nep-ent New Economics Papers
on Entrepreneurship
Issue of 2015‒11‒21
thirteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Understanding the 30 year Decline in Business Dynamism: a General Equilibrium Approach By Benjamin Pugsley; Aysegul Sahin; Fatih Karahan
  2. A Theory of Crowdfunding - a mechanism design approach with demand uncertainty and moral hazard By Roland, Strausz
  3. Entrepreneurial Funding Challenges for Latin American Women Start-up Founders By Katherina Kuschel; María-Teresa Lepeley; Fernanda Espinosa; Sebastián Gutiérrez
  4. Copreneurial Women in startups: Growth-oriented or lifestyle? An aid for technology industry investors By Katherina Kuschel; María-Teresa Lepeley
  5. Female founders in the technology industry: The startup-relatedness of the decision to become a mother By Katherina Kuschel
  6. SMEs and access to bank credit: Evidence on the regional propagation of the financial crisis in the UK By Degryse, Hans; Matthews, Kent; Zhao, Tianshu
  7. SMEs, age, and jobs : a review of the literature, metrics, and evidence By Aga,Gemechu A.; Francis,David C.; Rodriguez Meza,Jorge Luis
  8. Taxation, credit constraints and the informal economy By Julia Passabom Araujo; Mauro Rodrigues
  9. The Annual Survey of Entrepreneurs: An Introduction By Lucia Foster; Patrice Norman
  10. Entrepreneurship in Micro and Small Enterprises: Empirical Findings from a Baseline Study in Northeastern Areas of Delhi, India By Kurosaki, Takashi; Lal, Kaushalesh; Mangal, A. K.; Banerji, Asit; Mishra, S. N.
  11. The Employment Impact of Innovation: Evidence from European Patenting Companies By Vincent Van Roy; Daniel Vertesy; Marco Vivarelli
  12. Role of the Credit Risk Database in Developing SMEs in Japan: Lessons for the Rest of Asia By Kuwahara, Satoshi; Yoshino, Naoyuki; Sagara, Megumi; Taghizadeh-Hesary, Farhad
  13. Unternehmensgründungen und Crowdinvesting By Löher, Jonas; Schell, Sabrina; Schneck, Stefan; Werner, Arndt; Moog, Petra

  1. By: Benjamin Pugsley (Federal Reserve Bank of New York); Aysegul Sahin (Federal Reserve Bank of New York); Fatih Karahan (Federal Reserve Bank of New York)
    Abstract: Recent empirical work has drawn attention to an unmistakable shift in U.S. firm dynamics since the late 1970s. Principally, the entry rate, measured as the share of new employer firms out of all employer firms, declined by nearly 40 percent from 1977 to 2007, even before the impact of the Great Recession. Remarkably, this steady decline occurred relatively uniformly within geographic areas and within relatively narrow industry aggregations. Taking this trend decline or startup deficit as given, Pugsley and Sahin (2014) show that both its direct effect on business formation and its indirect cumulative effect through a shift in the employer age distribution partly explain the emergence of slower employment recoveries with each business cycle. An important question is what explains this apparent decline in business dynamism? Understanding the source or sources of the decline are crucial to understand whether it is an efficient response to technological shifts or escalating misallocation from increases, for example, in the costs of starting or running a business. In this paper we provide the first, to our knowledge, quantitative analysis of the set of factors that may have affected business dynamism. Our results are surprising. Rather than signicant changes in fixed and entry costs on the firm side, we find that a shift in the growth rate of the working age population that begins in the late 1970s and its general equilibrium effect on labor supply drives the bulk of the declines along the entry margin. To reach this conclusion, we consider a variety of potential explanations in partial and general equilibrium. The first set of factors that might shift business formation are related to changes in barriers to entry and changes in fixed and variable operating costs. Changes in laws and regulations, market concentration, education and licensing requirements, and shifts in economies of scale might discourage firm entry by creating higher barriers to enter and/or a higher fixed cost of operating. The second set of factors we consider is related to demographic changes. There are various reasons through which the population growth rate can affect business formation. Most directly, an older population might be associated with a lower rate of business formation in the economy if younger workers are more likely to engage in entrepreneurial activity. Changes in population growth also affect the labor supply, which could have important effects on business formation through a general equilibrium channel. In all of these cases, but especially for the general equilibrium effects it is important to differentiate between the effects on incumbent firms and the effects on potential entrants. Shocks to the labor supply that put downward pressure on wages create incentives for incumbent firms to expand, but they also create opportunities for potential entrants. Any effect on the entrant share will depend on how the shocks to the labor supply are accommodated by expanding incumbents and new firms. We first evaluate the importance of these two sets of factors exploiting pooled cross-state variation in firm entry rates. In particular, we estimate a simple linear regression using OLS and document a strong correlation between the growth rate of working age population and changes in the firm entry rate at the state level, controlling for state and time fixed eects. We also instrument for the variation in the age composition with lagged birthrates and find a startup rate semi-elasticity of roughly 1 to 1.5. Given that the growth rate of working age population went down from around 2% in early 1980s to slightly above 1% by 1990s, this estimate suggests that more than half of the decline in the start-up rate can be explained by the decline in the growth rate of working age population. The second part of our empirical analysis focuses on various regulatory and policy changes, which is still in progress. While the regression based results are informative, they fail to provide us an internally consistent composition of the factors we considered. In addition, it is not possible to have aggregate time-consistent measures of the type of frictions that affect entry costs and fixed costs. To alleviate this problem, the second part of our analysis follows a more structural approach and estimate a variant of the Hopenhayn and Rogerson (1993) model with population growth to evaluate the quantitative importance of different sets of explanations. Since the model has implications for many other measures of firm dynamics, such as average firm size, survival rates, and employment growth rates, it allows for a more complete evaluation of alternative channels. Before we move on to estimating the model, we analyze the time variation along these additional dimensions. Interestingly, we find that despite the gradual decline in the firm entry rate, survival and employment growth rates by firm size remained stable since 1980s. These facts help us discipline the model and measure the contributions of various shifts in the economy to the decline in startup rates. The estimation of the model is still work in progress but we present comparative statics from the model. Our preliminary findings show that the measured declines in business formation are the optimal response to a shift in the growth rate of the population. Our paper is closely related to the emerging literature on the declining dynamism in the U.S. economy. Early work by Reedy and Strom (2012) first called attention to a decline in the aggregate entry rate of new employers. Using more disaggregated data, recent papers by Pugsley and Sahin (2014), Decker, Haltiwanger, Jarmin, and Miranda (2014a), Hathaway and Litan (2014), Gourio, Messer, and Siemer (2014) and Davis and Haltiwanger (2014) all document that these declines in the entry rate are pervasive within geographic areas and relatively narrow industry aggregations. All of these papers have also drawn attention to the relevance of this decline for the ongoing health in labor market. We are the first, to our knowledge, to provide cross-sectional and time-series evidence on the determinants of the declining entry rate. Specifically, we identify the principal role of shifting demographics on the equilibrium quanitity of startup activity, which is also consistent with the predictions of the workhorse model of industry dynamics.
    Date: 2015
  2. By: Roland, Strausz
    Abstract: Crowdfunding provides the innovation that, before the investment, entrepreneurs contract with consumers. Under demand uncertainty, this improves a screening for valuable projects. Entrepreneurial moral hazard threatens this benefit. Focusing on the trade-off between value screening and moral hazard, the paper characterizes optimal mechanisms. Current crowdfunding schemes reflect their salient features. Efficiency is sustainable only if returns exceed investment costs by a margin reflecting the degree of moral hazard. Constrained efficient mechanisms exhibit underinvestment. Crowdfunding blurs the distinction between finance and marketing, but complements rather than substitutes traditional entrepreneurial financing. As a screening tool for valuable projects, crowdfunding unambiguously promotes social welfare.
    Keywords: Crowdfunding; finance; marketing; demand; uncertainty; moral hazard
    Date: 2015–11–14
  3. By: Katherina Kuschel; María-Teresa Lepeley; Fernanda Espinosa; Sebastián Gutiérrez (School of Business and Economics, Universidad del Desarrollo)
    Abstract: Purpose: This study explores the funding opportunities for women start-up founders who have received support from the Chilean government agency accelerator Start-Up Chile. It examines the role of gender in Latin American women founders at the stage when they are raising funds and equity capital. Design/methodology/approach: The study includes an inductive, qualitative approach and interviews with 20 female founders. Findings: The thematic analysis revealed 10 subthemes that condition founder’s access to capital in the following categories: capital needs, network, and individual characteristics. Originality/value: The contribution of this study is the identification of predominant factors for female entrepreneurs raising capital followed by implications for public policies in entrepreneurial ecosystems including future research orientation.
    Keywords: Entrepreneurship, New high-technology ventures, Female founders, Entrepreneurial ecosystem, Start-Up Chile, Latin America
    Date: 2015–10
  4. By: Katherina Kuschel; María-Teresa Lepeley (School of Business and Economics, Universidad del Desarrollo)
    Abstract: Purpose – Latin American investors are commonly suspicious of investing in copreneurial ventures (a male and female couple) integrated in working teams and show even higher levels of uncertainty when startups are led by a female founder. This paper addresses issues related to women as leaders in copreneurial tech ventures and analyzes whether these ventures are growth-oriented or conform to limited partnerships that merely meet women’s needs for a standard of living. Design/methodology/approach – A qualitative, inductive and constructive approach was needed for addressing the research question. Three copreneurial women and two divorced copreneurs were interviewed. A grounded theory approach was followed to analyze data, which identified emerging themes. Findings – Copreneurial teams in technology have similar and complementary high levels of education and skill development. After enough time working together, each partner is well aware of mutual skills and each other’s strengths, allowing them to identify their roles. Both divide work and family, and have developed a level of mutual trust that is essential to moving forward. They commonly show a workaholic tendency with a high rational underpinning. All of these factors strengthen collaboration, and in many instances this business liaison can remain intact despite a breakdown in a sentimental relationship. Additional findings show that their growth-orientation take multiple structures. Practical implications – This study conveys information that can help investors make decisions that support these copreneurial teams. Originality/value – Although representing an increasingly common type of startup team, copreneurs in technology have not yet been addressed as a specific sample in family business research.
    Keywords: entrepreneurship, copreneurs, new high-technology ventures, female founders, Latin America
    Date: 2015–10
  5. By: Katherina Kuschel (School of Business and Economics, Universidad del Desarrollo)
    Abstract: This paper explores decision-making for motherhood in the tech industry, and if there is an optimal context regarding their startup. The low female participation rate is a public concern in this extreme environment of long working hours, time pressure, and high competitiveness. Eighteen interviews were conducted to female founders and analyzed using a grounded theory approach. Findings suggest two sources of “mumpreneur” in technology: 1) mothers that created a startup while young and childless, and 2) mothers that created a technology venture as a strategy to leave the corporate world. The first group is highly work-role salient while the second is highly family-role salient. Three subcategories divide the first category, that can be conceived as continuous stages: “not thinking about motherhood”, “wishing to be a mother”, and “mother”. Those codes are associated with the business stage, team size, and team gender diversity of the startup. Flexibility and autonomy allow work-family balance. Work-role salient mothers acknowledge a huge family sacrifice towards achieving business success. Further research directions are discussed as a way of extending the knowledge among this profile.
    Keywords: Entrepreneurship, New high-technology ventures, Female founders, Motherhood, Decision-making, Role salience
    Date: 2015–10
  6. By: Degryse, Hans; Matthews, Kent (Cardiff Business School); Zhao, Tianshu
    Abstract: We study the sensitivity of banks’ credit supply to small and medium size enterprises (SMEs) in the UK to banks’ financial condition before and during the financial crisis. Employing unique data on the geographical location of all bank branches in the UK, we connect firms’ access to bank credit to the financial condition (i.e., bank health and the use of core deposits) of all bank branches in the vicinity of the firm over the period 2004-2011. Before the crisis, banks’ local financial conditions did not influence credit availability irrespective of the functional distance (i.e., the distance between bank branch and bank headquarters). However, during the crisis, we find that SMEs with in their vicinity banks that have stronger financial condition face greater credit availability when the functional distance is low. Our results point to a “flight to headquarters” effect during the financial crisis.
    Keywords: financial crisis; credit supply; flight to headquarters; flight to quality; bank organization
    JEL: G21 G29 L14
    Date: 2015–08
  7. By: Aga,Gemechu A.; Francis,David C.; Rodriguez Meza,Jorge Luis
    Abstract: The subject of which firms are the key employers?and which of these create or destroy jobs at a faster rate?is eminently important for academics and policy makers. The relative importance of small versus large firms and old versus young firms has in particular been extensively debated and studied. Nevertheless, the results often hinge on the questions that are asked. Moreover, the categorical definitions used to define firm size and age, and the nature and coverage of the data used have important effects. This paper lays out the relevant definitions and metrics that are central to the debate, reviewing the main findings to date on the subject (with particular emphasis on results in developing economies). The paper adds updated results for 117 developing economies using the World Bank?s Enterprise Survey Data, finding that (i) small and medium enterprises and older establishments are the dominant employers in the nonagricultural private sector labor force in developing economies, and (ii) net job creation is negatively correlated with establishment age and, although the effect of size is also negative, its significance is sensitive to the definition and methods used.
    Keywords: Labor Markets,Labor Management and Relations,Small Scale Enterprises,Microfinance,Labor Policies
    Date: 2015–11–13
  8. By: Julia Passabom Araujo; Mauro Rodrigues
    Abstract: This paper extends Evans and Jovanovic (1989)’s entrepreneurship model to incorporate the informal sector. Specifically, entrepreneurs can operate either in the formal sector – in which they have limited access to credit markets, but have to pay taxes – or in the informal sector – in which they can avoid paying taxes, but have no access to credit markets. In addition, technology in the informal sector is both less productive and more labor intensive than that in the formal sector. We calibrate the model to the Brazilian economy, and evaluate the impact of credit frictions and taxation on occupational choices, aggregate output and inequality. Removing all distortions can improve aggregate efficiency considerably, largely because this induces entrepreneurs to switch to the formal sector, where technology is superior. Most of this effect comes from removing credit market frictions, but taxes on formal businesses are also important. The elimination of distortions can also reduce inequality, but this comes from credit constraints and labor income taxation. Reducing taxes on formal businesses actually increases inequality in the model.
    Keywords: Informal sector; credit frictions; taxation; entrepreneurship
    JEL: E26 L26 O17
    Date: 2015–11–10
  9. By: Lucia Foster; Patrice Norman
    Abstract: The Census Bureau continually seeks to improve its measures of the U.S. economy as part of its mission. In some cases this means expanding or updating the content of its existing surveys, expanding the use of administrative data, and/or exploring the use of privately collected data. When these options cannot provide the needed data, the Census Bureau may consider fielding a new survey to fill the gap. This paper describes one such new survey, the Annual Survey of Entrepreneurs (ASE). Innovations in content, format, and process are designed to provide high-quality, timely, frequent information on the activities of one of the important drivers of economic growth: entrepreneurship. The ASE is collected through a partnership of the Census Bureau with the Kauffman Foundation and the Minority Business Development Agency. The first wave of the ASE collection started in fall of 2015 (for reference period 2014). Results from the 2014 ASE are tentatively planned for release in summer 2016. Qualified researchers on approved projects will be able to access micro data from the ASE through the Federal Statistical Research Data Center (FSRDC) network starting in early 2016.
    Date: 2015–11
  10. By: Kurosaki, Takashi; Lal, Kaushalesh; Mangal, A. K.; Banerji, Asit; Mishra, S. N.
    Abstract: To deepen our understanding of the urban informal sector and small enterprises in developing countries, we conducted a baseline study of micro and small entrepreneurs in northeastern areas of Delhi, India. The questionnaire-based survey was implemented during November-December 2014, in which 506 entrepreneurs were surveyed who ran enterprises in the manufacturing or service sector. The sample was drawn from a business directory and all fell in the category of micro or small enterprises as defined in the Micro, Small and Medium Enterprises Development Act of 2006. In this paper, we present details of the baseline survey implemented under this project and describe the key variables collected. Out of 506 sample entrepreneurs, 97% were owned by single individuals, and 46% were unregistered with the government. In addition to the standard list of questions, some questions on trust were also included in the General Social Survey style. The trust level towards relatives and friends, neighbors, and business buyers/sellers was found to be significantly higher than the trust level toward government officials, the police, and law officers.
    JEL: O17 O14 L26
    Date: 2015–10
  11. By: Vincent Van Roy (European Commission, Joint Research Centre, Ispra, Varese, Italy); Daniel Vertesy (European Commission, Joint Research Centre, Ispra, Varese, Italy); Marco Vivarelli (DISCE, Università Cattolica - SPRU, University of Sussex - Institute for the Study of Labour (IZA), Bonn)
    Abstract: This paper explores the possible job creation effect of innovation activity. We analyze a unique panel dataset covering almost 20,000 patenting firms from Europe over the period 2003-2012. The main outcome from the proposed GMM-SYS estimations is the labour-friendly nature of innovation, which we measure in terms of forward-citation weighted patents. However, this positive impact of innovation is statistically significant only for firms in the high-tech manufacturing sectors, while not significant in low-tech manufacturing and services.
    Keywords: Technological change, innovation, patents, employment, GMM-SYS
    JEL: O31 O33
    Date: 2015–10
  12. By: Kuwahara, Satoshi (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Sagara, Megumi (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: Small and medium-sized enterprises (SMEs) play a significant role in Asian economies as they contribute to high shares of employment and output. However, SMEs generally have limited access to finance compared to large enterprises. Given the bank-dominated financial systems in Asia, banks are the main source of financing for SMEs. For financial institutions, it is crucial to distinguish sound SMEs from non-healthy ones in order to avoid the accumulation of non-performing loans. Information asymmetry in this sector can be reduced by using accumulated data on SMEs and by employing credit analysis techniques, allowing lending institutions to recognize healthy SMEs. It is crucial for governments to collect SME data and prepare rich databases, such as the Credit Risk Database (CRD) of Japan. This will also help governments to formulate economic policies. In this paper we define and describe in detail the role and characteristics of Japan’s CRD in SME development and explain how it can be an example for other Asian economies to establish similar soft infrastructure that can make important contributions to SME development and boost economic growth.
    Keywords: SME finance; Credit Risk Database; risk models
    JEL: G21 G24 G32
    Date: 2015–11–18
  13. By: Löher, Jonas; Schell, Sabrina; Schneck, Stefan; Werner, Arndt; Moog, Petra
    Abstract: Innovativen Wachstumsunternehmen steht mit dem Crowdinvesting in Deutschland seit 2011 eine neuartige Finanzierungsmethode zur Verfügung. Hierbei versuchen die meist jungen Unternehmen durch einen gezielten öffentlichen Aufruf eine breite Masse privater Investoren anzusprechen. Basierend auf einer umfangreichen Datenbank sowie einer Unternehmensbefragung zeigen wir erste Entwicklungslinien eines im Wachstum begriffenen Marktes auf. Dabei wird deutlich, dass Unternehmer sich im Vorfeld bewusst für das Crowdinvesting entscheiden, obwohl ihnen Alternativen zur Verfügung stehen. Allgemein harmoniert die Finanzierungsform dabei mit etablierten Arten der Frühphasenfinanzierung. Zudem ist festzustellen, dass die Bestandsfestigkeit der Unternehmen zwar oberhalb des Bundesdurchschnitts liegt, die zum Finanzierungszeitpunkt getroffenen Prognosen jedoch verfehlt werden.
    Abstract: Equity-crowdinvesting was launched in Germany in the year 2011. This funding source enables young and emerging businesses to gather financial means by addressing numerous private investors via an open-call. Our examination of 163 funding rounds reveals that the German crowdinvesting market sharply increased in the first years. Most entrepreneurs rely on crowdinvesting despite alternative funding sources, which suggests that the decision for crowdinvesting is voluntary. Often crowdfunded ventures have professional investors prior to their funding campaign, which suggests that crowdinvesting matches with established financial sources. In the short-run, the proportion of businesses that fail is comparatively small. Firms mostly fail to stick to the financial objectives, which are published at the time of the crowdinvesting campaign.
    Keywords: Crowdfunding,Crowdinvesting,Unternehmensfinanzierung,Gründungen,Gründungsfinanzierung,equity-based crowdfunding,corporate finance,entrepreneurship
    JEL: G20 G23 L26 M13
    Date: 2015

This nep-ent issue is ©2015 by Marcus Dejardin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.