nep-ent New Economics Papers
on Entrepreneurship
Issue of 2016‒09‒25
eleven papers chosen by
Marcus Dejardin
Université de Namur

  1. Cognitive Biases and Entrepreneurial Under-Diversification By E. M. Cervellati; P. Pattitoni; M. Savioli
  2. The Ins and Outs of Self-Employment: An Estimate of Business Cycle and Trend Effects By Schweitzer, Mark E.; Shane, Scott
  3. Financial constraints and public funding for eco-innovation: Empirical evidence on European SMEs By Grazia Cecere; Nicoletta Corrocher; Maria Luisa Mancusi
  4. Small Business Lending: Challenges and Opportunities for Community Banks By Jagtiani, Julapa; Lemieux, Catharine
  5. Barriers to Innovation in Indian Small and Medium-Sized Enterprises By Pachouri, Anshul; Sharma, Sankalp
  6. Optimal Credit Guarantee Ratio for Asia By Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad
  7. Chinese And African Migrant Entrepreneur’s Articulation Shaped By African Agency By Kohnert, Dirk
  8. Islamic finance for SMES By Elasrag, Hussein
  9. Zipf's Law, Pareto's Law, and the Evolution of Top Incomes in the U.S. By Aoki, Shuhei; Nirei, Makoto
  10. Der Stellenwert nicht-technologischer Neuerungen im Innovationsgeschehen der mittelständischen Wirtschaft By Maaß, Frank; May-Strobl, Eva
  11. Einmal Unternehmer, immer Unternehmer? Selbstständigkeit im Erwerbsverlauf By Suprinovič, Olga; Schneck, Stefan; Kay, Rosemarie

  1. By: E. M. Cervellati; P. Pattitoni; M. Savioli
    Abstract: Cognitive biases lead entrepreneurs to overinvest in their own companies, over exposing themselves to idiosyncratic risk. Our novel theoretical model explains entrepreneurial under-diversification by measuring the amount of potential bias in entrepreneurs’ portfolio allocations brought about by overconfidence and over optimism. Simulation analyses based on our model allow us calculating the implicit levels of overconfidence and over optimism from observable portfolio choices. Finally, using a unique dataset including cross-regional data on Italian entrepreneurs and a structural equation modeling approach, we test the effect of overconfidence and over optimism on entrepreneurs’ portfolio allocations. Consistent with our theoretical predictions, we find a positive relationship between overconfidence and entrepreneur investments in their own companies. On the other hand, the role of over optimism seems to be negligible.
    JEL: G02 G11 L26
    Date: 2016–09
  2. By: Schweitzer, Mark E. (Federal Reserve Bank of Cleveland); Shane, Scott (Case Western Reserve University)
    Abstract: We examine quarterly microlevel data on labor market transitions taken from the Current Population Survey from 1990 to 2014 to estimate how the business cycle affects transitions into and out of self-employment from other labor market states. We control for individual demographics and occupational influences in our analysis to better pinpoint the effect of demand growth on these transitions. We find that changes in demand conditions substantially influence the marginal rate of transition into and out of self-employment from other labor market states, after taking into account demographic and industrial differences. A contraction in demand has a large effect on self-employment because it alters the balance between self-employment entry and exit. Falling demand leads to an increase in exit from entrepreneurship, but has countervailing effects on entry. While a decrease in demand leads to a decrease in the opportunity cost of entry into entrepreneurship by increasing the rate of unemployment, the entry into entrepreneurship is higher from employment than from unemployment or from out of the labor market. Finally, we find that the effect of changes in demand on self-employment differ for incorporated and unincorporated self-employment.
    Keywords: Self Employment; Labor Market; Business Cycle
    Date: 2016–09–14
  3. By: Grazia Cecere; Nicoletta Corrocher; Maria Luisa Mancusi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: Financial constraints have an important impact on the development of eco-innovations, but their effect varies according to the type of funds taken into account. This article studies the impact of the lack of funds on the development of eco-innovations, distinguishing between internal, external and public funds. In particular, we investigate the interaction between public funding, on the one hand, and internal and other external sources of funding. The empirical analysis is based upon a sample of European SMEs belonging to different sectors that are involved in products, processes and organizational eco-innovations. Our results show that a lack of internal funding always decreases the probability to introduce eco-innovations, while the lack of private external funds does not appear to hinder the development of eco-innovations. Interestingly, we find that access to public funds or incentives is effective in improving a firm’s ability to introduce eco-innovations, but only when the firm is not short of funds (either from internal or external sources), thus suggesting that public funds are somewhat complementary to other funds. Further analysis shows that these effects are mostly relevant in small firms.
    Keywords: eco-innovations, public funding, financial constraints, SMEs.
    JEL: O31 Q55 G38
    Date: 2016–07
  4. By: Jagtiani, Julapa (Federal Reserve Bank of Philadelphia); Lemieux, Catharine (Federal Reserve Bank of Chicago)
    Abstract: The recent decline in small business lending (SBL) among U.S. community banks has spurred a growing debate about the future role of small banks in providing credit to U.S. small businesses. This paper adds to that discussion in three key ways. First, our research builds on existing evidence that suggests that the decline in SBL by community banks is a trend that began at least a decade before the financial crisis. Larger banks and nonbank institutions have been playing an increasing role in SBL. Second, our work shows that in the years preceding the crisis, small businesses increasingly turned to mortgage credit--most notably, commercial mortgage credit--to fund their operations, exposing them to the property crisis that underpinned the Great Recession. Finally, our work illustrates how community banks face an increasingly dynamic competitive landscape, including the entrance of deep-pocketed alternative nonbank lenders that are using technology to find borrowers and underwrite loans, often using unconventional lending practices. Although these lenders may pose a competitive threat to community banks, we explore emerging examples of partnerships and alliances among community banks and nonbank lenders.
    JEL: G21 G23
    Date: 2016–03
  5. By: Pachouri, Anshul (Asian Development Bank Institute); Sharma, Sankalp (Asian Development Bank Institute)
    Abstract: Innovation plays a critical role in shaping the industrial and firm competitiveness of any nation. Innovation is often discussed in the setting of developed countries, but the rise of emerging economies such as India has generated a new interest in understanding innovation in developing economies. This paper aims to study and present the current state of innovation in small and medium-sized enterprises (SMEs) in India. The focus of the paper is to bring out the key barriers SMEs face in the innovation process in the context of the existing government policy. India, being a developing nation, has its own set of unique situations and challenges that impede the innovation potential of SMEs operating in it. Many of these barriers are related to public policy, funding constraints, shortage of skilled research and development (R&D) workforce, and weak linkages between institutions and the firms, among others.
    Keywords: SME innovation; innovation policy framework; public policy barriers; innovation potential
    JEL: G20 G28 O38
    Date: 2016–09–22
  6. By: Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: Difficulty in accessing finance is one of the critical factors constraining the development of small and medium-sized enterprises (SMEs) in Asia. Owing to their significance to national economies, it is important to find ways to provide SMEs with stable finance. One efficient way to promote SME financing is through credit guarantee schemes, where the government guarantees a portion (ratio) of a loan provided by a bank to an SME. This research provides a theoretical model and an empirical analysis of factors that determine optimal credit guarantee ratio. The ratio should be able to fulfill the government’s goal of minimizing the bank’s nonperforming loans to SMEs, and at the same time fulfill the government policies for supporting SMEs. Our results show that three categories of factors can determine the optimal credit guarantee ratio: (i) government policy, (ii) macroeconomic conditions, and (iii) banking behavior. It is crucial for governments to set the optimal credit guarantee ratio based on macroeconomic conditions and vary it for each bank or each group of banks based on their soundness, in order to avoid moral hazard and ensure the stability of lending to SMEs.
    Keywords: small and medium-sized enterprises; SME financing; credit guarantee scheme; government guarantee; nonperforming loan; NPLs; macroeconomics; financial soundness; moral hazard; loans
    JEL: G21 H81
    Date: 2016–09–20
  7. By: Kohnert, Dirk
    Abstract: Much has been written on the relationship of China and Africa in the past decade. However, the subject of Chinese migrant entrepreneurs in Africa and their articulation with African counterparts was little explored up to the early 2010s. Apparently, this research gap has been closed, as shown by four publications in recent years: three edited volumes and one monography, focusing on this subject. In view of early prejudices on the passive or even disapproving reception of Chinese migrants by Africans, the state of the art underlines the importance and scope of African agency vis à vis Chinese migrant entrepreneurs in Africa. Book Review Article of: (1) Giese, Karsten, Marfaing, Laurence (eds) (2016) : Entrepreneurs Africains et Chinois. Les impacts sociaux d'une rencontre particulière. Paris : Karthala, 2016. 384 pp. (2) Gadzala, Aleksandra W. (ed) (2015): Africa and China: how Africans and their governments are shaping relations with China. Lanham/Md.: Rowman & Littlefield, xxix + 266 pp. (3) Mohan, Giles, Lampert, Ben et al (eds) (2014): Chinese Migrants and Africa's Development : new imperialists or agents of change? London: Zed books, vi + 185 pp. (4) French, Howard W. (2015): China's Second Continent: how a million migrants are building a new empire in Africa. London: Penguin Random House / New York: Knopf, xi + 304 pp.
    Keywords: African Affairs;migrant entrepreneurs;Chinese Studies;entrepreneurial economics;Sub-Saharan Africa;Ghana;Senegal;Nigeria;Mozambique;Namibia
    JEL: F1 F10 F14 F22 F6 F60 O15 O17 O35 O55 Y3 Z1
    Date: 2016–09–16
  8. By: Elasrag, Hussein
    Abstract: Small and Medium Enterprises (SMEs) make up the bulk of the economic tissue of the economy. In developing countries, they represent the majority of employment, including female employment. Investing in SMEs is a long-term and smart strategy, with sustainable returns that multiply across regions, countries and societies. SMEs constitute the overwhelming majority of firms. Globally, SMEs make up over 95% of all firms, account for approximately 50% of GDP and 60%–70% of total employment, when both formal and informal SMEs are taken into account. This amounts to between 420 million and 510 million SMEs, 310 million of which are in emerging markets. Promoting access to finance for SMEs has been on the global reform agenda since the global financial crisis.The purpose of this paper is to investigate the opportunities of development and growth as well as the main challenges to Islamic finance for SMEs. This paper will help to deepen understanding of the concepts of Islamic finance as well as SMEs. In addition to evaluate how Islamic financial institutions can support SMEs.
    Keywords: Small and Medium Enterprises ,Islamic finance,Islamic financial institutions
    JEL: G2 G21
    Date: 2016–09–22
  9. By: Aoki, Shuhei; Nirei, Makoto
    Abstract: We construct a tractable neoclassical growth model that generates Pareto's law of income distribution and Zipf's law of the firm size distribution from idiosyncratic, firm-level productivity shocks. Executives and entrepreneurs invest in risk-free assets as well as their own firms' risky stocks, through which their wealth and income depend on firm-level shocks. By using the model, we evaluate how changes in tax rates can account for the evolution of top incomes in the U.S. The model matches the decline in the Pareto exponent of the income distribution and the trend of the top 1% income share in recent decades.
    Keywords: income distribution; wealth distribution; Pareto exponent; top income share; firm size distribution; Zipf's law
    JEL: D31 L11 O40
    Date: 2016–09–15
  10. By: Maaß, Frank; May-Strobl, Eva
    Abstract: Der Mittelstand gilt als innovativ und anpassungsfähig, jedoch wird eine zunehmende Innovationslücke konstatiert. Für diese Studie wurde die Innovationsbeteiligung des Mittelstands/ der KMU unter besonderer Berücksichtigung der nicht-technologischen Neuerungen auf Ba-sis der Community Innovation Surveys analysiert. Dabei wurde deutlich, dass nicht-technologische Innovationen weiter verbreitet sind als technologische Innovationen. Folglich gibt die Einschränkung auf technologische Innovationen ein unvollständiges Bild vom Innovations-geschehen im Mittelstand. Nicht-technologische Innovationen dienen der Vorbereitung tech-nologischer Innovationen, vor allem aber begleiten sie diese. Sie zielen insbesondere auf eine Steigerung der Unternehmenseffizienz. Allerdings belegt diese Studie auch, dass nicht-technologische Innovationen abhängig von der Unternehmensgröße, der Branche und auch der Gruppenzugehörigkeit sind: So sind eigenständige KMU seltener innovativ als solche die zu einer Unternehmensgruppe gehören. Dagegen unterscheiden sich große mittelständische Unternehmen in dieser Hinsicht nicht von anderen Großunternehmen.
    Abstract: Although the German Mittelstand is usually considered as inventive and flexible, a growing innovation gap seems to open up. Based on the CIS-datapool, this study analyses the innovation participation of Mittelstand companies/SMEs with a special focus on non-technological innovations. It becomes clear that non-technological innovation is more widespread than technological innovation. A restriction to technological innovations underestimates the innovation dynamics of Mittelstand companies/SMEs. Non-technological innovations pave the way for technological innovations, above all they often accompany them. They particularly aim at increasing business efficiency. Non-technological innovations depend on enterprise size, industry and also on the affiliation to an enterprise group. Independent SMEs are less innovative than those which are part of a group, whereas large Mittelstand companies do not differ from other large enterprises.
    Keywords: KMU,Mittelstand,nicht-technologische Innovationen,Deutschland,SME,German Mittelstand,non-technological Innovation,Germany
    JEL: L25 O31
    Date: 2016
  11. By: Suprinovič, Olga; Schneck, Stefan; Kay, Rosemarie
    Abstract: Die vorliegende Studie analysiert die Erwerbsverläufe von Selbstständigen unterschiedlicher Geburtskohorten. Unsere Ergebnisse zeigen, dass die meisten Selbstständigen nur eine Selbstständigkeitsphase in ihrem Lebensverlauf aufweisen und ein großer Anteil von ihnen dauerhaft in der Selbstständigkeit verbleibt. Zugleich zeigt sich in jüngerer Vergangenheit eine zunehmende Diskontinuität der Erwerbsverläufe: Die Wechsel zwischen unterschiedlichen Erwerbsformen nehmen zu. Die Selbstständigkeit wird zudem immer häufiger frühzeitig wieder aufgegeben. Auch das Gründungsgeschehen wird zunehmend vielfältiger. So gewinnen in jüngerer Vergangenheit hybride Formen der Selbstständigkeit an Bedeutung, bei denen die Selbstständigkeit parallel zu einem anderen Erwerbsstatus aufgenommen wird. Die hybride Gründung gleicht jedoch nur bedingt einem Sprungbrett in eine ausschließliche Selbstständigkeit.
    Abstract: The present study analyses the employment biographies of self-employed of different birth cohorts. The results show that most self-employed have only one self-employment episode in their life and a great percentage of them remains permanently self-employed. At the same time, an increasing discontinuity of employment biographies can be detected in the recent past. Switches between different employment forms become more frequent. In addition, self-employment is given up early more often. Furthermore, start-up activities become more diverse. For instance, hybrid types of self-employment (which are exercised simultaneously with another employment status) have recently gained in importance. Nevertheless, hybrid self-employment only partly serves as a springboard into full-time self-employment.
    Keywords: Selbstständige,Erwerbsbiografie,Sequenzmusteranalyse,self-employment,employment biographies,sequence analysis
    JEL: J62 M13
    Date: 2016

This nep-ent issue is ©2016 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.