nep-ent New Economics Papers
on Entrepreneurship
Issue of 2017‒01‒29
eight papers chosen by
Marcus Dejardin
Université de Namur

  1. Employment protection and entrepreneurship : Unpacking the effects of employment protection legislation on the allocation of entrepreneurial activity in society By W.J. Liebregts; F.C. Stam
  2. Self-Employment Differentials among Foreign-Born STEM and Non-STEM Workers By Zhengyu Cai; John V. Winters
  3. Country level efficiency and national systems of entrepreneurship: a data envelopment analysis approach By Esteban Lafuente; László Szerb; Zoltan J. Acs
  5. Beyond technical skills training: the impact of credit counselling on entrepreneurial behavior of ugandan youth By Juliet Ssekandi; Zeridah Zigiti; Daniel Joloba; Benjamin Kachero; Samuel Galiwango
  6. Design, innovation and firm performance in European firms By Sandro Montresor; Antonio Vezzani
  7. Determinants of small business survival: The impacts of capital intensity and the collateral value of fixed assets By Guimarães Barbosa, Evaldo
  8. SME funding without banks? On the interplay of banks and markets By Franke, Günter; Krahnen, Jan Pieter

  1. By: W.J. Liebregts; F.C. Stam
    Abstract: Labor market institutions enable and constrain particular behaviors on the labor market and beyond. We take a closer look on employment protection legislation (EPL), and its unintended effects on entrepreneurial activity. We unpack the effects of EPL by disentangling the two mechanisms of the severance pay and notice period, and analyze the effects of these mechanisms on the allocation of entrepreneurial activity across employment and self-employment. This study uses multilevel analyses to examine the separate effect of the two main elements of EPL on an individual’s occupational status. In general, the severance pay is found to be negatively related to entrepreneurial employees, whereas the notice period shows a positive relationship. The opposite is true for the effects on self-employed individuals.
    Keywords: labor market institutions, employment protection legislation, severance pay, notice period, entrepreneurial employee activity, self-employment
    Date: 2016–09–28
  2. By: Zhengyu Cai (Southwestern University of Finance and Economics); John V. Winters (Oklahoma State University)
    Abstract: This paper uses the American Community Survey to examine the previously overlooked fact that foreign STEM (science, technology, engineering, and mathematics) graduates have much lower self-employment rates than their non-STEM counterparts, with an unconditional difference of 3.3 percentage points. We find empirical support for differing earnings opportunities as a partial explanation for this self-employment gap. High wages in STEM paid-employment combined with reduced earnings in self-employment make self-employment less desirable for STEM graduates. High self-employment rates among other foreign-born workers partially reflect weak paid-employment opportunities. Public policy should encourage efficient use of worker skills rather than low-value business venture creation.
    Keywords: self-employment, immigration, foreign-born, college major, STEM, earnings
    JEL: F22 J15 J31 L26
    Date: 2017–01
  3. By: Esteban Lafuente; László Szerb; Zoltan J. Acs
    Abstract: This paper tests the efficiency hypothesis of the knowledge spillover theory of entrepreneurship. Using a comprehensive database for 63 countries for 2012, we employ data envelopment analysis to directly test how countries capitalize on their available entrepreneurial resources. Results support the efficiency hypothesis of knowledge spillover entrepreneurship. We find that innovation-driven economies make a more efficient use of their resources, and that the accumulation of market potential by existing incumbent businesses explains country-level inefficiency. Regardless of the stage of development, knowledge formation is a response to market opportunities and a healthy national system of entrepreneurship is associated with knowledge spillovers that are a prerequisite for higher levels of efficiency. Public policies promoting economic growth should consider national systems of entrepreneurship as a critical priority, so that entrepreneurs can effectively allocate resources in the economy.
    Keywords: Knowledge spillover theory; GEDI; GEM; Efficiency; Data envelopment analysis; Clusters
    JEL: C4 L20 M13 O10
    Date: 2016–12
  4. By: Mausumi Das (Department of Economics, Delhi School of Economics, University of Delhi, India); Naveen J. Thomas (Department of Economics, Delhi School of Economics, University of Delhi, India)
    Abstract: Developing countries often face a difficult task of balancing rapid economic growth with equitable growth. The inequalities that arise during the course of rapid economic growth are a cause of serious concern as they are not temporary but are structural in nature. Our study directs attention to the role of Small and Medium Enterprises (SMEs) in overcoming these structural rigidities and ushering-in structural transformation in an economy. To explore the issue of structural transformation, and alleviation of poverty and structural inequalities, we posit a dual-economy framework, where a less productive traditional sector coexists with a highly productive and skill-intensive modern sector. Indivisibility of investments for skill formation combined with credit market imperfections leads to a poverty trap in the economy (Galor and Zeira, 1993). In this context, the appeal of SMEs lies in their role in providing alternative employment opportunities to low skill workers and facilitating transition of workers out of the traditional sector even when credit constraints are binding. However, the history of an economy, in terms of the initial distribution of education of its workforce, has a major role in determining the persistence of structural poverty and inequalities. We show that removal of educational inequalities is a prerequisite for overcoming other forms of inequality in the economy. Further, SMEs while acting as a bridge also raise the overall income in the skill-intensive modern sector. However, such process of structural transformation gets throttled if the initial size of the highly educated agents is too small. Thus this study underscores the need for a holistic approach in terms of development policies which focus not just on the SMEs as a vehicle of structural transformation but also emphasizes the importance of promoting higher education for the process of structural transformation.
    Keywords: SME, Structural Transformation, Intergenerational Growth, Entrepreneurship, Education, Intermediate Inputs, Neighbourhood E ects, History Dependence.
    Date: 2016–05
  5. By: Juliet Ssekandi; Zeridah Zigiti; Daniel Joloba; Benjamin Kachero; Samuel Galiwango
    Abstract: There is a low financial credit take among youth in Uganda because potential beneficiaries perceive the associated risk as high. This study assesses the determinants of entrepreneurial risk tolerance among Ugandan youth using experimental data from a randomised control trial and a real-life investment risk experiment. The intervention consists of credit-counselling and sector-specific business training for young men and women aged 18-35 years who own a business to inform them about the obligations and commitments associated with financial credit. The intervention has a significant impact on the demand for credit and related intermediate outcomes such as the ownership of a bank account and the investment in assets. The study finds that the youth actually exhibit lower demand for credit after the business training. This is attributed to an increased awareness of the actual risk associated with taking out credit. The findings of this research reinforce national strategies to promote soft skills for business entrepreneurship, extending beyond the standard business training.
    Keywords: Credit counseling, Youth Venture Capital Fund, Risk Experiment, Uganda, Youth Employment, Randomised experiment, Risk Tolerance
    JEL: O16 M13
    Date: 2016
  6. By: Sandro Montresor (Kore University of Enna, IT); Antonio Vezzani (JRC)
    Abstract: This paper provides some new theoretical speculations and empirical evidence on the relationship between design, innovation and economic performance at the firm level. We posit that design investments may provide firms with a higher capacity of introducing product/process innovations, but that the ensuing economic performance is rather associated to the role of design within the firm. Moreover, once controlled for the firm’s non-technological innovativeness and other knowledge-production inputs, the role of design does also relate to the introduction of innovative products and/or processes. We provide a systematic empirical test for these arguments on a sample of more than 12,000 European firms from the last EC Innobarometer survey. The econometric estimates are consistent with our expectations. However, while a higher innovativeness is also associated with a non-systematic resort to design, a higher innovation-based performance is coupled with an increasingly more central role of design, providing this is at least non-occasional. Innovations do actually look “design-led” overall, but innovating successfully apparently requires the firm to retain such a driver central to its business model.
    Keywords: Design, Innovation, Firm performance
    JEL: O31 O32 O33
    Date: 2017–01
  7. By: Guimarães Barbosa, Evaldo
    Abstract: The major claim of this article is twofold, that is, that fixed assets in small manufacturing enterprises in developing countries have to be seen with respect to two roles. The first is capital intensity. The second is the collateral value of these assets. The former is associated with the small manufacturing firms’ hazard of exit in a U-shaped fashion. The latter takes up a wave-shaped relationship. Failure in the extant empirical literature to fit a binomial specification for capital intensity results in either a negative or a positive relationship, or even, lack of statistical significance. All these three outcomes are the results of a misguided attempt to fit an “artificial” monotonic specification to an actual U-shaped relationship. The trinomial specification for the collateral value of the small manufacturing enterprises’ fixed assets has never been attempted. Thus, the present article proposes a new framework for the study of the impact of the small manufacturing enterprises’ fixed assets investment strategy upon their hazard of exit.
    Keywords: Small firms; Business survival determinants; Capital intensity; collateral value of fixed assets; Cox regression
    JEL: M21
    Date: 2017–01–26
  8. By: Franke, Günter; Krahnen, Jan Pieter
    Abstract: The Capital Markets Union-project of the European Commission aims for an increase of market-based debt financing of small and medium-sized enterprises (SMEs), complementing bank lending. In this essay we argue that rather than focussing on pure non-bank lending, a reasonable mix of bank- and market-based financing should be considered. Banks are said to have a comparative advantage in critical lending functions such as credit screening, debtor monitoring and debt renegotiation. All forms of lending require a persistent skin-in-the-game of critical players in order to be effective. The regulator should insist on full disclosure of skin-in-the-game, thereby improving capital allocation and reducing systemic risks.
    Keywords: SME,funding,capital markets,lending instruments,banks
    Date: 2016

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