nep-ent New Economics Papers
on Entrepreneurship
Issue of 2015‒11‒15
ten papers chosen by
Marcus Dejardin
Université de Namur

  1. Immigration and Entrepreneurship By Fairlie, Robert
  2. Are Entrepreneurs more Optimistic and Overconfident than Managers and Employees? By Martin Koudstaal; Randolph Sloof; Mirjam van Praag
  3. Who Quits Next? Firm Growth in Growing Economies By Emircan Yurdagul; Julieta Caunedo
  4. High Growth Firms and Technological Knowledge: Do gazelles follow exploration or exploitation strategies? By Alessandra Colombelli; Jackie Krafft; Francesco Quatraro
  5. Firms’economic crisis and firm exit: do intangibles matters? By A. Arrighetti; F. Landini; A. Lasagni
  6. Job Creation, Small vs. Large vs. Young, and the SBA By Brown, J. David; Earle, John S.; Morgulis, Yana
  7. The Kauffman Index: Startup Activity | National Trends By Fairlie, Robert
  8. Entrepreneurship: State of grace or human action? Schumpeter’s leadership vs Kirzner’s alertness. By Ferlito, Carmelo
  9. Fluctuations in uncertainty, efficient borrowing constraints and firm dynamics By Sebastian Dyrda
  10. Tolerance, Agglomeration and Enterprise Innovation Performance: A Multi-Level Analysis of Latin American Regions By Edward Lorenz; Jana Schmutzler

  1. By: Fairlie, Robert
    Abstract: A growing body of research on immigrant entrepreneurship has developed over the past several years. In this chapter we provide an overview of the economics literature with respect to some of the most fundamental immigrant entrepreneurship issues as well as the empirical methods and data used. We review this literature through the lens of estimating the net contribution made by immigrant entrepreneurs to the host economy. Immigration is a very hotly debated topic because of the contrasting concerns over lowering wages for existing workers, increasingly public assistance rolls, security and changing the demographic makeup of host countries, and the need for less- and high-skilled workers, supporting an aging population, insourcing instead of outsourcing labor, and family reunification. Central to the debate is whether immigrants provide a net positive or net negative contribution to host economy. Partly fueled by this debate, an extremely large literature in economics examines the separate impacts of immigrants on various parts of the economy such as the labor market, public assistance, tax system, and educational systems. Since much of the attention of the relevant research has been on the United States, this will be the focus of our discussion.
    Keywords: Business, Social and Behavioral Sciences, immigration, entrepreneurship, business, self-employment, race, ethnicity
    Date: 2015–11–05
  2. By: Martin Koudstaal (VU University Amsterdam); Randolph Sloof (VU University Amsterdam, the Netherlands); Mirjam van Praag (Copenhagen Business School, Denmark)
    Abstract: Empirical evidence supports the conventional wisdom that entrepreneurs are more optimistic and overconfident than others. However, the same holds true for top managers. In this lab-in-the-field experiment we directly compare the scores of entrepreneurs, managers and employees on a comprehensive set of measures of optimism and overconfidence (n = 2,058). The results show that on average entrepreneurs are more optimistic than others in their dispositional optimism and attributional style when bad events occur. For incentivized measures of overconfidence we find no difference between entrepreneurs and managers, although both are more prone to it than employees. Finally, exploration of within-group heterogeneities shows that optimism and success are more strongly related for managers than for entrepreneurs and that an average entrepreneur is not more optimistic than successful managers. We conclude that optimism and overconfidence are indeed characteristics of entrepreneurs, but they are not unique when compared to (top) managers.
    Keywords: Entrepreneurs; managers; dispositional optimism; attributional style; overestimation; overconfidence; behavioral economics
    JEL: L26 C93 D03 M13
    Date: 2015–11–06
  3. By: Emircan Yurdagul (Washington University in Saint Louis); Julieta Caunedo (Cornell University)
    Abstract: This paper provides a theory linking characteristics of the industry dynamics to aggregate growth. We analyze firms' life cycle productivity, employment-age profiles, and firm selection across countries. Using a large cross-country dataset we document (i) more frequent labor productivity growth for firms operating in fast growing economies, (ii) lack of systematic relationship between the tail of the employment size distribution and growth and (iii) steeper employment-age profiles in slow growing economies. Our working thesis is that firms' likelihood of turning their investments into actual productivity growth, and uncertainty on their returns if successful, impacts firms investment in productivity, selection and aggregate growth. We think of firm uncertainty broadly, to include for example political instability, changes in tax regimes, lack of social capital or firm demand fluctuations. We argue that in slow growing rich productive economies, steep-employment age profiles are related to high return uncertainty and strong firm selection. We are able to accommodate poor and rich slow growing economies by decoupling firm's probability of success from return uncertainty. We build a tractable general equilibrium model that displays endogenous long run growth compatible with a stationary size distribution and the documented empirical facts. We contribute to the literature by analyzing how variations in the probability of firm success and return uncertainty account for differences in observed industry structure and its relationship with aggregate growth.
    Date: 2015
  4. By: Alessandra Colombelli (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - CNRS); Jackie Krafft (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - CNRS); Francesco Quatraro (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - CNRS, Department of Economics, University of Turin - University of Turin)
    Abstract: This paper analyzes the contribution of high-growth firms to the process of knowledge creation. We articulate a demand-pull innovation framework in which knowledge creation is driven by sales growth, and knowledge stems from creative recombination. Given the established literature on high growth firms and economic growth, we wonder whether gazelles follow patterns of knowledge creation mostly dominated by exploration or exploitation strategies. To this purpose, we derive indicators able to describe the structure of knowledge and qualify firms' innovation strategies. The empirical results suggest that the reality is richer than the interpretative frameworks. Increasing growth rates are indeed associated to exploration strategies, supporting the idea that high growth firms are key actors in the creation of new technological knowledge. But in the meantime, firms showing growth rates significantly higher than the average are able to command the exploration strategies by constraining them within the boundaries of familiar technological competences, suggesting that the exploration process is less random than anticipated. We end up with the result that high growth firms, and especially gazelles, follow predominantly an exploration strategy, but with the characteristics of an organized search which is often more observed in an exploitation strategy.
    Keywords: Gazelles,Recombinant Knowledge,Schumpeterian innovation patterns
    Date: 2014–04–01
  5. By: A. Arrighetti; F. Landini; A. Lasagni
    Abstract: The crisis regarding the Euro area has caused several business closures, especially in the periphery of the EMU. In this paper, we use an original Italian firm-level dataset to determine why firms exit the market during times of economic crisis, paying particular attention to the role of intangibles. We argue that intangibles strengthen a firm’s resilience, which improves the firm’s ability to cope with adverse events and unexpected shocks. We obtain two main results: first, we show that the presence of intangibles significantly reduces the probability of firm exit, especially during the initial phase of the crisis; second, we find that financial constraints become more relevant than intangibles in explaining firm exit during the later stages of the crisis. Thus, the process of firm selection during the crisis has undergone a rapid transformation, with distortions that may lead even skilled firms to exit. Implications of these findings for EU recovery policies are discussed.
    Keywords: intangibles, firm exit, EU crisis, industry dynamics
    JEL: D22 L21 L25 O32
    Date: 2015
  6. By: Brown, J. David (U.S. Census Bureau); Earle, John S. (George Mason University); Morgulis, Yana (University of California, San Diego)
    Abstract: Analyzing a list of all Small Business Administration (SBA) loans in 1991 to 2009 linked with annual information on all U.S. employers from 1976 to 2012, we apply detailed matching and regression methods to estimate the variation in SBA loan effects on job creation and firm survival across firm age and size groups. The number of jobs created per million dollars of loans generally increases with size and decreases in age. The results imply that fast-growing firms ("gazelles") experience the greatest financial constraints to growth, while the growth of small, mature firms is least financially constrained. The estimated association between survival and loan amount is larger for younger and smaller firms facing the "valley of death".
    Keywords: job creation, firm survival, credit constraints, small businesses, government loan guarantees
    JEL: H81
    Date: 2015–11
  7. By: Fairlie, Robert
    Abstract: The Kauffman Index: Startup Activity is a novel early indicator of new business creation in the United States, integrating several high-quality sources of timely entrepreneurship information into one composite indicator of startup activity. The Index captures business activity in all industries, and is based on both a nationally representative sample size of more than a half million observations each year and on the universe of all employer businesses in the United States. This allows us to look at both entrepreneurs and the startups they create. Broad-based entrepreneurship in America appears to be slowly crawling its way out of the depths it has been stuck in since 2010. Startup activity rose in 2015, reversing a five-year downward trend in the United States, giving rise to hope for a revival of entrepreneurship. However, the return remains tepid and well below historical trends. A principle driver of this year’s uptick is the growth of male opportunity entrepreneurship, accompanied by the continued strength of immigrant entrepreneurship. Trends in entrepreneurship rates are analyzed for several additional demographic groups.
    Keywords: Business, Social and Behavioral Sciences, entrepreneurship, business, startups, self-employment
    Date: 2015–11–05
  8. By: Ferlito, Carmelo
    Abstract: Joseph A. Schumpeter developed a very well-known theory of entrepreneurs and entrepreneurship, centred on the concept of ‘new combinations’. According to him, innovation and entrepreneurship are destructive elements driving the system beyond an equilibrium position and setting in motion a competitive process, in order to reach a new equilibrium point. Though Austrian, Schumpeter was never a member of the Austrian School of Economics. However, his position as regards entrepreneurship is widely commented on by Austrian School members. In particular, Israel M. Kirzner devoted his research activity to develop an alternative concept of entrepreneurship rooted in Misesian human action and the concept of ‘alertness’. This paper aims to analyze and compare the two positions, in an attempt not so much to stress differences but to find possible common paths for further developments of the concept of entrepreneurship.
    Keywords: Schumpeter, Kirzner, Entrepreneur, Entrepreneurship, Innovation, Austrian School of Economics.
    JEL: B13 B25 B53 L26 O31 O33
    Date: 2015–05–12
  9. By: Sebastian Dyrda (University of Minnesota)
    Abstract: In this paper, I quantify the importance of microeconomic uncertainty shocks for the firm dynamics over the business cycle in an economy with frictional financial markets. To begin, I document facts on asymmetric response across age and size groups of firms in the U.S. to the changes in aggregate economic conditions. I argue that age rather than size is a relevant margin for the magnitude of employment volatility over the cycle; in particular total employment of young firms varies 2.6 times more relative to the old firms. Then I propose a theory that, contrary to the existing studies, generates endogenously a link between firm's age and size and its ability to obtain financing, and induces an asymmetric response to shocks. A key element of my theory is a financial friction originating from the presence of the firm's private information and long-term, efficient lending contract between a risk averse entrepreneur and financial intermediary, which manifests itself as a borrowing constraint. I argue that, for any given expected return on project, young firms are more constrained in borrowing and they grow out of the constraint as they age up to the optimal, unconstrained size. Next I establish that, for any given age, firm's financing increases in line with the average return on a project. In times of high idiosyncratic uncertainty the financial contract calls for tightening of the borrowing constraint transmitting the initial impulse into a decline in demand for production inputs and further, including general equilibrium effects, into an economic downturn. This mechanism affects disproportionally young firms. Not only are they more constrained in borrowing but also they start smaller due to a reduced level of initial financing. A quantitative version of the model accounts for the fall of the aggregate output, employment and investment, decline of credit to GDP ratio and asymmetric employment dynamics of different groups of firms observed in the US data in recessions.
    Date: 2015
  10. By: Edward Lorenz (Université Nice Sophia Antipolis, France; GREDEG-CNRS); Jana Schmutzler (Universidad de Norte, Colombia; Bergische Universität Wuppertal, Germany)
    Keywords: human capital, tolerance, innovation, regional development, Latin America
    JEL: O30 R10 J24
    Date: 2015–11

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