nep-ent New Economics Papers
on Entrepreneurship
Issue of 2015‒03‒05
thirteen papers chosen by
Marcus Dejardin
Université de Namur

  1. When to Be a Nonconformist Entrepreneur? Organizational Responses to Vital Events By Pontikes, Elizabeth G.; Barnett, William P.
  2. The Impact of Venture Capital Monitoring: Evidence from a Natural Experiment By Bernstein, Shai; Giroud, Xavier; Townsend, Richard
  3. Attracting Early Stage Investors: Evidence from a Randomized Field Experiment By Bernstein, Shai; Korteweg, Arthur; Laws, Kevin
  4. Venture Capital and Knowledge Transfer By Dessi, Roberta; Yin, Nina
  5. Entrepreneurship. How important are institutions and culturally-based prior beliefs? By Ferrante, Francesco; Ruiu, Gabiele
  6. Tax policy effects on entrepreneurship in canada, 1984-2009: A dynamic panel provincial data approach By Marco Lugo Rodriguez
  7. Self-employment and health care reform: evidence from Massachusetts By Tuzemen, Didem; Becker, Thealexa
  8. Do Initial Conditions Matter? A comparative analysis of SME Development in Russia, Kazakhstan, and Uzbekistan By Kan, Viktoriya
  9. Comparing entrepreneurs, organizational employees, and the double profile: Satisfaction with work-family balance, resources and demands By Katherina Kuschel
  10. Knowledge-intensive business services as credence goods: A demand-side approach By Feser, Daniel; Proeger, Till
  12. Bank funding constraints and the cost of capital of small firms By Peia, Oana; Vranceanu, Radu
  13. Entrepreneurship around the World--Before, During, and After the Crisis By Leora Klapper; Frederic Meunier; Laura Diniz

  1. By: Pontikes, Elizabeth G. (University of Chiago); Barnett, William P. (Stanford University)
    Abstract: Salient successes and failures among organizations, such as spectacular venture capital investments or agonizing bankruptcies, affect consensus beliefs about the viability of particular markets. We argue that such vital events lead to over-reactions in the organizational entry process, with new firms flooding the market after salient successes and a staying clear after salient failures. Particularly notable are the implications of nonconformity under these conditions. An entrepreneur who bucks the consensus and enters a market after salient failures must endure considerable scrutiny, and so is likely have a strong fit to that market. Such a nonconformist will be spared from a passing fad, whereas an entrepreneur that follows trends is more likely to enter markets that are not a good fit for the organization. So we propose that in the wake of salient vital events nonconformity is a preferable approach. In an analysis of software firms, we found evidence that these companies and their venture capitalists chase hot markets: Entries into markets triggered more entries, and markets that saw companies fleeing went cold. Venture capital (VC) magnified this boom and bust cycle: firms were especially likely to enter markets that had recently attracted VC funding, and VCs themselves exhibited herding behavior. Meanwhile, organizations that entered when VC fundings were booming were then increasingly likely to exit, and those financed in a VC funding boom were unlikely to make it to an IPO. By contrast, those firms that entered markets during bad times were more likely to prevail.
    Date: 2014–03
  2. By: Bernstein, Shai (Stanford University); Giroud, Xavier (MIT); Townsend, Richard (Dartmouth College)
    Abstract: We examine whether venture capitalists contribute to the innovation and success of their portfolio companies, or merely select companies that are already poised to innovate and succeed. To do so, we exploit exogenous reductions in monitoring costs stemming from the introduction of new airline routes between venture capital firms and their existing portfolio companies. Within an existing relationship, we find that reductions in travel time are associated with an increase in the number of patents and number of citations per patent of the portfolio company, as well as an increase in the likelihood of an eventual IPO or acquisition. These results are robust when controlling for local shocks that could potentially drive the introduction of the new airline routes. We further document that the effect is concentrated in routes that connect lead VCs with portfolio companies, as opposed to other investors. Overall, these results are consistent with the monitoring channel and hence indicate that venture capitalists' physical presence at their portfolio companies is an important determinant of innovation and success.
    JEL: D81 G24 L26 M13 O31 O32
    Date: 2014–02
  3. By: Bernstein, Shai (Stanford University); Korteweg, Arthur (Stanford University); Laws, Kevin (AngelList, LLC)
    Abstract: Which start-up characteristics are most important to investors in early-stage firms? This paper uses a randomized field experiment involving 4,500 active, early stage investors. The experiment is implemented by AngelList, an online platform that matches investors with start-ups seeking capital. The experiment randomizes investors' information sets on start-up characteristics through the use of nearly 17,000 emails. The average investor responds strongly to information about the founding team, but not to information about either firm traction or existing lead investors. This is in contrast to the least experienced investors, who respond to all categories of information. Our results suggest that information about human assets is causally important for the funding of early-stage firms.
    JEL: D23 G32 L26
    Date: 2014–05
  4. By: Dessi, Roberta; Yin, Nina
    Abstract: This paper explores a new role for venture capitalists, as knowledge intermediaries. A venture capital investor can communicate valuable knowledge to an entrepreneur, facilitating innovation. The venture capitalist can also communicate the entrepreneur's innovative knowledge to other portfolio companies. We study the costs and benefits of these two forms of knowledge transfer, and their implications for investment, innovation, and product market competition. The model also sheds light on the choice between venture capital and other forms of finance, and the determinants of the decision to seek patent protection for innovations. Our analysis provides a rationale for the use of contingencies (specifically, patent approval) in VC contracts documented by Kaplan and Stromberg (2003), and for recent evidence on patterns of syndication among venture capitalists.
    Keywords: venture capital, knowledge intermediaries, contracts, innovation, competition, patents.
    JEL: D82 D86 G24 L22
    Date: 2015–02
  5. By: Ferrante, Francesco; Ruiu, Gabiele
    Abstract: Although there is still no consensus on the causes of large differences in income per capita across countries, a growing literature considers culturally-based beliefs and institutions as main drivers of the latter differences (Guiso et al. 2006; Tabellini 2010). The intuition is that institutions and beliefs affect the incentive to accumulate human and physical capital. Other strands of literature stress that the supply of entrepreneurship is a fundamental ingredient of economic growth and job creation. In this paper, we argue that the two views should be reconciled on the basis of the following arguments: a) occupational choices and the decision to accumulate human capital are affected by cultural and institutional factors; b) occupational choices are the main tool to allocate human capital within societies; c) entrepreneurs govern the allocation of resources in the economy, including the human resources. Confirming our hypothesis, our empirical analysis show that cultural factors matter and fatalism exerts a particularly negative effect on opportunity perception and on opportunity driven entrepreneurship. For what regards institutional variables, three interesting and somehow non conventional results emerge from the analysis. First, low start-up cost are particular favorable for necessity driven entrepreneurship but not for the opportunity driven ones. Second, labor market flexibility yields a lower probability of being an entrepreneur and this results holds for both necessity and opportunity driven entrepreneurs. Third, the more burdensome the administrative requirement (permits, regulations, reporting) in entrepreneurial activity, the lower the probability of being an opportunity driven entrepreneur. On the whole, our results yield some policy relevant implications: a) culturally-based beliefs matter for entrepreneurship and fatalism is more important than trust in others; b) education can affect people’s fatalism; c) entrepreneurial education can be an important tool for fostering good quality entrepreneurship, i.e. opportunity driven entrepreneurship; c) institutions matter for entrepreneurship and growth but, somehow, in unconventional ways.
    Keywords: entrepreneurship, culture, fatalism, institutions
    JEL: E02 O43 L26 D83 M13 J20
    Date: 2014
  6. By: Marco Lugo Rodriguez
    Abstract: In this paper, we examine the effects of fiscal policy on entrepreneurship outcomes in the Canadian provinces for the 1984 – 2009 period. This is the first paper to assess the impact of taxation on entrepreneurship in Canada by using intensive-margin measures (i.e. entrepreneurial income and employment) instead of more commonly used participation measures, as they are thought to be more closely related to policy goals such as entrepreneurial sustainability. A dynamic panel data approach is employed in order to account for potential trends in both taxation policy and entrepreneurial outcomes. The results are consistent with previous literature of the United States and indicate that if the trends, caused by incomplete labour mobility among other things, are indeed important then tax policy has no statistically significant impact on the measured entrepreneurial outcomes. <P>
    Keywords: Entrepreneurship, tax policy, dynamic panel estimators,
    Date: 2014–12–01
  7. By: Tuzemen, Didem (Federal Reserve Bank of Kansas City); Becker, Thealexa (Federal Reserve Bank of Kansas City)
    Abstract: We study the e ect of the Massachusetts health care reform on the uninsured rate and the self-employment rate in the state. The reform required all individuals to obtain health insurance, required most employers to o er health insurance to their employees, formed a private marketplace that o ered subsidized health insurance options and ex- panded public insurance. We examine data from the Current Population Survey (CPS)for 1994-2012 and its Annual Social and Economic (ASEC) Supplement for 1996-2013. We show that the reform led to a dramatic reduction in the state's uninsured rate due to increased enrollment in both public and private health insurance. Estimation results from di erence-in-di erences models and the synthetic control method indicate that the aggregate self-employment rate was higher in the state after the implementation of the reform. We conclude that easier access to health insurance encouraged self-employment in Massachusetts. There are many similarities between the Massachusetts health care reform and the national health care reform, the Patient Protection and Affordable Care Act (PPACA). Based on Massachusetts' experience, the PPACA will lower the national uninsured rate and may lead to a higher self-employment rate in the nation.
    Keywords: Massachusetts health care reform; Patient Protection and Affordable Care Act; self-employment; health insurance; difference-in-differences model; synthetic control method
    JEL: C10 C15 E24 I13 I18 I38 L26
    Date: 2014–11–25
  8. By: Kan, Viktoriya
    Abstract: This paper considers the economic factors behind major differences that emerged in the extent of development of SMEs in Russia, Kazakhstan, and Uzbekistan during the transition period. Taking into account problems of the Soviet-type centrally planned economic system as its initial conditions and using primary sources including laws and regulations, as well as data sources including the national statistical agencies for each country, the paper analyzes the determinants of development trends for SMEs across these three countries. Special attention is paid to macroeconomic factors such as the initial level of development of cooperatives, the impact of transition policies on business activity, the initial level of industrialization, and some demographic factors related to both demand- and supply-side determinants of entrepreneurship that are implicated in either inhibiting or promoting SME development during the transition period in each country.
    Date: 2015–02
  9. By: Katherina Kuschel (School of Business and Economics, Universidad del Desarrollo)
    Abstract: This study wants to question the increasingly “popular” notion that self-employment represents a solution to conflict between work and family by comparing the levels of satisfaction with work-family balance and subjective well-being among three samples: organizational employees, entrepreneurs, and the double profile. Based in the job demands-resources framework, this study compares job demands, job resources, and key personal resources among the three groups of workers. Results show that entrepreneurs experience higher levels of satisfaction with work-family balance and subjective well-being, and enjoy greater job resources and key personal resources than organizational employees. Particularly, job autonomy, work-family climate and job security (withdrawal chances) were the greater differences. Interestingly, the double profile share more similarities with the employees group than with the entrepreneurs.
    Keywords: entrepreneurs; satisfaction with work family balance; subjective well-being; job resources; job demands
    JEL: M12 M14 L26
    Date: 2014–12
  10. By: Feser, Daniel; Proeger, Till
    Abstract: Knowledge-intensive business services (KIBS) constitute a major source of innovative knowledge for small- and medium-sized enterprises. In regional innovation systems, KIBS play a crucial role in distributing innovations and improving the region´s overall innovative capacities. While the specific properties and effects on client firms and sectors have been comprehensively discussed, the internal perspective of client firms, i.e. the processes and problems in selecting, using, evaluating and recommending KIBS, has been neglected to date. Using a qualitative approach, we describe the internal mechanisms and problems of SMEs cooperating with various KIBS and discuss the implications for regional innovation systems from a policy-making perspective. We find that all stages of cooperation of SMEs and KIBS are characterized by strong information asymmetries, distrust and uncertainty about the effects of using external know-how, which yields the interpretation that SMEs perceive KIBS as credence goods. While informal networks are used to reduce information barriers, they regularly prove counterproductive by disseminating worst-case examples. Regional policy aiming at developing instruments for fostering innovative cooperation could thus strengthen formal networks that primarily create trust between KIBS and SMEs to systematically reduce mutual suspicions and information asymmetries.
    Keywords: credence goods,knowledge-intensive business services,regional innovation system,small- and medium enterprises
    JEL: D21 D40 H25 H40 L23
    Date: 2015
  11. By: Marzena Starnawska (Gdansk University of Technology, Gdansk, Poland)
    Abstract: Entrepreneurial behavior in challenging institutional environments have been widely investigated in the literature. One of the characteristics of these environments is resource scarcity. This is particularly valid in the context of social entrepreneurship and social enterprises. The aim of this paper is to identify entrepreneurial behaviors in social entrepreneurship and what is happening behind these processes in the context of transition country, against the backdrop of challenging environment and weak institutional framework in particular in Poland. We use a purposive sample of 5 social cooperatives, and report the data from several in-depth interviews with their representatives as well as observation from the cooperatives. We have attempted to widen the existing categories on entrepreneurial behavior namely boundary blurring and diversification, and discuss them in social entrepreneurship context.
    Keywords: social entrepreneurship, social enterprise, entrepreneurial behavior, social cooperatives, institutions
    JEL: L31 L26 P13 D22 D02
    Date: 2015–02
  12. By: Peia, Oana (ESSEC Business School); Vranceanu, Radu (ESSEC Business School)
    Abstract: This paper analyzes how banks' funding constraints impact the access and cost of capital of small firms. Banks raise external finance from a large number of small investors who face co-ordination problems and invest in small, risky businesses. When investors observe noisy signals about the true implementation cost of real sector projects, the model can be solved for a threshold equilibrium in the classical global games approach. We show that a "socially optimal" interest rate that maximizes the probability of success of the small firm is higher than the risk-free rate, because higher interest rates relax the bank's funding constraint. However, banks will generally set an interest rate higher than this socially optimal one. This gives rise to a built-in inefficiency of banking intermediation activity that can be corrected by various policy measures.
    Keywords: Bank finance; Small business; Global games; Optimal return; Strategic uncertainty
    JEL: C72 D82 G21 G32
    Date: 2015–01
  13. By: Leora Klapper; Frederic Meunier; Laura Diniz
    Keywords: Finance and Financial Sector Development - Microfinance Information Security and Privacy Poverty Reduction - Inequality Private Sector Development - Emerging Markets Private Sector Development - E-Business Information and Communication Technologies
    Date: 2014–08

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