nep-ent New Economics Papers
on Entrepreneurship
Issue of 2014‒07‒05
six papers chosen by
Marcus Dejardin
University of Namur and Universite' Catholique de Louvain

  1. The Culture of Entrepreneurship By Chakraborty, Shankha; Thompson, Jon; Yehoue, Etienne
  2. On the Stability of Preferences: Repercussions of Entrepreneurship on Risk Attitudes By Mattias Brachert; Walter Hyll
  3. ENFORCING COVENANTS NOT TO COMPETE: THE LIFE-CYCLE IMPACT ON NEW FIRMS By Evan Starr; Natarajan Balasubramanian; Mariko Sakakibara
  4. Foreign Direct Investment, Institutional Quality, Economic Freedom and Entrepreneurship in Emerging Markets By Hernan Herrera Echeverry; Jerry Haar; Juan Benavides Estévez-Bretón§
  5. Export Mix Changes and Firm Performance: Evidence from Chile By Roberto Álvarez; Andrés Zahler
  6. Optimism, Job Satisfaction and Self-Employment By Dawson, C G

  1. By: Chakraborty, Shankha; Thompson, Jon; Yehoue, Etienne
    Abstract: We study the cultural process through which a society inculcates an entrepreneurial spirit. People work for a guaranteed wage or operate a firm whose return depends on business expertise. The latter is culturally acquired, within the family or outside, and people may choose an occupation different from the one they were socialized into. We show that a cultural bias towards safer occupations from colonial and post-colonial policies leads to stagnation where entrepreneurs do not upgrade technology because of their proficiency with existing methods. An aggregate productivity shock can tip this economy towards growth where cultural inertia gives way to technological progress led by established businesses. A human capital shock where existing business expertise is less useful, in contrast, causes growth through the emergence of a new class of entrepreneurs. In either case culture ceases to be destiny. We relate the theory to historical and recent episodes.
    Keywords: entrepreneurship, culture, human capital, colonization, growth
    JEL: D10 F54 L26 O30 Z10
    Date: 2014–06–26
  2. By: Mattias Brachert; Walter Hyll
    Abstract: The majority of empirical studies make use of the assumption of stable preferences in searching for a relationship between risk attitude and the decision to become and stay an entrepreneur. Yet empirical evidence on this relationship is limited. In this paper, we show that entry into entrepreneurship itself plays a decisive role in shaping risk preferences. We find that becoming self-employed is indeed associated with a relative increase in risk attitudes, an increase that is quantitatively large and significant even after controlling for individual characteristics, different employment status, and duration of entrepreneurship. The findings suggest that studies assuming that risk attitudes are stable over time suffer from reverse causality; risk attitudes do not remain stable over time, and individual preferences change endogenously.
    Keywords: Endogenous preferences, Risk attitudes, Entrepreneurship, German Socio-Economic Panel
    JEL: D03 D81 M13
    Date: 2014
  3. By: Evan Starr; Natarajan Balasubramanian; Mariko Sakakibara
    Abstract: We examine the impact of enforcing non-compete covenants (CNC) on the formation and performance of new firms using matched employer-employee data on 30 US states. To identify the impact of CNC, we exploit the inter-state variation in CNC enforcement along with the fact that courts do not enforce such covenants between law firms and departing lawyers in any state. Using a difference-in-difference-in-difference specification with law firms and firms that are not withinindustry spinouts as the baseline, we find states with stricter CNC enforcement have fewer, but larger within-industry spinouts that are more likely to survive their nascent years, and conditional on survival, grow faster during those years. These results are consistent with CNC enforcement having a selection effect on within-industry spinouts. Particularly, with stricter enforcement, only founders with higher-quality ideas and resources choose to overcome CNC-related barriers, which reduces entry rate but increases observed short-term performance of these spinouts.
    Keywords: Covenants Not to Compete, Entrepreneurship, Spinouts
    JEL: L25 L26 L41 L5 K2 K3 J6 M2 M5
    Date: 2014–06
  4. By: Hernan Herrera Echeverry; Jerry Haar; Juan Benavides Estévez-Bretón§
    Abstract: This study investigates the relationship between foreign direct investment, institutional quality, economic freedom, and entrepreneurship in emerging markets. The research compares the capacity and appetite for business creation among high-income, low-income and emerging countries. The results are based on a panel study of data, from 2004 to 2009 for 87 countries, using as its source “The World Bank Entrepreneurship Snapshots” to look at the connection between business creation, institutional quality, market freedom and foreign direct investment (FDI). The findings reveal a strong positive relationship between institutional quality and business generation in all three of the above categories. Meanwhile, institutional quality and how this develops remains significant to business creation at least two years after a business is incubated, underscoring its importance as a contributory factor for creating an environment conducive to entrepreneurship. The freedom to create businesses and invest has a marked impact on business generation in emerging countries, while the influence of international trade appears more important as a spur to the genesis of business in low-income countries. Results also show that regulation of the free market has a short-term effect on business creation. Finally, there is a direct and significant relationship between FDI and business development in emerging countries. The effect of FDI is also felt for at least two years after the foreign investment. This result is consistent with “the spillover theory of entrepreneurship” (Acs et al, 2009; Görg and Strobl, 2002; Ayyagari et al, 2010).
    Keywords: Foreign Direct Investment, Institutional Quality, Economic Freedom, Entrepreneurship
    JEL: G18
    Date: 2013–05–01
  5. By: Roberto Álvarez; Andrés Zahler
    Abstract: In this paper we analyze changes in the export mix of Chilean firms, looking particularly at differences between large firms and SMEs. To do that, we use detailed information of exported products by firms during the period 1995-2005. Our econometric results, which look at the impact of export product churning on firm performance, are heterogeneous by type of change in export mix and by firm size. In general, export mix changes are associated with improvements on productivity, although our results suggest that this positive effect is only for SMEs. In terms of employment and sales, we find that export product churning has positive effect on large firms and lower - and in some case negative - on SMEs. It seems that changes in export mix are more important for firm growth in large firms, but not in terms of productivity. In contrast, SMEs can have a higher potential for productivity improvement through export product churning but this does not translate necessarily in significant increase in sales and employment.
    Keywords: Integration & Trade, Productivity, SME, Small and Medium Size Enterprises (SMEs), Firm performance, Export mix, Large firms, New products, Product mix
    Date: 2014–04
  6. By: Dawson, C G
    Abstract: Using UK data from 1991 to 2008 this paper investigates whether excessive optimism affects individual level self-employed job satisfaction. Within the context of this paper, excessive optimism refers to the inclination to overestimate the probability of good financial outcomes. Evidence is provided that conditional on self-employed performance, optimism is negatively and significantly associated with self-employed job satisfaction, especially satisfaction with pay. Moreover the detrimental effects of optimism on satisfaction are larger in self-employment than in paid-employment. The results indicate that the higher levels of satisfaction obtained by the self-employed do not result from the self-selection of optimists, suggesting previous studies may underestimate the positive effects of self-employment on utility.
    Keywords: optimism; self-employment; job satisfaction; expectations
    Date: 2014–04–15

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