nep-ent New Economics Papers
on Entrepreneurship
Issue of 2015‒06‒27
nine papers chosen by
Marcus Dejardin
Université de Namur

  1. Financing Entrepreneurial Experimentation By Ramana Nanda; Matthew Rhodes-Kropf
  2. Deviating from the benchmarks: Human capital inputs and the survival of new startups By Vera Rocha; Mirjam van Praag; Anabela Carneiro
  3. Policy Lessons from Financing Innovative Firms By Karen E. Wilson
  4. Small firms? formalization : the stick treatment By De Giorgi,Giacomo; Ploenzke,Matthew; Rahman,Aminur
  5. Street based self-employment: A poverty trap or a stepping stone for migrant youth in Africa? By Bezu, Sosina; Holden, Stein
  6. A Schumpeterian Growth Model with Financial Intermediaries By Miho Sunaga
  7. “Differences in efficiency between Formal and Informal Micro Firms in Mexico” By Antonio Báez-Morales
  8. Summary of the Survey on the Aftermath of SME Financing Facilitation Act (Japanese) By UESUGI Iichiro; FUKANUMA Hikaru; ONO Arito; XU Peng; TSURUTA Daisuke; NEMOTO Tadanobu; MIYAKAWA Daisuke; YASUDA Yukihiro; YAMORI Nobuyoshi; WATANABE Wako; IWAKI Hiromichi
  9. Freiberufliche Existenzgründungen in Deutschland und seinen Regionen im Jahr 2014 By Kranzusch, Peter; Suprinovič, Olga

  1. By: Ramana Nanda; Matthew Rhodes-Kropf
    Abstract: The fundamental uncertainty of new technologies at their earliest stages implies that it is virtually impossible to know the true potential of a venture without learning about its viability through a sequence of investments over time. We show how this process of experimentation can be particularly valuable in the context of entrepreneurship because most new ventures fail completely, and only a few become extremely successful. We also shed light on important costs to this process of experimentation, and demonstrate how these can fundamentally alter both the rate and direction of startup innovation across industries, regions and periods of time.
    JEL: G24 L26 O31
    Date: 2015–06
  2. By: Vera Rocha (Copenhagen Business School – INO); Mirjam van Praag (Copenhagen Business School – INO); Anabela Carneiro (Universidade do Porto – cef.up)
    Abstract: This paper studies three related questions: To what extent otherwise similar startups employ different quantities and qualities of human capital at the moment of entry? How persistent are initial human capital choices over time? And how does deviating from human capital benchmarks influence firm survival? The analysis is based on a matched employer-employee dataset and covers about 17,500 startups in manufacturing and services. We adopt a new procedure to estimate individual benchmarks for the quantity and quality of initial human resources, acknowledging correlations between hiring decisions, founders' human capital, and the ownership structure of startups (solo entrepreneurs versus entrepreneurial teams). We then study the survival implications of exogenous deviations from these benchmarks, based on spline models for survival data. Our results indicate that (especially negative) deviations from the benchmark can be substantial, are persistent over time, and hinder the survival of firms. The implications may, however, vary according to the sector and the ownership structure at entry. Given the stickiness of initial choices, wrong human capital decisions at entry turn out to be a close to irreversible matter with significant survival penalties.
    Keywords: Keywords: human resources, human capital, startup conditions, new ventures, firm survival, entrepreneurs, intra-industry dynamics
    Date: 2015–06
  3. By: Karen E. Wilson
    Abstract: There has been increasing concern from policy makers around the world about the lack of access to finance for young innovative firms. As a result, governments in many OECD countries have sought to address the financing gap and perceived market failures by supporting the seed and early stage market. This paper seeks to summarise the lessons learned in seed and early stage finance based on OECD work over the past several years focused on policies related to financing high growth firms, including angel investment and venture capital. That research was supplemented with a questionnaire on seed and early stage financing policies in 2012 and a series of policy workshops held between 2012 and 2014. The workshops provided deeper insights into experiences and lessons learned from OECD member countries. The OECD has been working on seed and early stage finance within the Committee for Industry, Innovation and Entrepreneurship (CIIE) in the Directorate for Science, Technology and Industry as well as across other Directorates. This work has highlighted the growth in seed and early stage finance policies as well as the importance of high-growth firms for job creation and the role that financial development and other policies play in firm dynamics and the growth of such firms.
    Date: 2015–06–24
  4. By: De Giorgi,Giacomo; Ploenzke,Matthew; Rahman,Aminur
    Abstract: Firm informality is pervasive throughout the developing world, Bangladesh being no exception. The informal status of many firms substantially reduces the tax basis and therefore impacts the provision of public goods. The literature on encouraging formalization has predominantly focused on reducing the direct costs of formalization and has found negligible impacts of such policies. This paper focuses on a stick intervention, which to the best of the knowledge of the authors is the first one in a developing country setting that deals with the most direct and dominant form of informality, i.e. registration with the tax authority with a direct link to the country's potential revenue base and thus public goods provision. The paper implements an experiment in which firms are visited by tax representatives who deliver an official letter from the Bangladesh National Tax Authority stating that the firm is not registered and the consequential punishment if the firm fails to register. The paper finds 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. The paper also finds that only larger revenue firms at baseline respond to the threat and register. These findings have at least two important policy implications: i. the enforcement angle, which could be an important tool to encourage formalization; and ii. targeting of government resources for formalization to the high-end informal firms. The effects are generally small in levels and this leaves open the question of why many firms still do not register.
    Keywords: E-Business,Economic Theory&Research,Debt Markets,Markets and Market Access,Taxation&Subsidies
    Date: 2015–06–22
  5. By: Bezu, Sosina (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Holden, Stein (Centre for Land Tenure Studies, Norwegian University of Life Sciences)
    Abstract: Street vending of goods and services is a common phenomenon in urban areas of Africa. Although such street based self-employment activities often lack legal recognition and are sometimes criminalized, significant share of the youth labor force in urban areas earn their livelihood from such activities. This study examines whether street based self-employment is a viable livelihood with a potential for transition or a poverty trap for youth migrants. The study is based on a survey of 445 youth who are engaged in shoe shining and coffee vending activities in two urban areas in Ethiopia. We found that street based self-employment is indeed dominated by migrant youth. In this sample, 96% of those engaged in the street based self-employment are youth and 98% are migrants from rural areas or smaller towns. We found that the average monthly earning of these self-employed youth is better than the minimum wage in public sector and much larger than the official poverty line. We found that most of the youth consider this as transitory employment and accumulate skill and capital with a view to establishing their own enterprise or joining skilled employment. While young women are in general found to be less likely than young men to seek exit out of street based self-employment, education increases the likelihood that young women aspire for a change in their employment situation. Youth with better-off parents back home and those with larger network in their new residence are more likely to change their current occupation.
    Keywords: Informal employment; youth migration; youth unemployment; Africa; Ethiopia
    JEL: J20 J60 O15 O17
    Date: 2015–06–15
  6. By: Miho Sunaga (Graduate School of Economics, Osaka University)
    Abstract: This study introduces financial intermediaries into the Schumpeterian growth model developed by Aghion, Howitt, and Mayer-Foulkes (2005). They collect deposits from households, provide funds for entrepreneurial projects, and monitor the entrepreneurs. I consider an economy with moral hazard problems: entrepreneurs can hide the result of a successful innovation and thereby avoid repaying financial intermediaries if the latter do not monitor entrepreneurial performance. I analyze the effects of financial interme- diariesf activities on technological progress and economic growth in such an economy. I show that financial intermediaries need to monitor entrepreneurs in an economy where the legal protection of creditors is not strong enough. Such monitoring can resolve the moral hazard problem; however, it does not always promote technological innovation, because it could increase the cost of entrepreneurial innovation and thus reduce the amount invested for innovation. I also examine how monitoring by financial intermedi- aries affects the welfare of individuals through the stringency of financial markets.
    Keywords: conomic growth, Innovation, Financial intermediaries, Monitoring
    JEL: G21 O16 O41
    Date: 2015–06
  7. By: Antonio Báez-Morales (Faculty of Economics, University of Barcelona)
    Abstract: The economic role of micro firms is still the subject of much discussion and debate. While these firms can be seen as potential growth drivers, as they are usually related to entrepreneurship, a relatively high share of micro firms can also be a sign of an underdeveloped productive system, which applies especially to developing countries, where micro firms represent the majority of business activity. Unlike other studies, this research separates formal and informal micro firms in order to test whether there are efficiency differences between them, and to explain these differences. One of the novelties of the study is the use of the Oaxaca-Blinder decomposition method, which enables an analysis of the differences between both groups of firms after controlling for their different allocation of factors. Micro firms in Mexico are taken as a case study, with the Encuesta Nacional de Micronegocios (ENAMIN, or the National Micro Firm Survey), for 2008, 2010 and 2011, used to carry out the analysis. The emprical evidence suggests that output differences can be explained by endowment characteristics, while efficiency differences are explained by endowment returns. The main variables to explain the gap between the groups are the owner’s level of education, the firm’s age, the owner’s motivations, and financing.
    Keywords: informality, micro firms, efficiency, productivity, decomposition method. JEL classification: D00, D22, D24
    Date: 2015–06
  8. By: UESUGI Iichiro; FUKANUMA Hikaru; ONO Arito; XU Peng; TSURUTA Daisuke; NEMOTO Tadanobu; MIYAKAWA Daisuke; YASUDA Yukihiro; YAMORI Nobuyoshi; WATANABE Wako; IWAKI Hiromichi
    Abstract: A number of policy measures have been undertaken in response to the financial crisis started by the collapse of Lehman Brothers in September 2008 and the following severe recessions. They included an introduction of the Small and Medium-sized Enterprises (SME) Financing Facilitation Act, which solicited financial institutions to renegotiate loan terms and conditions with distressed borrowers and thus provided assistance to firms that were financially constrained. In order to examine the current financial status of SMEs after the termination of the Act at the end of March 2013, RIETI sent out a survey questionnaire to 20,000 firms mainly comprised of SMEs in October 2014 and received more than 6,000 responses. The main issues of the survey include: (1) effect of the SME Financial Facilitation Act on the firms' financial procurement; (2) loan renegotiations between financial institutions and borrower firms that were solicited by the Act; (3) restructuring programs submitted to financial institutions after loans are renegotiated; and (4) ex-post performance of borrower firms whose loans were renegotiated. The summary of the survey provides many novel insights on each of the above four issues. Furthermore, the survey summarizes the current status of equity financing among firms in the appendix.
    Date: 2015–06
  9. By: Kranzusch, Peter; Suprinovič, Olga
    Abstract: Auf der Basis von Daten der Finanzverwaltungen wurde die Anzahl der Existenzgründungen in den Freien Berufen ermittelt. Im Jahr 2014 wurden rund 81.100 Gründungen durch Freiberufler angemeldet. Die Anzahl der freiberuflichen Gründungen stieg im Zeitraum 2012 bis 2014, wohingegen die Anzahl gewerblicher Gründungen sank. Erstmals wird das Gründungsgeschehen für Raumordnungsregionen und die 20 größten Städte Deutschlands betrachtet. Städtische Regionen weisen eine mehr als doppelt so hohe freiberufliche Grün-dungsneigung auf wie ländliche oder verstädterte Regionen. Das gilt für alle Millionenstädte, aber auch für weitere Großstädte. Bonn, Berlin und Köln haben die höchsten Gründungsin-tensitäten bei Freien Berufen unter den 20 größten deutschen Städten.
    Abstract: Based on statistical data provided by tax authorities, the number of business start-ups in the liberal professions has been calculated. In 2014, approx. 81,100 start-ups have been recorded in the liberal professions. The number of start-ups in the liberal professions has increased in the years 2012 to 2014, while the number of start-ups in the branches of commerce and industry has declined. For the first time, we present data for the so-called planning regions and the 20 biggest cities in Germany. On average, agglomerations feature a substantially higher propensity for business start-ups in the liberal professions than rural or less urbanized regions. This applies to all cities with more than one million inhabitants, but for other big cities, too. Among the 20 biggest cities in Germany, Bonn, Berlin and Cologne hold the top positions with regard to the propensity to start a new business in the liberal professions.
    Keywords: Freie Berufe,Existenzgründungen,Deutschland,Bundesländer,Regionen,Siedlungsstruktur,liberal professions,start-ups,Germany,regions,NUTS-3,urban framework
    JEL: J44 L84 R12
    Date: 2015

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