nep-ent New Economics Papers
on Entrepreneurship
Issue of 2014‒05‒17
eight papers chosen by
Marcus Dejardin
University of Namur and Universite' Catholique de Louvain

  1. Local Competitiveness fostered through Local Institutions for Entrepreneurship By Andersson, Martin; Henrekson, Magnus
  2. Regional Unemployment Structure and New Firm Formation By David B. Audretsch; Dirk Christian Dohse; Annekatrin Niebuhr
  3. Accounting for Job Growth: Disentangling Size and Age Effects in an International Cohort Comparison By Anyadike-Danes, Michael; Bjuggren, Carl Magnus; Gottschalk, Sandra; Hölzl, Werner; Johansson, Dan; Maliranta, Mika; Myrann, Anja
  4. Evaluating Changes in Bank Lending to UK SMES Over 2001-12 – Ongoing Tight Credit? By Dr Cinzia Rienzo; Dr Angus Armstrong; Iana Liadze; Professor E. Philip Davis
  5. The Impact of Financial Constraints and Wealth Inequality on International Trade Flows, Capital Movements and Entrepreneurial Migration By Spiros Bougheas; Rod Falvey
  6. The Economic and Labour Market Impacts of Tier 1 entrepreneur and investor migrants By Dr Max Nathan; Dr Heather Rolfe
  7. The importance (or not) of patents to UK firms By Professor Bronwyn Hall
  8. Entrepreneurship and Innovation: Evidence from SMEs in Prishtina region, Kosovo By Govori, Arbiana

  1. By: Andersson, Martin (CIRCLE, Lund University); Henrekson, Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: We review and assess the role local institutional framework conditions play in fostering local entrepreneurship. The basic premise is that entrepreneurship is a central driver of economic renewal and change, and that institutions affect both the supply and direction of entrepreneurship. While local institutions always develop and operate against the backdrop of national institutional frameworks, in particular in non-federal states, our review shows that there is plenty of room for local initiatives and policies to influence the entrepreneurial climate locally. This pertains to both formal (e.g., taxes, regulations and stringency of enforcement) and informal (e.g., attitudes and social legitimacy) institutions. We further argue that the local institutional environment is essential in any local policy aimed to foster productive (high-impact) entrepreneurship. Favorable local institutions not only increase the odds that a region develops or manage to attract entrepreneurial incumbents, but also the odds that a region reaps the full potential of hosting entrepreneurial and knowledge-intensive activities.
    Keywords: Business climate; Entrepreneurship; Institutions; Job creation; Local policies; Startups; Regulations; Entrepreneurship culture; High-impact entrepreneurs
    JEL: D22 H70 L26 M13 O43 R38
    Date: 2014–05–07
  2. By: David B. Audretsch; Dirk Christian Dohse; Annekatrin Niebuhr
    Abstract: Does regional unemployment increase or rather decrease entrepreneurial activity? Although this question has been hotly debated among researchers for decades the answers yielded so far are ambiguous and inconclusive. The paper proposes an innovative approach that takes not only interregional differences in unemployment rates, but also in unemployment duration and the human capital of the unemployed—i.e. in the structure of regional unemployment—into account. Both, the skill structure of the unemployed and the share of long-term unemployment are found to have an important impact on regional start-up activity. Moreover, the impact of unemployment structure on new firm formation is found to vary with the knowledge-intensity of the start-ups
    Keywords: regional unemployment, new business formation, skill structure, long-term unemployment
    JEL: M13 R12 J64
    Date: 2014–05
  3. By: Anyadike-Danes, Michael (Aston Business School and Enterprise Research Centre, UK); Bjuggren, Carl Magnus (Research Institute of Industrial Economics (IFN)); Gottschalk, Sandra (ZEW, Germany); Hölzl, Werner (WIFO, Austria); Johansson, Dan (HUI Research); Maliranta, Mika (ETLA); Myrann, Anja (Ragnar Frisch Centre for Economic Research, Norway)
    Abstract: The contribution of different-sized businesses to job creation continues to attract policymakers’ attention, however, it has recently been recognized that conclusions about size were confounded with the effect of age. We probe the role of size, controlling for age, by comparing the cohorts of firms born in 1998 over their first decade of life, using variation across half a dozen northern European countries Austria, Finland, Germany, Norway, Sweden, and the UK to pin down size effects. We find that a very small proportion of the smallest firms play a crucial role in accounting for cross-country differences in job growth. A closer analysis reveals that the initial size distribution and survival rates do not seem to explain job growth differences between countries, rather it is a small number of rapidly growing firms that are driving this result.
    Keywords: Birth cohort; Firm age; Firm size; Firm survival; Firm growth
    JEL: E24 L25 M13
    Date: 2014–04–24
  4. By: Dr Cinzia Rienzo; Dr Angus Armstrong; Iana Liadze; Professor E. Philip Davis
    Abstract:   Background The availability of bank finance to small and medium sized enterprises (SMEs) is important to allow SMEs to start up and finance investment for growth. There has been widespread comment regarding the continued difficulty SMEs perceive in obtaining external finance since the financial crisis of 2008. This followed a period in which credit was more widely available in the early to mid 2000s. BIS commissioned this project to develop an understanding of the changes in lending to SMEs from 2001-12; to identify the extent to which bank lending has contracted since 2008, and to identify whether SMEs were disproportionately affected in their ability to access finance. An important focus of the research was also to identify SME characteristics associated with greater difficulties in accessing finance. Methodology The project used data from a series of SME surveys that provide detailed information on the characteristics of a sample of UK SMEs, their owners and experiences of obtaining finance[1]. Using econometric models, which included controls for SME characteristics and risk factors, indicators of changes in the supply of bank lending over the time period abstracting from borrower risk could be obtained.  Key findings SMEs have faced a more challenging environment for accessing credit after the financial crisis of 2008 and subsequent recession. Even controlling for risk factors, rejection rates for both overdrafts and term loans were significantly higher in the period from 2008-9 onwards, which is indicative of constraints to the supply of credit. The evidence suggests greater credit restrictions for term loans than overdrafts. Firm characteristics associated with greater likelihood of rejection included higher credit risk rating, previous financial delinquency and lower sales levels, whilst older more established businesses were less likely to be rejected. Margins for both overdrafts and term loans were also significantly higher in the period from 2008-9 onwards, even controlling for risk, as cuts in the Bank of England base rate were not fully transferred on to SME borrowers. However there was no significant increase over time in the likelihood of an SME with given risk characteristics having to provide collateral. Whilst arrangement fees were high during 2008-9, they subsequently returned to levels that were not significantly different from the period before 2008. The tightening in credit since 2008-9 has disproportionately affected low and average risk SMEs (based on Dun and Bradstreet credit scores). However there was no significant change over this period in the likelihood of rejection for SMEs rated as above (e.g. greater than) average risk. This suggests banks viewed lending to the safer categories of SMEs as relatively more risky in the period after the financial crisis than they did before, although the pattern is also suggestive of a partial withdrawal from SME lending as an asset class. After 2009 there was also an increase in the proportion of SMEs rated as above average credit risk due to the effects of the recession on sales, profitability and asset prices. Effects of ethnic origin of the owner on lending to SMEs were detected, with black entrepreneurs more likely to be refused credit. The newly-nationalised banks in 2008-9 were more willing to provide SME credit overall than were other institutions. Time series modelling reveals that greater uncertainty in economic conditions appears to have had greater negative effect on lending to SMEs compared to the corporate sector as a whole. This suggests economic uncertainty as has prevailed since 2008-9 leads to a general shift away from higher risk SME lending towards lending to larger businesses.   Overall, we suggest that the research is indicative of a shortage of finance for SMEs, reflecting banks’ attitudes to risk and their own pressures to delever combined with banks’ market power in the SME sector. Although demand is also probably subdued, there is a high level of discouragement from application for lending as well as high rejection rates and margins on credit after controlling for risk. If the situation is not resolved, output, investment and employment will be lower than would otherwise be the case, with adverse effects on economic performance in the short and longer term. [1] Surveys include: Finance for Small and Medium-sized Enterprises 2004, UK Survey of Small and Medium-sized Enterprises’ Finances 2008, BIS SME Finance Survey 2009 and the SME Finance Monitor covering 2010-12.  
    Date: 2013–04
  5. By: Spiros Bougheas; Rod Falvey
    Abstract: We introduce financial frictions into a simple two sector model of international trade with heterogeneous agents and investigate the impact of differences in the strength of financial institutions and wealth inequality on trade flows, capital movements and entrepreneurial migration. Distinct cost-cutting and career-changing motives for entrepreneurial migration exist, which can lead to two-way entrepreneurial flows. We establish presumptions that countries with stronger financial systems or greater wealth inequality will export the output of the financially dependent sector, will import capital and will be a (net) exporter of entrepreneurs. Important exceptions are shown.
    Keywords: entrepreneurial migration; trade flows; capital flows; wealth inequality; financial frictions
    Date: 2014
  6. By: Dr Max Nathan; Dr Heather Rolfe
    Abstract: This report examines the economic impacts of entrepreneur and investor migrants who come to the UK through the Tier 1 route, introduced in 2008. The research for the report was commissioned by the Migration Advisory Committee (MAC) in February 2013. Tier 1 entrepreneur and investor migrants originate from outside of the European Economic Area (EEA) and the research therefore builds on previous research commissioned by MAC on the impact of migration on the UK. The research included a review of existing research both in the UK and internationally, an examination of UK datasets, and new qualitative evidence through case study interviews with Tier 1 entrepreneurs and investors. These findings are presented in Sections 1 - 3 of the report and are followed by conclusions and policy implications in Section 4.
    Date: 2013–06
  7. By: Professor Bronwyn Hall
    Abstract: � Abstract A surprisingly small number of innovative firms use the patent system. In the UK, the share of firms patenting among those reporting that they have innovated is about 4%. Survey data from the same firms support the idea that they do not consider patents or other forms of registered IP as important as informal IP for protecting inventions. We show that there are a number of explanations for these findings: most firms are SMEs, many innovations are new to the firm, but not to the market, and many sectors are not patent active. We find evidence pointing to a positive association between patenting and innovative performance measured as turnover due to innovation, but not between patenting and subsequent employment growth. The analysis relies on a new integrated dataset for the UK that combines a range of data sources into a panel at the enterprise level.
    Date: 2013–05
  8. By: Govori, Arbiana
    Abstract: Innovation has become a central theme and challenge in the literature of entrepreneurship, SMEs management, and strategic knowledge management and in the literature of organizational learning. Innovation needs a business environment that is conducive to long-term investments in new business activities. This way, the development of innovation policy in SMEs forms an important environment that needs to be supported by government new economic policies and strategies and especially by new approach to entrepreneurship and innovation. In this paper we address the innovation strategies of SMEs engaged in the production of products and services. We base our conclusions on an analysis of primary data collected in a survey of 80 small and medium sized firms in the region of Prishtina, held between March 2014 and May 2014. The results show that innovation in business tends to be driven by external competitive pressures and customer demands. Many SMEs face financial barriers to engaging and undertaking innovation, while a few of them have been seriously engaged in innovation despite the obstacles.
    Keywords: Entrepreneurship, Innovation, SMEs, Competition, Strategy, Funding
    JEL: M0 M1 M2 O3 O30 O31 O32 O33 O34 O38
    Date: 2014–05–07

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