nep-ent New Economics Papers
on Entrepreneurship
Issue of 2015‒05‒30
thirteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Financing and advising with (over)confident entrepreneurs : an experimental investigation By Laurent Vilanova; Nadège Marchand; Walid Hichri
  2. Risk-taking and Firm Growth By XU Peng
  3. Small firms’ formalization: the stick treatment By De Giorgi, Giacomo; Ploenzke, Matthew; Rahman, Aminur
  4. Entrepreneurship and the Business Environment in Africa: An Application to Ethiopia By Zuzana Brixiová; Mthuli Ncube
  5. Politics and Entrepreneurial Activity in the U.S. By Louis-Philippe Beland; Ozkan Eren; Bulent Unel
  6. Venture capital and innovation strategies By Da Rin, M.; Penas, M.F.
  7. Firming Up Inequality By Jae Song; David J. Price; Fatih Guvenen; Nicholas Bloom
  8. When arm’s length is too far. Relationship banking over the credit cycle By Thorsten Beck; Hans Degryse; Ralph De Haas; Neeltje van Horen
  9. Talent workers as entrepreneurs: a new approach to aspirational self-employment By Joanna Tyrowicz; Barbara Liberda; Magdalena Smyk
  10. Federalism and innovation support for small and medium-sized enterprises: Empirical evidence in Europe By Becker, Lasse; Bizer, Kilian
  11. Organizational Creativity versus Vested Interests: The Role of Academic Entrepreneurs in the Emergence of Management Education at Oxbridge By Lise Arena; Rani Dang
  12. “Determinants of Micro Firm Informality in Mexican States 2008-2012” By Antonio Baez-Morales
  13. The Debate about Financing Constraints of SMEs in Europe By Franziska M. Bremus

  1. By: Laurent Vilanova (Université de Lyon, F-69007, France; Université Lyon 2, Coactis); Nadège Marchand (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France; Université Lyon 2, Lyon, F-69007, France); Walid Hichri (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France; Université Lyon 2, Lyon, F-69007, France)
    Abstract: We test in the laboratory how entrepreneurs’ skill perceptions influence the design of financing and advising contracts. Our theoretical framework proposes that selfconfident entrepreneurs prefer issuing debt whereas low self-confident ones prefer equity which induces strong investor assistance. The prevalence of overconfidence makes investors more reluctant to accept debt offers and constrains self-confident entrepreneurs to finance through mixed securities. Experimental results show that self-confident entrepreneurs issue more debt-like securities and receive less assistance. We also show that entrepreneurs learn not to offer pure debt and that initial ignorance of their own skills reinforces entrepreneurs’ ability to learn through risky choices.
    Keywords: Entrepreneurs, investment decision, learning, overconfidence, venture capital
    JEL: C72 C92 D83
    Date: 2015
  2. By: XU Peng
    Abstract: Using firm data from 2002-2012, we examine the relationship between capital structure and risk taking, and between risk taking and firm performance of small and medium-sized enterprises and large private firms. Domestically-owned entrepreneurial private firms are more risk averse than domestically-owned affiliated private firms. Foreign-owned affiliated private firms are much more risk taking than domestically-owned private firms. However, leverage is not strongly associated with less corporate risk taking, but it adversely influences corporate investment significantly. Risk taking has statistically and economically significant effects on corporate growth and corporate earnings. Furthermore, during the credit crisis, risk taking was positively related to corporate earnings, and thus higher risk-taking firms had smaller cash flow shortfalls.
    Date: 2015–05
  3. By: De Giorgi, Giacomo (Federal Reserve Bank of New York); Ploenzke, Matthew (Federal Reserve Bank of New York); Rahman, Aminur (World Bank Group)
    Abstract: Firm informality is pervasive throughout the developing world, and Bangladesh is no exception. The informal status of many firms substantially reduces the tax basis and therefore affects the provision of public goods. The literature on encouraging formalization has focused predominantly on reducing the direct costs of formalization and has found negligible effects from such policies. In this paper, we focus on a stick intervention, which, to the best of our knowledge, is the first in a developing-country setting to deal with the most direct and dominant form of informality: the lack of registration with the tax authority and direct link to the country’s potential revenue base and thus public goods provision. We implement an experiment in which firms are visited by representatives who deliver an official letter from the Bangladesh National Tax Authority stating that the firm is not registered and threatening punishment if it fails to register. We find that the intervention increases the rate of registration among treated firms, while firms located in the same market but not treated do not seem to respond significantly. We also find that only larger-revenue firms at the baseline respond to the threat and register. Our findings have at least two important policy implications: 1) the enforcement angle, which could be an important tool to encourage formalization; and 2) targeting of government resources for formalization to the high-end informal firms. The effects are generally small in level, leaving open the question of why many firms still do not register.
    Keywords: firms; informality; development
    JEL: O10
    Date: 2015–05–01
  4. By: Zuzana Brixiová (African Development Bank, IZA and Research Affi liate, SALDRU, University of Cape Town); Mthuli Ncube (University of Oxford)
    Abstract: Policymakers in developing countries have recognized that productive entrepreneurship can help eliminate extreme poverty. This paper develops a search model of costly entrepreneurial start-ups under a constraining business environment and skill gaps, where one of the equilibrium outcomes is a low-productivity trap. The model reflects stylized facts from the urban labor markets in low income countries such as Ethiopia where low rates of productive entrepreneurship coexist with high output growth in some sectors. Creating an enabling business environment could help move the economy into the high-productivity equilibrium if the regulatory improvements are substantial and other bottlenecks such as skill gaps addressed. We test the role of the business environment in entrepreneurial sales on data from a recent World Bank survey of enterprises in Addis Ababa.
    Keywords: Model of start-ups, productivity, multiple equilibria, low income countries, Africa
    JEL: L26 J24 J48 O17
    Date: 2015
  5. By: Louis-Philippe Beland; Ozkan Eren; Bulent Unel
    Abstract: There is a strong belief that Republicans are more pro-business than Democrats. In this paper, we investigate the causal impact of partisan allegiance of governors (Republican or Democratic) on business creation using entrepreneurship data constructed from the Census Population Surveys and establishment creation data from the Business Dynamics Statistics. By exploiting random variation in close gubernatorial elections in 50 states over the last three decades in a Regression Discontinuity design, we find, surprisingly, that Republicans are not different than Democrats in business creation. Our findings are robust to a number of different specifications, samples, and controls.
  6. By: Da Rin, M. (Tilburg University, Center For Economic Research); Penas, M.F. (Tilburg University, Center For Economic Research)
    Abstract: Venture capital is a specialized form of financial intermediation that often provides funding for costly technological innovation. Venture capital firms need to exit portfolio companies within about five years from the investment to generate returns for institutional investors. This paper is the first to examine the association of venture capital funding with a company’s choice of innovation strategies. We employ a unique dataset of over 10,000 innovative Dutch companies, some of which received venture financing. The data include detailed information on patent applications, innovation activities, financing sources, and other company characteristics. We find that companies backed by venture capital focus on the buildup of absorptive capacity, by engaging in in-house R&D, while at the same time acquiring external knowledge. We interpret this finding as a consequence of the time horizon of venture capital firms. Our results suggest that the correlation between venture capital funding and the build-up of absorptive capacity is not only due to a selection effect. We derive implications of these findings for corporate strategy and public policy.
    Keywords: Venture Capital; Entrepreneurship; Innovation Strategy; Research & Development; Public Policy
    Date: 2015
  7. By: Jae Song; David J. Price; Fatih Guvenen; Nicholas Bloom
    Abstract: Earnings inequality in the United States has increased rapidly over the last three decades, but little is known about the role of firms in this trend. For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers working for the same employer—men vs. women, young vs. old, new hires vs. senior employees, and so on? To address questions like these, we begin by constructing a matched employer-employee data set for the United States using administrative records. Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.
    JEL: E24 E25 J31 L23
    Date: 2015–05
  8. By: Thorsten Beck; Hans Degryse; Ralph De Haas; Neeltje van Horen
    Abstract: Using a novel way to identify relationship and transaction banks, we study how banks’ lending techniques affect credit constraints of small and medium-sized enterprises across emerging Europe. We link the lending techniques that banks use in the direct vicinity of firms to these firms’ credit constraints at two contrasting points of the credit cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in a downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe. Additional evidence suggests that the reduction in credit constraints due to relationship lending helps to mitigate the adverse impact of an economic downturn on local firm growth and does not constitute evergreening of underperforming loans.
    Keywords: relationship banking; credit constraints; credit cycle
    JEL: F36 G21 O12 O16
    Date: 2015–03–20
  9. By: Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Barbara Liberda (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Magdalena Smyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: What is necessary to make entrepreneurship sector successful? It seems like two key factors in this matter are quantity of financial capital and quality of human capital. So far, studies on innovative firms were rather focused on spending on resources, and not on qualification of people who are entering entrepreneurship sector. Using concept of so-called talent workers (Hsieh et al. 2013) we check who is entering self-employment in Poland. Our question is whether people who enter self-employment are more likely to create successful businesses. The analysis is based on the labor force survey panel data for Poland for over a decade between 2001 and 2013. We found that talent workers were more likely to become self-employed in this period. Results are robust on two possibly confounding effects – within sector mobility and productivity of workers before entering self-employment.
    Keywords: self-employment, talent, labor force mobility, wage employment
    JEL: J62 J24
    Date: 2015
  10. By: Becker, Lasse; Bizer, Kilian
    Abstract: Private innovative activities receive public innovation support from different political levels. Few studies have empirically evaluated the influence of political systems on the reception of public innovation support and no other studies have evaluated innovation support across Europe with CIS data. This paper analyses the differences between federal, semi-federal and centralist political systems with CIS data from sixteen European countries. The results show that regional programmes in federal and semi-federal countries reach firms with barriers to innovate, such as small and medium-sized enterprises, while other programmes only claim to reach them. Federal and semi-federal countries therefore support a broader variety of firms compared with centralist countries. European support reaches SMEs better in centralist countries compared with federal and semi-federal countries. Regular and higher expenditure on innovative activities shows a positive influence on the reception of support in all countries, while indicators such as market focus vary between countries and political levels. Regional programmes focus more strongly on companies with a regional market focus, which can be seen as another barrier to innovation. As a policy implication, the paper implies that barriers to innovation can be reduced by a decentralized innovation framework with stronger regional programmes.
    Keywords: innovation,innovation support,SME,Europe,federalism,decentralization
    JEL: O31 O38 H77 H71
    Date: 2015
  11. By: Lise Arena (University of Nice Sophia Antipolis, France; GREDEG CNRS); Rani Dang (University of Nice Sophia Antipolis, France; GREDEG CNRS; University of Gothenburg, Sweden)
    Abstract: As Amabile rightly put it when considering all the organizations she had studied and worked with, "creativity gets killed much more often than it gets supported" (Amabile, 1998). Organizational creativity is even more likely to be killed when an innovative institutional logic seeks to emerge without a corresponding institution, namely within a conservative institution based on strong vested interests. Embedded in a desire for institutional change, 'change agents' (Weik, 2011), beyond being individually creative have to orchestrate organizational creativity in order to turn their new idea into an institutionalised innovation. Based on this organizational paradox, the aim of this paper is twofold. First, it contributes to the existing literature dealing with entrepreneurial innovation and organizational creativity. In particular, it seeks to outline which kind of managerial practices foster creativity in a particularly conservative and inert environment. Second, it sheds light on an original comparative case study - the role of organizational creativity in the emergence and institutionalisation of Oxford and Cambridge business schools – that has been underexplored before and that relies on primary data. Based on a historical perspective of everyday organizational life and practices, this research emphasises the role of academic entrepreneurs in organizational changes through the legitimatization of organizational creativity.
    Date: 2015–05
  12. By: Antonio Baez-Morales (Department of Econometrics. University of Barcelona)
    Abstract: Informality has been given adverse associations as a result of its economic and social consequences in developed and developing countries. The latter group of countries has been the most affected in terms of low productivity, unprotected workers and the erosion of institutional credibility. Although the determinants of informality have been studied before, the research conducted on micro firms in a developing country has been less notable. In this paper, Mexico is taken as case study due to its high level of micro firm informality and the heterogeneity among Mexican states. The aim of this paper is to analyse the determinants of micro firm informality by state, using different public sources, such as the Encuesta Nacional de Micronegocios (ENAMIN, or the National Micro Firm Survey), the Instituto Nacional de Estadisica (INEGI, or the National Institute for Statistics) and the Secretaría de Economía (SE, or the Secretariat for Economics). Econometric panel data models were estimated for a sample of 32 states over the 2008-2012 period. Furthermore, this paper uses different definitions of informality to check the robustness of the results. The empirical evidence obtained allows us to conclude that, although economic factors are the main causes of informality, variables such as corruption and education have an important role to play.
    Keywords: Business surveys; microenterprises, informal economy, entrepreneurship, developing countries, institutions. JEL classification: E26, O17, L26
    Date: 2015–04
  13. By: Franziska M. Bremus
    Abstract: Small and medium-size enterprises (SMEs) are highly dependent on bank financing, which is why they have been particularly hit by tighter credit conditions in the aftermath of the global financial crisis. Given that SMEs account for about 60% of value added and 70% of employment in the euro area, they are crucial for economic recovery. Consequently, several policy initiatives have been launched to alleviate SMEs’ financing constraints. This Roundup gives an overview of the current debate about financing obstacles of SMEs in Europe and collects policy recommendations from the economic literature.
    Date: 2015

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