nep-ent New Economics Papers
on Entrepreneurship
Issue of 2016‒04‒04
twelve papers chosen by
Marcus Dejardin
Université de Namur

  1. Taking the Leap: The Determinants of Entrepreneurs Hiring their First Employee By Fairlie, Robert; Miranda, Javier
  2. Is European Entrepreneurship in Crisis? By Naudé, Wim
  3. On tax evasion, entrepreneurial generosity and fungible assets By Bittschi, Benjamin; Borgloh, Sarah; Moessinger, Marc-Daniel
  4. Creativity Under Fire: The Effects of Competition on Creative Production By Daniel P. Gross
  5. Collective Efficacy of a Regional Network: Extending the Social Embeddedness Perspective of Entrepreneurship By Muhammad, Nabeel; Léo-Paul, Dana
  6. The Impact of Entrepreneurship on Knowledge Economy in Africa By Asongu, Simplice; Tchamyou, Vanessa
  7. Business Dynamism and Economic Growth: U.S. Regional Evidence By Miguel Casares; Hashmat U. Khan
  8. Economic Crisis and Firm Exit: Do Intangibles Matter? By Landini, Fabio; Arrighetti, Alessandro; Lasagni, Andrea
  9. University Innovation and the Professor's Privilege By Hans K. Hvide; Benjamin F. Jones
  10. Rationing and screening in crowdinvesting-markets By Mäschle, Oliver; Dalvai, Wilfried
  11. Access to finance and job growth : firm-level evidence across developing countries By Ayyagari,Meghana; Juarros,Pedro Francisco; Martinez Peria,Maria Soledad; Singh,Sandeep
  12. Firms that went out of business during the crisis By Sabrina Ferretti; Andrea Filippone; Giacinto Micucci

  1. By: Fairlie, Robert; Miranda, Javier
    Abstract: Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of startups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a non-employer to employer firm among startups. Several interesting patterns emerge regarding the dynamics of non-employer startups hiring their first employee. Hiring rates among the universe of non-employer startups are very low, but increase when the population of non-employers is focused on more growth-oriented businesses such as incorporated and EIN businesses. If non-employer startups hire, the bulk of hiring occurs in the first few years of existence. After this point in time relatively few non-employer startups hire an employee. Focusing on more growth- and employment-oriented startups in the KFS, we find that Asian-owned and Hispanic-owned startups have higher rates of hiring their first employee than white-owned startups. Female-owned startups are roughly 10 percentage points less likely to hire their first employee by the first, second and seventh years after startup. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that non-employers hire their first employee.
    Keywords: Business, Social and Behavioral Sciences, entrepreneurship, job creation, Kauffman Firm Survey, iLBD, startups, entrepreneurship training, small business, GATE experiment
    Date: 2016–03–24
  2. By: Naudé, Wim (Maastricht University)
    Abstract: The European Commission has adopted an Entrepreneurship 2020 Action Plan as its answer to challenges brought by the gravest economic crisis in the last 50 years. Governments of European countries all habour high expectations that entrepreneurship will contribute towards ending the continent's economic malaise. In this article I argue that these expectations may be disappointed because (i) entrepreneurship promotion is a last-resort policy, (ii) entrepreneurs are being overestimated, and (iii) entrepreneurs are too often allowed to capture policy. These reasons are indicative that that in addition to its euro and refugee crises, Europe is suffering from an entrepreneurship crisis. Entrepreneurs are increasingly older and are faring less well in terms of earnings compared to wage earners. Small businesses are not creating sufficient jobs, they are not raising labour productivity, and immigrant-entrepreneurs are not productively assimilated. Big businesses are largely a legacy of the past, and resorting more and more to lobbying. When they innovate it is often to replace labour. Hence, given that Europe faces rising unemployment, growing numbers of unassimilated migrants, and more pensioners - and all in the face of stagnating productivity growth - the conclusion is that entrepreneurs have failed to reduce the dependency burden on those who do work. This puts immense strain on European public finances that are already fragile after the financial crisis. Demographic changes and institutional shortcomings are thus at the core of the entrepreneurship crisis in Europe.
    Keywords: entrepreneurship, Europe, development
    JEL: L53 M13 O52
    Date: 2016–03
  3. By: Bittschi, Benjamin; Borgloh, Sarah; Moessinger, Marc-Daniel
    Abstract: We estimate the effects of income from various sources on charitable giving using administrative German income tax data. We demonstrate that charitable contributions are not uniformly affected by different income types. While business and capital income exhibit a positive effect, the remaining income sources do not influence charity on statistically signifcant levels. This exercise is not new and has been conducted for (at least) three different purposes: 1) Relying on the described results, a public finance researcher would state that business and capital income are more prone to tax evasion than the remaining income sources. 2) An entrepreneurship researcher would conclude that business owners are more generous than employees, and 3) a researcher testing the validity of the life cycle theory (or its behavioral counterpart) would refute the fungibility of income. In contrast, we argue that none of these approaches can answer the intended question if solicitation effects of fundraising or measurement error of the income sources are not taken into account. Applying a fixed effect poisson model, we demonstrate that under certain assumptions the results can have a meaningful interpretation.
    Keywords: tax evasion,entrepreneurial behavior,charitable giving,income fungibility,administrative data,fixed effects poisson model
    JEL: D91 E21 H26 H41 L26
    Date: 2016
  4. By: Daniel P. Gross (Harvard Business School, Strategy Unit)
    Abstract: Though fundamental to innovation and essential to many industries and occupations, the creative act has received limited attention as an economic behavior and has historically proven difficult to study. This paper studies the incentive effects of competition on individuals' creative production. Using a sample of commercial logo design competitions, and a novel, content-based measure of originality, I find that competition has an inverted-U effect on creativity: some competition is necessary to induce agents to produce radically novel, untested ideas over incrementally tweaking their earlier work, but heavy competition drives them to stop investing altogether. The results are consistent with economic theory and reconcile conflicting evidence from an extensive literature on the effects of competition on innovation, with implications for R&D policy, competition policy, and organizations in creative or research industries.
    Keywords: Creativity; Incentives; Tournaments; Competition; Radical vs. incremental innovation
    JEL: D81 D82 D83 L4 M52 M55 O31 O32
    Date: 2016–03
  5. By: Muhammad, Nabeel; Léo-Paul, Dana
    Abstract: Through participatory observation and in-depth interviews with members of the Memon community, in Pakistan, this paper probes into how the collective efforts of a regional network can facilitate entrepreneurship, social enterprises and regional development. The setting is a developing country that is lacking a large-scale entrepreneurial culture. Despite caste differences, Memons throughout the Karachi region meet and share experiences with other Memon members of their network – including Memons from unlike castes. Within this regional network Memons help one another. They give preferential treatment to other Memons of their regional network and sometimes also to co-ethnics from other regional networks. Entrepreneurship is encouraged by a collective effort without suppressing individual goals; this extends the social embeddedness perspective of entrepreneurship allowing for a collective efficacy along a regional network, facilitating entrepreneurship among individuals.
    Keywords: collective efficacy, community, cultural capital, entrepreneurship, Memon, Pakistan, participatory observation, regional development, regional network
    JEL: I25 L26 L31 N0 Q01 R11
    Date: 2015–10
  6. By: Asongu, Simplice; Tchamyou, Vanessa
    Abstract: Purpose - The paper assesses how entrepreneurship affects knowledge economy (KE) in Africa. Design/methodology/approach – Entrepreneurship is measured by indicators of starting, doing and ending business. The four dimensions of the World Bank’s index of KE are employed. Instrumental variable panel fixed effects are applied on a sampled of 53 African countries for the period 1996-2010. Findings –The following are some findings. First, creating an enabling environment for starting business can substantially boost most dimensions of KE. Second, doing business through mechanisms of trade globalisation has positive effects from sectors that are not ICT and High-tech oriented. Third, the time required to end business has negative effects on KE. Practical implications – Our findings confirm the narrative that the technology in African countries at the moment may be more imitative and adaptive for reverse-engineering in ICTs and high-tech products. Given the massive consumption of ICT and high-tech commodities in Africa, the continent has to start thinking of how to participate in the global value chain of producing what it consumes. Originality/value – This paper has a twofold motivation. First, given the ambitions of African countries of moving towards knowledge based economies, the line of inquiry is timely. Second, investigating the nexus may have substantial poverty mitigation and sustainable development implications. These entail inter alia: the development of technology with value-added services; enhancement of existing agricultural practices; promotion of conditions that are essential for competitiveness and adjustment of globalization challenges.
    Keywords: Entrepreneurship; Knowledge Economy; Development; Africa
    JEL: L59 O10 O20 O30 O55
    Date: 2015–02
  7. By: Miguel Casares (Department of Economics, Universidad Pública de Navarra); Hashmat U. Khan (Department of Economics, Carleton University)
    Abstract: We document empirical evidence on the determinants of U.S. regional growth over the last 25 years, with a special attention to the role of entrepreneurial activity or `business dynamism'. The main data source is the Business Dynamics Statistics (BDS) released by the U.S. Census Bureau. The key findings are: i) business entry and exit rates are similarly distributed across states, ii) neither entry nor exit rates have had a significant impact on regional growth, iii) higher business density results in faster regional growth, iv) entry rates have fallen over time and the states with greater business detrending have had weaker economic growth, v) states where entry and exit show substantial comovement (business churning) tend to grow faster, especially after 2007, vi) state-level population growth has no substantial effect on regional growth, and vii) the convergence hypothesis holds across the states of the U.S.
    Keywords: Business dynamism; Entry-exit rates; Economic growth
    JEL: O30 O40 O51
    Date: 2016–03
  8. By: Landini, Fabio (LUISS School of European Political Economy); Arrighetti, Alessandro (University of Parma, Department of Economics); Lasagni, Andrea (University of Parma, Department of Economics)
    Abstract: The crisis in the Euro area has caused several business closures, especially in the EMU periphery. In this paper we use an original firm-level dataset on Italy to study the determinants of firm exit during the crisis, having a particular focus on the role of intangibles. We argue that intangibles strengthen the firm’s resilience capacity, and this in turn improves the firms’ ability to cope with adverse and unexpected shocks. We obtain two main results: first we show that intangibles significantly reduce 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 at 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. Some of the implications of these findings for the EU recovery policies are discussed.
    Keywords: intangibles; firm exit; EU crisis; industry dynamics
    JEL: D22 L21 L25 O32
    Date: 2015–10–16
  9. By: Hans K. Hvide; Benjamin F. Jones
    Abstract: National policies take varied approaches to encouraging university-based innovation. This paper studies a natural experiment: the end of the “professor’s privilege” in Norway, where university researchers previously enjoyed full rights to their innovations. Upon the reform, Norway moved toward the typical U.S. model, where the university holds majority rights. Using comprehensive data on Norwegian workers, firms, and patents, we find a 50% decline in both entrepreneurship and patenting rates by university researchers after the reform. Quality measures for university start-ups and patents also decline. Applications to literatures on university technology transfer, innovation incentives, and taxes and entrepreneurship are considered.
    JEL: L26 O31
    Date: 2016–03
  10. By: Mäschle, Oliver; Dalvai, Wilfried
    Abstract: The allocation of shares on crowd-investing-platforms is best described by the phrase "first come, first served". An entrepreneur who sells corporate equity to a "crowd" of investors on such a platform chooses a fixed investment target before the investment period begins. Once the aggregate investments equal the investment target the financing period ends immediately. We demonstrate that this preferential treatment of early investors is not optimal because it potentially excludes informational disadvantaged investors and entrepreneurs from the market. We recommend a market design that allows for some excessive demand. Such a design would increase the willingness of informational disadvantaged investors and entrepreneurs to participate in the market. At the same time, it would minimize a platforms screening costs and maximize its profits.
    Keywords: crowd-investing,initial public offering,excessive demand,market microstructure,asymmetric information
    JEL: D40 D45 G21 G32 L10
    Date: 2016
  11. By: Ayyagari,Meghana; Juarros,Pedro Francisco; Martinez Peria,Maria Soledad; Singh,Sandeep
    Abstract: This paper investigates the effect of access to finance on job growth in 50,000 firms across 70 developing countries. Using the introduction of credit bureaus as an exogenous shock to the supply of credit, the paper finds that increased access to finance results in higher employment growth, especially among micro, small, and medium enterprises. The results are robust to using firm fixed effects, industry measures of external finance dependence, and propensity score matching in a complementary panel data set of more than four million firms in 29 developing countries. The findings have implications for policy interventions targeted to produce job growth in micro, small, and medium enterprises.
    Keywords: Banks&Banking Reform,Access to Finance,Labor Policies,Microfinance,Labor Markets
    Date: 2016–03–16
  12. By: Sabrina Ferretti (Bank of Italy); Andrea Filippone (Bank of Italy); Giacinto Micucci (Bank of Italy)
    Abstract: This paper analyzes the Italian companies that filed for bankruptcy or underwent voluntary liquidation between 2008 and 2012 and identifies the main characteristics of this phenomenon. The econometric analysis based on firms’ balance sheet data suggests that the probability of going out of business was greater for smaller and younger companies. Other characteristics being equal, such as size, sector and geographical location, the likelihood of a firm initiating bankruptcy proceedings was more strongly correlated with imbalances in its financial structure such as a high leverage ratio, while a firm’s likelihood of opting for voluntary liquidation was influenced to a greater extent by low profitability.
    Keywords: bankruptcies, liquidations, financial structure
    JEL: G33 L25 K20
    Date: 2016–03

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