nep-ent New Economics Papers
on Entrepreneurship
Issue of 2014‒02‒02
twenty-one papers chosen by
Marcus Dejardin
University of Namur and Universite' Catholique de Louvain

  1. Human Capital Diversity and Entrepreneurship. Results from the regional individual skill dispersion nexus on self-employment activity. By Dirk Oberschachtsiek
  2. Greasing the wheels of entrepreneurship? A complement according to entrepreneurial motives By Marcus Dejardin; Helene Laurent
  3. If you don't succeed, should you try again? The role of entrepreneurial experience in venture survival By Gottschalk, Sandra; Greene, Francis J.; Höwer, Daniel; Müller, Bettina
  4. Stepping Forward: Personality Traits, Choice of Profession, and the Decision to Become Self-Employed By Sorgner, Alina; Fritsch, Michael
  5. Taxation, Innovation and Entrepreneurship By Schetter, Ulrich; Gersbach, Hans; Schneider, Maik
  6. The Evaluation of Start-Up Subsidies for the Unemployed and the Role of Unobserved Characteristics for Matching Estimators By Weißenberger, Martin; Caliendo, Marco; Künn, Steffen
  7. The returns to education for opportunity entrepreneurs, necessity entrepreneurs, and paid employees By Fossen, Frank; Büttner, Tobias
  8. Political Reservations and Women’s Entrepreneurship in India By Ejaz Ghani; William R. Kerr; Stephen D. O'Connell
  9. Two Tales of Entrepreneurship: Barbados, Jamaica, and the 1973 Oil Price Shock By Matthew Clair; Peter Blair Henry; Sandile Hlatshwayo
  10. Consumer's Environmental Awareness and the Role of (Green) Entrepreneurship: Lessons from Environmental Quality Competition and R&D Activities for Environmental Policy By Klarl, Torben
  11. Company Law and Firm Entry By Prantl, Susanne; Böhme, Ulrike
  12. Financing Patterns of Innovative SMEs and the Perception of Innovation Barriers in Germany By Heike Belitz; Anna Lejpras
  13. Firm Age, Investment Opportunities, and Job Creation By Manuel Adelino; Song Ma; David T. Robinson
  14. Entrepreneurship versus Joblessness - Explaining the Rise in Self-Employment By Haywood, Luke; Falco, Paolo
  15. Product Innovation and Trade Credit Demand and Supply: Evidence from European Countries By Nielen, Sebastian
  16. Capital Market Financing for SMEs: A Growing Need in Emerging Asia By Shinozaki, Shigehiro
  17. Endogenous firm entry in an estimated model of the US business cycle By Offick, Sven; Winkler, Roland C.
  18. Growth patterns of microfinance clients - Evidence from Sub-Saharan Africa By Winkler, Adalbert; Wagner, Charlotte
  19. Management, Strategy and Policy Suggestions for European Academic Incubators: the Creation of a Start-ups’ Ecosystem in the South West England By Miglietta, Angelo; Peirone, Dario
  20. Gibrat's law redux: Think profitability instead of growth By Philipp Mundt; Mishael Milakovic; Simone Alfarano
  21. Le financement de PME innovantes dans une économie mondialisée ou comment financer aujourd'hui notre avenir By Anne Bagard

  1. By: Dirk Oberschachtsiek (Leuphana University Lueneburg, Germany)
    Abstract: Human capital has been shown to be highly important in the venture creation process. In this study, we account for the fact that human capital on the individual and regional levels may be interrelated in affecting entrepreneurship. We use German survey data, which allow us to focus on a specific measure of human capital (diversity in task experience) and to study the individual and regional levels. Our research provides evidence for the thesis that diverse human capital increases the level of entrepreneurship activity via individual and aggregated pathways and that the price elasticity of diverse human capital in affecting business activity is low.
    Keywords: entrepreneurship capital, human capital, nascent entrepreneur, multilevel analysis
    JEL: L26 J23 J24
    Date: 2013–12
  2. By: Marcus Dejardin (Centre de recherches en Economie Regionale et Politique Economique, UNamur); Helene Laurent (Centre de recherches en Economie Regionale et Politique Economique, UNamur)
    Abstract: The idea that corruption may, in some situations, be beneficial is widely studied within the context of growth. In the field of entrepreneurship, a unique paper by Dreher and Gassebner (2011) explicitly documents it. Their findings support the assumption that corruption “greases the wheels” of strict regulation for early-stage firms. In this article, we complement their seminal work. We provide evidence that entrepreneurs are heterogeneous in their response to the institutional environment. In particular, corruption and regulation affect entrepreneurship to different extent, according to the underlying motivation compelling an individual to open a business. Opportunity-driven entrepreneurs are much more affected by corruption and regulation than necessity-driven ones.
    Keywords: Entrepreneurship, Corruption, Regulation, Doing business, “Grease the wheels”, Opportunity-Necessity
    JEL: D73 F59 J24 L26 M13
    Date: 2014–01
  3. By: Gottschalk, Sandra; Greene, Francis J.; Höwer, Daniel; Müller, Bettina
    Abstract: There remains considerable scholarly debate about the role that prior entrepreneurial experience plays in new venture survival. Drawing on entrepreneurial learning theories, we use panel data on 8,400 new ventures to investigate the impact of four different types of prior entrepreneurial experience (portfolio, serial, failure (bankruptcy/voluntary dissolution) and a mix of success (portfolio/serial) and failure (prior bankruptcy/dissolution) on venture survival outcomes. We find that previously failed entrepreneurs are less likely to survive and, in common with entrepreneurs with mixed prior experiences, are more likely to experience bankruptcy. We find that portfolio and serial experience is unrelated to survival or avoiding bankruptcy. Conclusions for entrepreneurship scholars, entrepreneurs and stakeholders are discussed. --
    Keywords: venture survival,entrepreneurial experience,panel data
    JEL: L26 L25
    Date: 2014
  4. By: Sorgner, Alina; Fritsch, Michael
    Abstract: We argue that entrepreneurial choice proceeds in at least two steps, with vocational choice nearly always preceding choice of employment status, whether that be self-employment or dependent employment. Since the two decisions are interrelated, analysis of entrepreneurial choice as a single act may lead to inconsistent estimates of the factors that determine the decision to launch a business venture. Our empirical analysis utilizes a bivariate probit model that jointly estimates both decisions. The results support our argument that entrepreneurial choice is a two-stage decision process. --
    JEL: L26 J24 D01
    Date: 2013
  5. By: Schetter, Ulrich; Gersbach, Hans; Schneider, Maik
    Abstract: We examine how basic research should be financed. While basic research is a public good benefiting innovating entrepreneurs it also affects the entire economy: occupational choices of potential entrepreneurs, wages of workers, dividends to shareholders, and aggregate output. We show that the general economy impact of basic research rationalizes a pecking order of taxation to finance basic research. In particular, in a society with desirable dense entrepreneurial activity, a large share of funds for basic research should be financed by labor taxation and a minor share is left to profit taxation. Such tax schemes induce a significant share of agents to become entrepreneurs, thereby rationalizing substantial investments in basic research. These entrepreneurial economies, however, may make a majority of citizens worse off if those individuals do not possess shares of final good producers in the economy. In such circumstances, stagnation may prevail. --
    JEL: H20 H40 O38
    Date: 2013
  6. By: Weißenberger, Martin; Caliendo, Marco; Künn, Steffen
    Abstract: Start-up subsidies for the unemployed have become an important part of Active Labor Market Policy (ALMP) in many countries. Previous evaluation results show pre-dominantly (very) positive results indicating that these programs are an effective way to increase employment probabilities and income of participants. Most of the studies are using matching estimators based on the conditional independence assumption (CIA) to estimate these effects and are prone to bias if there are unobserved factors affecting the selection process into the programs. From the entrepreneurship literature we know that entrepreneurs are different , e.g., with respect to personality traits, non-cognitive skills and risk preferences. Since most of the previous evaluation studies are based on administrative data, information on such variables is not available. This raises the question whether the effects are potentially over-estimated. We have access to data which allow us to model the selection process with and without usually unobserved personality characteristics and to examine the consequences for the estimated propensity scores and treatment effects. We show that openness to new experiences and internal/external locus of control have a significant influence on selection into treatment (and labor market outcomes). Our empirical findings also indicate that neglecting personality traits in the program evaluation leads to slight over-estimation of the average treatment effects on the treated which still remain positive and significant even after controlling for relevant personality traits. --
    JEL: L26 J68 C14
    Date: 2013
  7. By: Fossen, Frank; Büttner, Tobias
    Abstract: We assess the relevance of formal education on 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 due to different levels of control over the use of their human capital. The analysis employs the German Socio-economic Panel and accounts 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. Pooling the two types of entrepreneurs understates the value of education for opportunity entrepreneurs and sparks misguided hopes concerning necessity entrepreneurs. The results explain Europe/US differences in average entrepreneurial returns and cast doubt on the use of the self-employed to test signalling theory. --
    JEL: I20 J23 J24
    Date: 2013
  8. By: Ejaz Ghani; William R. Kerr; Stephen D. O'Connell
    Abstract: We quantify the link between the timing of state-level implementations of political reservations for women in India with the role of women in India’s manufacturing sector. While overall employment of women in manufacturing does not increase after the reforms, we find significant evidence that more women-owned establishments were created in the unorganized/informal sector. These new establishments were concentrated in industries where women entrepreneurs have been traditionally active and the entry was mainly found among household-based establishments. We measure and discuss the extent to which this heightened entrepreneurship is due to channels like greater finance access or heightened inspiration for women entrepreneurs.
    JEL: D22 E26 H11 J16 L10 L26 L60 M13 O10 R00 R10 R12
    Date: 2014–01
  9. By: Matthew Clair; Peter Blair Henry; Sandile Hlatshwayo
    Date: 2014
  10. By: Klarl, Torben
    Abstract: In the recent last years, in particular in the aftermath of the global financial and economic crisis, many countries initiated economic recovery plans with a major focus on stimulating green entrepreneurial activities to revive economic growth. Further, the recovery plans intend to improve a country's awareness for a direct orientation towards (strong) sustainability and green growth. Before discussing strategies towards green growth, in this paper we propose a novel framework to increase our understanding of the interplay of process R&D activities, the strategic price and environmental quality setting of heterogeneous entrepreneurs in a market where consumers feel up to paying for environmental quality improvement of a vertically differentiated good. In the paper we decompose an entrepreneur's incentive conducting process R&D in four parts. In particular we show that an entrepreneur's incentive of conducting own process R&D is reduced due to the existence of knowledge-spillovers. Moreover, due to the strategic complementarities, both in prices as well as in environmental quality, a strategic effect reinforces the negative consequences of the spillover-effect. We show that the externalities in the model require corrections based upon a mixture of fiscal policies and a process R\&D subvention scheme establishing a first-best solution. We further thoroughly discuss the implementation of a second-best solution and derive environmental policy implications. --
    JEL: Q55 Q58 O31
    Date: 2013
  11. By: Prantl, Susanne; Böhme, Ulrike
    Abstract: In this paper, we study the impact of the entry costs imposed by the German Limited Liability Company Law on firm entry. The law implies an expensive and complex incorporation process. As entrepreneurs choose between legal forms when entering the market, either a legal form with limited liability or without it, we suggest an empirical approach for identifying entry cost effects that takes this decision into account by exploiting the natural experiment in entry regulation following from German reunification. The empirical findings show, in particular, that entry costs based on the German Limited Liability Company Law cause an increase in entry size for limited liability firms. In addition, we report that the entry rate for limited liability firms, as well as the sustained entry rate, is lowered. --
    JEL: K22 L25 L26
    Date: 2013
  12. By: Heike Belitz; Anna Lejpras
    Abstract: We analyze the role of public support in the financing pattern of R&D in German SMEs and their assessment of financing conditions in the context of other framework conditions for innovation. In Germany, there is a diversity of overall well-funded technology-neutral and technology-specific programs providing grants to R&D and innovation projects. Different types of SMEs access public funding for R&D and innovation activities to varying degrees. Using an extensive sample of 2,700 German SMEs that participated in public R&D promotion programs during the 2005-2010 period, we identify four groups of companies with different patterns of public and private sources of R&D finance, such as own capital, grants, private and subsidized loans. The firms in our sample are generally positive about public financing of R&D in Germany in 2010. Despite the different funding patterns, we find only slight variations in this assessment across the four groups of subsidized SMEs. Nevertheless, medium-sized R&D companies (often with external equity investment) that have to finance the market introduction of innovations without a track record, appear to suffer from deficiencies in the provision of loans. Further, the companies perceive obstacles to innovation primarily in the non-financial sphere, namely the supply of skilled personnel, market regulation and competition conditions. Therefore, future work on innovation policies for SMEs should put greater emphasis on the non-financial external framework conditions for firm R&D and innovative activities.
    Keywords: R&D promotion, financing of R&D, small and medium sized enterprises, barriers to innovation
    JEL: O14 O25 O38 L20
    Date: 2014
  13. By: Manuel Adelino; Song Ma; David T. Robinson
    Abstract: This paper asks whether startups react more to changing investment opportunities than more mature firms do. We use the fact that a region's pre-existing industrial structure creates exogenous variation in the severity of its exposure to nation-wide manufacturing shocks to develop an instrument for changing investment opportunities, and examine employment creation in the non-tradable sector as a response to those opportunities. Startups are much more responsive to changing local economic conditions than older firms. Moreover, their responsiveness doubles in areas with better access to small business finance, suggesting that financing constraints are an important brake on job creation in the startup sector. Although we focus mostly on the non-tradable sector for empirical identification, our results extend to other sectors of the economy, indicating that the mechanisms we uncover are economically pervasive. This suggests that factors like organizational flexibility and innovativeness may be important drivers of job creation among startups.
    JEL: G21 G3 J2 J21 J23 J63
    Date: 2014–01
  14. By: Haywood, Luke; Falco, Paolo
    Abstract: The self-employed constitute a large proportion of the workforce in developing countries and the sector has been found to be growing further. Different accounts exist as to the cause of this development, with pull factors such as high returns to capital and increased wealth contrasted with push factors such as barriers to entry into the wage sectors following traditional segmeted labour market models. This article considers changes in the structure of earnings for the self-employed in Ghana and compares them with the wage employed. Models of segmented labour markets typically consider sorting on unobservables to be important, and often posit a sector choice model. If there are barriers to entry into one of the sectors, however, selection on unobservables there may be no clear selection rule. We apply a simple model of a two-sector labour market and estimate earnings using a correlated random coef cients model that allows for multiple patterns of sorting and selection on unobservables using instrumental variables GMM. We nd evidence of increasing return to productive characteristics for the self-employed, but also a large wage premium. --
    JEL: O12 J31 J42
    Date: 2013
  15. By: Nielen, Sebastian
    Abstract: This study addresses the relationship between product innovation and the demand and supply of trade credit. Theoretical as well as empirical studies are used to derive the hypothesis of a positive link between product innovation and trade credit demand and supply. Using a sample covering SMEs from 24 European countries this relationship is tested empirically. Basically the estimation results confirm that introducing a product innovation is positively related with demand and provision of trade credit for SMEs. Innovative firms have a higher probability to face credit constraints and therefore have a higher probability to demand for trade credit. On the other hand suppliers have an incentive to provide trade credit especially to innovative customers because they have an easier access to information about the growth potential of innovative SMEs compared to banks. --
    JEL: G32 O31 L20
    Date: 2013
  16. By: Shinozaki, Shigehiro (Asian Development Bank)
    Abstract: Asia’s bank-centered financial systems require the reduced supply-demand gap in lending as a core policy pillar to improve small and medium-sized enterprise (SME) access to finance. Meanwhile, the diversification of financing modalities beyond conventional bank lending is another key policy pillar to better serve various financing needs of SMEs and expand their financial accessibility. The rapid growth of emerging Asia is generating SMEs’ long-term funding needs and requires robust capital markets as an alternative channel for providing their growth capital. The G20 Leaders also addressed the importance of promoting long-term financing for SMEs in the context of investment. The development of capital markets that SMEs can tap is one of the policy challenges under the pillar of diversified financing modalities, which requires more sophisticated and innovative institutional arrangements in order to respond effectively to their real needs. This paper explores the potential of capital market financing for SMEs in emerging Asia, reviewing the challenges of existing SME capital markets and assessing demands on SMEs, regulators, policy makers, market organizes, securities firms, and investors for developing an SME market, based on the findings from intensive surveys. Given the responses to the national growth strategies and the cross-cutting issues of global policy agendas such as climate change, energy efficiency, and green finance, the potential for developing the exercise equity market and the social capital market in Asia is also explored in this paper.
    Keywords: Financial inclusion; innovative financing; long-term financing; SME capital markets; SME finance
    JEL: F36 G28 G29
    Date: 2014–01–01
  17. By: Offick, Sven; Winkler, Roland C.
    Abstract: A recent theoretical literature highlights the role of endogenous firm entry as an internal amplification mechanism of business cycle fluctuations. The amplification mechanism works through the competition and the variety effect. This paper tests the significance of this amplification mechanism, quantifies its importance, and disentangles the competition and the variety effect. To this end, we estimate a medium-scale real business cycle model with firm entry for the U.S. economy. The parameter governing the competition and variety effect is estimated to be statistically significant. We find that firm entry substantially amplifies output by 8.5 percent. The competition effect accounts for most amplification, whereas the variety effect only plays a minor role. --
    Keywords: Bayesian estimation,Business Cycles,Competition Effect,Entry,Mark-ups,Variety Effect
    JEL: E20 E32
    Date: 2014
  18. By: Winkler, Adalbert; Wagner, Charlotte
    Abstract: We provide evidence on the growth patterns of microfinance clients. Our analysis is motivated by the debate on the impact of microfinance on client income and growth. Based on loan-level data from close to 40,000 clients in Sub-Saharan Africa we make use of an econometric approach widely employed in the firm growth literature. Results show that on average clients exhibit substantial growth between two consecutive loans. Moreover, there is a non-linear relationship between initial client size and growth: smaller businesses show higher growth rates which is marginally counteracted by positive growth of the very large clients. Results also indicate that growth rates decline in the course of the lending relationship. Overall our results provide econometric support for the largely anecdotal evidence presented by microfinance practitioners that their clients grow. At the same time they suggest that the equilibrium size of most clients remains small. --
    JEL: D22 G21 L25
    Date: 2013
  19. By: Miglietta, Angelo; Peirone, Dario (University of Turin)
    Date: 2013–12
  20. By: Philipp Mundt (Department of Economics, University of Bamberg, Bamberg, Germany); Mishael Milakovic (Department of Economics, University of Bamberg, Bamberg, Germany); Simone Alfarano (Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: The basic philosophy behind Gibrat's rule of proportionate effect has been to find some common mechanism in the growth process of business firms, based on the idea that growth rates are independent of size and drawn from the same distribution. After decades of research, however, it seems fair to say that the ÒlawÓ fails to provide a universal mechanism for the growth of firms. Here we take the position that it is more plausible for GibratÕs approach to apply to firm profitability rather than firm growth, in line with the classical idea of economic competition as a dynamic process of capital reallocation. Considering a sample of more than five hundred long-lived US corporations from virtually all sectors, we compare the statistical properties of growth and profit rates over a time span of thirty years, and find that profit rates and their volatilities are independent of size, which is not true of growth rates. We also find that the empirical densities of both profitability and growth can be described by exponential power (or Subbotin) distributions, but there are pronounced differences in their parameterizations and autocorrelation structures. We argue that a recently proposed diffusion process not only reproduces the cross-sectional distribution of profit rates, but is also consistent with the empirical time series of individual firms and their autocorrelations. In the natural sciences such a situation is commonly referred to as a statistical equilibrium, while econometricians speak of ergodicity and stationarity. Our economic interpretation of this property is that all surviving firms are subject to the same competitive pressures of capital reallocation, irrespective of their industry or particular line of business. They all face the same profitability benchmark and volatility, while their idiosyncratic efforts merely have an effect on the persistence of abnormal profits. In other words, survivors have to participate in the same game and can only choose to do so at different ÒspeedsÓ. We conclude with the empirical observation that the speed of convergence from abnormal profits to the system-wide average depends negatively on firm size, diversification, and capital intensity.
    Keywords: Profit rates, diffusion process, statistical equilibrium, dynamic competition, persistence
    JEL: C16 L10 D21 E10
    Date: 2014
  21. By: Anne Bagard (IAE Grenoble - Institut d'Administration des Entreprises - Grenoble - Université Pierre-Mendès-France - Grenoble II)
    Abstract: L'investissement des firmes dans la recherche et le développement (R&D) est la clé pour une croissance économique pérenne. Notre étude a pour but d'analyser la façon dont ces entreprises innovantes se financent et si, en France, le mode de financement de ces structures primordiales pour notre avenir économique est performant. De l'étude des différentes phases d'investissement et des différents acteurs nous déduirons que le problème de performance du système français ne vient pas de la R&D française dont le niveau est très bon, mais de la faible part de capital‐amorçage et de capital‐développement français. Après comparaison avec d'autres systèmes et notamment celui des États‐Unis, les solutions suivantes apparaissent opportunes pour la performance du système de financement de la R&D : soutien fiscal aux Business Angels, une amélioration de l'accès au marché primaire et une ouverture du capital de ces sociétés innovantes aux fonds de pension et aux assurances.
    Keywords: Recherche et développement (R&D), Capital‐investissement, innovation, France, Research and Development (R&D), private equity
    Date: 2013

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