nep-ent New Economics Papers
on Entrepreneurship
Issue of 2017‒02‒26
nineteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Persistence of Regional Entrepreneurship: Causes, Effects, and Directions for Future Research By Michael Fritsch; Michael Wyrwich
  2. Self-Employment Dynamics and the Returns to Entrepreneurship By Eleanor W. Dillon; Christopher T. Stanton
  3. Growth and survival of the `fitter'? Evidence from US new-born firms By Giovanni Dosi; Emanuele Pugliese; Pietro Santoleri
  4. Endogenous Appropriability By Joshua S. Gans; Scott Stern
  5. Employment Effects of Innovations over the Business Cycle: Firm-Level Evidence from European Countries By Bernhard Dachs; Martin Hud; Christian Koehler; Bettina Peters
  6. Being your own boss: the many faces of self-employment By Pamela Lenton
  7. Bankruptcy Spillovers By Shai Bernstein; Emanuele Colonnelli; Xavier Giroud; Benjamin Iverson
  8. University Students and Entrepreneurship. Some insights from a population-based survey By Ferrante, Francesco; Federici, Daniela; Parisi, Valentino
  9. Transformation Capacity of the Innovative Entrepreneur: On the interplay between social structure and agency By Grillitsch, Markus
  10. Institutional Change and Network Evolution:ÊExplorative and Exploitative Tie Formations of Co-Inventors During the Dot-com Bubble in the Research Triangle Region Abstract: We investigate how institutions impact tie formation. In doing so, we describe Venture Capital as institution that can direct firm strategies towards exploration or exploitation. These strategies are translated into tie formations: explorative tie formation produces structural holes as a source of Ògood ideasÓ, exploitative tie formation closes structural holes to facilitate the mobilization of resources to put ideas into products. Using the example of co-inventors in ICT in the Research Triangle Park during the dot-com bubble, we expected explorative tie formation during the bubble and exploitative tie formations after its burst. Stochastic Actor Oriented Models did not clearly support our assumptions. We found that the emergence of venture capital lead to a large variance in connection patterns during the bubble, probably resulting from overlapping institutional effects. After the burst of the bubble, these incoherencies disappeared. Length: By Max-Peter Menzel, Maryann P. Feldman, Tom Broekel; Maryann P. Feldman; Tom Broekel
  11. Feminization of entrepreneurship in developing countries By Molina, Jose Alberto; Ortega, Raquel; Velilla, Jorge
  12. Race and nascent entrepreneurship: The role of skills, access to financing, and entrepreneurship training By Marios Michaelides
  13. Financing approaches for tourism SMEs and entrepreneurs By OECD
  14. Older entrepreneurs-by-necessity using fuzzy set methods: differences between developed and developing countries By Molina, Jose Alberto; Ortega, Raquel; Velilla, Jorge
  15. Innovation persistence and employment dynamics By Stefano Bianchini; Gabriele Pellegrino
  16. Support for the SME Supporting Factor - Multi-country empirical evidence on systematic risk factor for SME loans By M. Dietsch; K. Düllmann; H. Fraisse; P. Koziol; C. Ott
  17. Firm Growth Dynamics and Financial Constraints: Evidence from Serbian Firms By Milos Markovic; Michael A. Stemmer
  18. The Impact of Organization Costs when Firm-selection Matters By Lingens, Jörg; De Pinto, Marco; Bauer, Christian
  19. The Statistical Measurement of Business Conditions for Small Entrepreneurs By Inna S. Lola

  1. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Michael Wyrwich (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: This paper reviews the empirical evidence of persistent levels of regional self-employment and new business formation and the effect this persistence has on development. It is argued that a regional culture of entrepreneurship plays an important role in explaining persistence of entrepreneurship. We discuss possible explanations for the emergence of a culture of entrepreneurship, and how it becomes self-perpetuating over time. Finally, we draw policy implications and identify some promising avenues for further research.
    Keywords: Entrepreneurship, economic development, entrepreneurship culture, institutions
    JEL: L26 R11 O11
    Date: 2017–02–23
  2. By: Eleanor W. Dillon; Christopher T. Stanton
    Abstract: Small business owners and others in self-employment have the option to transition to paid work. If there is initial uncertainty about entrepreneurial earnings, this option increases the expected lifetime value of self-employment relative to pay in a single year. This paper first documents that moves between paid work and self-employment are common and consistent with experimentation to learn about earnings. This pattern motivates estimating the expected returns to entrepreneurship within a dynamic lifecycle model that allows for non-random selection and gradual learning about the entrepreneurial earnings process. The model accurately fits entry patterns into self-employment by age. The option value of returning to paid work is found to constitute a substantial portion of the monetary value of entrepreneurship. The model is then used to evaluate policies that change incentives for entry into self-employment.
    JEL: J24 J31 J62 L26 M50
    Date: 2017–02
  3. By: Giovanni Dosi; Emanuele Pugliese; Pietro Santoleri
    Abstract: We examine market selection mechanisms and their strength for a representative cohort of US new independent firms. In particular, we explore whether and how effectively markets reward newly-born firms according to their `fitness' in terms of both labour productivity and profitability. Our analysis yields puzzling results in contrast with canonical industry dynamics models. First, we find that selection on differential growth is mainly related to productivity while profitability plays a negligible role. Second, in contrast with the growth of the fitter principle, selection appears to be driven by changes in firms' relative productivity. Third, we explore how new firms' relative fitness affects their growth performance in different sectors. Our results reveal that market selection operates quite differently across them with higher incidence for new-born firms in services, low-tech and less concentrated sectors. Fourth, concerning selection via exit, our results support the survival of the fitter principle with respect to productivity, while relative profitability does not seem to exert any significant effect on survival probabilities. However, the contribution of firm relative `fitness' to the total firm exit rates variation appears to be modest.
    Keywords: market selection, replicator dynamics, new firm growth, survival, Shapley decomposition
    Date: 2017–02–21
  4. By: Joshua S. Gans; Scott Stern
    Abstract: The appropriability of innovation depends not only on the instruments available to an innovator to protect private returns, but how those instruments interact with each other as part of the firm’s entrepreneurial strategy. We consider the interplay between two appropriability mechanisms available to start-up innovators: control, whereby the innovator earns rents from their establishment of formal intellectual property rights, versus execution, whereby innovators earn returns through a first-mover advantage that yields dynamic benefits allowing the firm to “get ahead, stay ahead.” While most prior work has taken these instruments to be independent, we establish that these two alternative appropriability instruments are substitutes on the margin. For example, if the learning advantage from execution is sufficiently high, an entrepreneur might choose not to invest in a patent, even if intellectual property protection is costless. Moreover, the endogenous choice between control and execution is interdependent with other strategic choices of start-up innovators, such as the choice to pursue a narrow or broad customer segment, or whether to commercialize a “minimal viable product” version of their innovation versus delay commercialization until a product is available with a higher level of technical functionality and reliability.
    JEL: O31 O34
    Date: 2017–02
  5. By: Bernhard Dachs (AIT Austrian Institute of Technology GmbH); Martin Hud (Centre for European Economic Research (ZEW)); Christian Koehler (Centre for European Economic Research (ZEW)); Bettina Peters (Centre for European Economic Research (ZEW) - Industrial Economics and International Management Research)
    Abstract: A growing literature investigates how firms’ innovation input reacts to changes in the business cycle. However, so far there is no evidence whether there is cyclicality in the effects of innovation on firm performance as well. In this paper, we investigate the employment effects of innovations over the business cycle. Our analysis employs a large data set of manufacturing firms from 26 European countries over the period from 1998 to 2010. Using the structural model of Harrison et al. (2014), our empirical analysis reveals four important findings: First, the net effect of product innovation on employment growth is pro-cyclical. It turns out to be positive in all business cycle phases except for the recession. Second, product innovators are more resilient to recessions than non-product innovators. Even during recessions they are able to substitute demand losses from old products by demand gains of new products to a substantial degree. As a result their net employment losses are significantly lower in recessions than those of non-product innovators. Third, we only find resilience for SMEs but not for large firms. Fourth, process and organizational innovations displace labor primarily during upturn and downturn periods.
    Keywords: Innovation, employment, business cycle, resilience, Europe
    JEL: O33 J23 C26 D2
    Date: 2017–02
  6. By: Pamela Lenton (Department of Economics, University of Sheffield)
    Abstract: The number of individuals registered as self-employed in the UK has grown considerablyover the past decade. The economics literature generally agrees that the self-employedwork longer hours than their counterparts who are in paid employment and earn less.However, most of the literature considers the self-employed as a homogeneous group ofindividuals, whereas in reality, the term now encompasses a variety of very differententrepreneurs, such as businesses or partnerships, sole traders, freelance workers andsub-contractors. Using UK panel data, this paper examines the differences in thecharacteristics of self-employed individuals by self-employment type to highlight thedifference between these groups and their employed counterparts. Random effect probitestimations that model the determinants of being in different self-employment groupshighlight the heterogeneous nature of self-employment and their different determinants.Wage estimations reveal different returns to separate classifications of self-employment.
    Keywords: Self-employment, Autonomy, Entrepreneurship
    JEL: J20 J21 J24 L26
    Date: 2017–01
  7. By: Shai Bernstein; Emanuele Colonnelli; Xavier Giroud; Benjamin Iverson
    Abstract: How do different bankruptcy approaches affect the local economy? Using U.S. Census microdata at the establishment level, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We exploit the random assignment of bankruptcy judges as a source of exogenous variation in the probability of liquidation. We find that within a five-year period, employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. Most of the decline is due to lower growth of existing establishments and, to a lesser extent, reduced entry into the area. The spillover effects are highly localized and concentrate in the non-tradable and service sectors, particularly when the bankrupt firm operates in the same sector. These results suggest that liquidation leads to a reduction in consumer traffic to the local area and to a decline in knowledge spillovers between firms. The evidence is inconsistent with the notion that liquidation leads to creative destruction, as the removal of bankrupt businesses does not lead to increased entry nor the revitalization of the area.
    JEL: G33 R12
    Date: 2017–02
  8. By: Ferrante, Francesco; Federici, Daniela; Parisi, Valentino
    Abstract: Start-ups founded by university students and graduates play a substantial role in bringing new knowledge to the market and in employment creation; a role that appears to be even more important than the one played by the typical technology transfer activities carried out by universities, i.e. patenting and licensing activities, or spin-offs founded by academic staff. Indeed, robust empirical evidence suggests that entrepreneurs’ education is a good predictor of firms’ performance. Unfortunately, data show that the share of Italian entrepreneurs with tertiary educations is quite small, and this is especially the case of the younger generation. In this paper, we use a population-based approach to explore entrepreneurship among 61,115 graduates, alumni of the 64 Italian universities that belong to the AlmaLaurea consortium, in the second half of 2014, at the time when they completed their academic experience. We detect various levels of engagement and intentions to be involved in entrepreneurship, and we assess which factors appear to weigh more in a positive or negative manner. The bad news is that also our analysis finds that the share of Italian graduates who have started a business after their enrolment at university (1.3%) or who have taken concrete actions to start a business (4.5%) is quite small. The good news is that the number of intentional, i.e. potential highly educated, entrepreneurs among university students is much larger (at least 23%). On the basis of our results, we argue that the provision by universities of entrepreneurial education and training, internships, and ICT skills can be effective tools with which to cultivate entrepreneurial attitudes and skills, thereby fostering entrepreneurship and entrepreneurship among university graduates and enhancing their employability.
    Keywords: Entrepreneurship, university, start up, students, education
    JEL: I23 J21 J24 L26
    Date: 2017–02–20
  9. By: Grillitsch, Markus (Department of Human Geography & CIRCLE)
    Abstract: Structural change features prominently in public policy and scientific debates. While a large body of work is concerned with barriers to structural change, this paper focusses on the interplay between structure and agency by focussing on the transformation capacity of innovative entrepreneurs. Transformation capacity is defined as the ability to combine knowledge and resources across different social structures and stimulate institutional change. The paper discusses why and to what extent transformation capacity rests on three key mechanisms: multiple positions, positional mobility, and networks across social structures. The paper elaborates on potential unintended consequences and pre-conditions for transformation capacity.
    Keywords: innovation systems; entrepreneurship; radical innovation; structural change; system innovation; institutions
    JEL: L16 O30 R10
    Date: 2017–02–17
  10. By: Max-Peter Menzel, Maryann P. Feldman, Tom Broekel; Maryann P. Feldman; Tom Broekel
    Date: 2017–01
  11. By: Molina, Jose Alberto; Ortega, Raquel; Velilla, Jorge
    Abstract: We analyze whether male or female individuals have a higher probability of becoming entrepreneurs in developing regions (Africa, Asia, South America), controlling by individuals’ entrepreneurial environment and countries’ macroeconomic context. Using the GEM data, we avoid heterogeneity and the potential confounding problems arising from the definition of entrepreneurship. We find that women tend to become entrepreneurs more often than men in South America and Africa, highlighting the importance of entrepreneurship as a survival labor choice. No gender gaps in entrepreneurial participation are found in Asia.
    Keywords: Entrepreneurship; Gender; Feminist; Developing countries
    JEL: J16 L26 O10 O57
    Date: 2017–02–20
  12. By: Marios Michaelides
    Abstract: This paper examines racial disparities in entrepreneurship success using longitudinal data from Project GATE, an experimental-design entrepreneurship training program. These data are unique because they provide rich information on the characteristics of nascent entrepreneurs who applied for program participation, as well as on their entrepreneurship outcomes over a 60-month follow-up period. Analyses show that white nascent entrepreneurs were more successful than nonwhites in starting a business, becoming self-employed, and achieving high self-employment earnings over the entire 60-month follow-up period. These disparities are largely because whites started their pursuit of entrepreneurship with higher human capital and entrepreneurship skills, and better access to start-up financing. In fact, access to financing is the most important determinant of short-term and long-term success, while human capital and entrepreneurship skills are less important than previous work has suggested, particularly in explaining long-term differences. Finally, government-sponsored entrepreneurship training is found effective in helping nascent entrepreneurs to improve their entrepreneurship skills and become self-employed earlier than they would in the absence of training. There is no evidence, however, that training has higher effects for individuals with unfavorable initial conditions, and thus it is unlikely that government-sponsored training programs can reduce racial gaps in entrepreneurship success.
    Keywords: entrepreneurship; self-employment; race; small business; Project GATE; entrepreneurship training; workforce development
    JEL: J6 H4 L2
    Date: 2017–02
  13. By: OECD
    Abstract: Access to financing is vital to promote entrepreneurship and SME development and build an innovative, competitive and sustainable tourism sector. This report examines mechanisms to improve access to finance for tourism SMEs and entrepreneurs at each stage of the business lifecycle, with a particular emphasis on small and micro-enterprises. It discusses key issues and policy considerations to help improve tourism SME financing conditions, broaden the range of financing instruments available and support uptake of available financing instruments. Case studies of financing approaches in a number of countries support the policy discussion and provide technical information. The paper captures the perspectives of policy makers, financing agencies and institutions, and the tourism industry, and has benefitted from significant contributions and inputs from 21 countries: Austria, Canada, Chile, Croatia, Denmark, Egypt, France, Germany, Greece, Hungary, Japan, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Portugal, the Russian Federation, Slovenia, Sweden and Switzerland.
    Date: 2017–02–22
  14. By: Molina, Jose Alberto; Ortega, Raquel; Velilla, Jorge
    Abstract: In this paper, we empirically analyze the individual characteristics that drive older workers to become entrepreneurs, more by necessity than desire, providing evidence of the differences between developed and developing countries. While OLS models do not provide any meaningful conclusions, Qualitative Comparative Analysis and fuzzy set logic, at the country level, using GEM 2014 Global Individual micro-data, show the importance of the various combinations of high and/or low values of skills, opportunities, entrepreneurial perceptions, peer effects, and satisfaction with life and income. This indicates how entrepreneurship may be a potential source of income for older workers, in a range of contexts. Further, we find that all the possible combinations of higher values of the latter features are necessity conditions.
    Keywords: Entrepreneurship, Older individuals, Fuzzy Set Qualitative Comparative Analysis, GEM data.
    JEL: L26 O10 O57
    Date: 2017–02–20
  15. By: Stefano Bianchini (BETA, University of Strasbourg); Gabriele Pellegrino (École Polytechnique Fédérale de Lausanne & IEB)
    Abstract: This paper examines the effect of persistence in product and process innovations on the employment dynamics of a representative sample of Spanish manufacturing firms observed over more than 20 years. We build on a conceptual framework that links innovation persistence, employment growth and the persistence of this growth in the long-run. Using dynamic panel GMM and survival analysis techniques, we find that persistence in product innovation affects both employment growth and the sustainability of job creation over time significantly, whilst persistence in process innovation does not play any relevant role. The evidence we provide supports the notion that product innovation is more effective in spurring sustained employment growth when carried out systematically.
    Keywords: Firm growth, job creation, innovation, persistence in innovation, path-dependence
    JEL: D22 O31 O32 O33
    Date: 2017
  16. By: M. Dietsch; K. Düllmann; H. Fraisse; P. Koziol; C. Ott
    Abstract: Using a unique and comprehensive data set on the two largest economies of the Eurozone – France and Germany – this paper first proceeds to a computation of the Gordy formula relaxing the ad hoc size-dependent constraints of the Basel formulas. Our study contributes to Article 501 of the Capital Requirements Regulation (CRR) requesting analysis the consistency of own funds requirements with the riskiness of SMEs. In both the French and the German sample, results suggest that the relative differences between the capital requirements for large corporates and those for SMEs (in other words the capital relief for SMEs) are lower in the Basel III framework than implied by empirically estimated asset correlations. Results show that the SME Supporting Factor in the CRR/CRDIV is able to compensate the difference between estimated and CRR/CRDIV capital requirements for loans in the corporate portfolio.
    Keywords: SME Supporting Factor, Asset correlation, Basel III, Minimum Capital requirements, Asymptotic Single Risk factor Model, SME finance.
    JEL: G21 G33 C13
    Date: 2016
  17. By: Milos Markovic (Centre d'Economie de la Sorbonne); Michael A. Stemmer (Centre d'Economie de la Sorbonne)
    Abstract: Using a unique dataset of unlisted Serbian firms during the period between 2005 and 2012, we analyze the impact of internal financial constraints on firm growth with respect to several firm-level characteristics. We also assess potential effects created by the 2008-2009 Global Financial Crisis. To do so, we rely on panel data models, which estimate via GMM cash flow sensitivities of firm growth, following the dynamic specification of Guariglia et al. (2011). Controlling for investment opportunities, our results show that Serbian firms face high financial constraints and exhibit generally a high reliance on retained earnings for firm growth. We do not find evidence for a crisis effect, potentially due to ex ante accumulated internal funds. Conventional firm characteristics such as age, size or overall performance largely determine the dependency on cash for firm growth. Moreover, foreign-owned companies seem to escape the financing gap by tapping other resources. A comparison with Belgian firms contrasts our results with an advanced country setting
    Keywords: Financial constraints; firm growth; transition countries; dynamic panel data; GMM
    JEL: C23 D92 E44 G32 L25 O16
    Date: 2017–02
  18. By: Lingens, Jörg; De Pinto, Marco; Bauer, Christian
    Abstract: How does an increase in organization costs (i.e. costs which arise when labor unions organize firm's workforces) affect the industry struc-ture, wage inequality and welfare? In the present paper, we build a model with costly and endogenous unionization, heterogeneous firms as well as free market entry/exit. In such a setting, we show that the share of low-productive firms operating in the market decreases (in-creases) in organization costs if those costs are relatively low (high). If more low-productive firms are active in the market, consumption and hence welfare decline because prices are, on average, higher (vice versa). As such, an increase in organization costs and thus a decline in unionization rates could be welfare-reducing. In addition, we find a hump-shaped relationship between organization costs and wage in-equality. These results suggest that a policy aiming to reduce union-ization by an increase in organization costs can but not necessarily have to be an improvement of the economic performance.
    JEL: J51 L11 L16
    Date: 2016
  19. By: Inna S. Lola (National Research University Higher School of Economics)
    Abstract: A specific feature of business conditions surveys describing actual and expected short-term trends of company financial and economic activities is the non-quantitative nature of the relevant data. To facilitate its interpretation and visualisation for various user groups, the respondents’ answers are typically aggregated into simple and composite indicators (CI). This study proposes, tests, and validates conceptual and information measurement hypotheses for building and applying such CI, which provide an integrated assessment of small entrepreneur (SE) economic sentiment. These CI demonstrate a strong, statistically significant correlation with growth cycles of reference statistical indicators. A theoretical model for building CI to measure business conditions for SE is presented, and a relevant toolset is described. Industry-specific features of building business conditions indicators are illustrated using the retail and wholesale sectors as examples. New opportunities for the visualisation and analytical presentation of the cyclic profiles of indicators are demonstrated, based on tracers tracking their phase-to-phase movement. New information and analysis-related areas are identified for the application of nonparametric data to estimate the current state and expected development of SE
    Keywords: small entrepreneurship, business conditions, composite indicators, cycle tracer, business conditions surveys
    JEL: E32 C81 C82
    Date: 2017

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