano Vescovi (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: The strategies of internationalization have been one of hottest topics in managerial literature in the last decade. Interestingly to notice how deep and unexpected changes have challenged the mainstream of international management theories. This paper illustrates a framework and some preliminary results aim to comprehend how and why MMNEs (Medium-size Multinational Entreprise) internationalization strategies deviate from the more established strategies of multinational and global companies (MNC). We study a sample of Italian SMEs, analyzing the strategy choice and the governance models adopted in China businesses. Qualitative analysis highlights both the feasibility and sustainability of governance models (criteria and components) and forms (model execution and implementation). This paper investigates the specificities of SMEs: The adaptation process and, in some cases, the innovative governance forms analyzed in our sample of cases (described in the paper) are strongly affected by the following factors: first, the size does not fit the potential or actual dimension of market (size factor); Second, increasing difficulties to access to the countries? institutional externalities and strong reliance on the efficiency of markets in order to purchase product and services which they can not internalize (make or buy factor);. Third, negative effects of size preventing to reach arrangements with local and national government (government and local shareholders factor); Fourth, being part of the supply chain of larger firms (MNC) is a common entry mode in Chinese market. Last factor refers to the lack of resources (human, market and relational capital).
    Keywords: International Management, Emerging Economies and Markets, International Marketing Strategies, Small and Medium Enterprises.
    JEL: F23 M16 M31 D22 D21
    Date: 2013–12
  17. By: Schneck, Stefan; May-Strobl, Eva
    Abstract: Die Studie analysiert die Wohlstandseffekte des Gründungsgeschehens anhand der Daten des Umsatzsteuerpanels. Mittels einer Kohortenanalyse werden die Bestandsfestigkeit von Gründungen, der Umsatz, die Vorleistungsbezüge und Wertschöpfung sowie die Beschäfti-gung untersucht. Viele Gründungen scheiden nach nur wenigen Jahren wieder aus. Von einem Euro Umsatz verbleiben im Gründungsunternehmen 34 Cent als Einkommen und 66 Cent gehen an vorgelagerte Unternehmen. Das Gründungsgeschehen hat somit eine erhebliche Bedeutung für Bestandsunternehmen. Es zeigen sich branchenspezifische Unterschiede, wobei das Produzierende Gewerbe und hier insbesondere die innovativen Teilbereiche mittelfristig die höchste Wertschöpfung erzeugen und die meisten Vorleistungen nachfragen. -- This paper utilizes tax data to present the welfare effects of new ventures in Germany. Cohort analysis is applied to investigate survival of start-up firms, turnover, input, value added, and employment effects. Most drop-outs occur in the early stages of the firms. One Euro of turnover induces considerable indirect effects because 66 Cents are used to buy products and services from incumbents, while 34 Cent remain in the firm. Sectoral differences can also be observed. The manufacturing industry, especially its innovative parts, generates the highest value added and reveals highest expenses for inputs in the medium term.
    Keywords: Gründung,Bestandsfestigkeit,Umsatz,Wertschöpfung,Beschäftigung,indirekte Wohlstandseffekte,Entrepreneurship,survival,sales,value added,employment
    JEL: L26 L29
    Date: 2013

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