nep-ent New Economics Papers
on Entrepreneurship
Issue of 2017‒03‒12
nineteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Politics and Entrepreneurship in the U.S. By Louis-Philippe Beland; Bulent Unel
  2. Firm Dynamics and Occupational Choice By Koelle, Michael
  3. Financial Literacy and Self-Employment By Cumurovic, Aida; Hyll, Walter
  4. Destructive Creation at Work: How Financial Distress Spurs Entrepreneurship By Tania Babina
  5. Going Entrepreneurial? IPOs and New Firm Creation By Tania Babina; Paige Ouimet; Rebecca Zarutskie
  6. How Wise Are Crowd? A Comparative Study of Crowd and Institutions in Peer-to-Business Online Lending Markets By Mohammadi, Ali; Shafi, Kourosh
  7. The productivity effects of worker replacement in young firms By Murmann, Martin
  8. A Firm of One's Own: Experimental Evidence on Credit Constraints and Occupational Choice By Brudevold-Newman, Andrew; Honorati, Maddalena; Jakiela, Pamela; Ozier, Owen
  9. Innovative start-ups in Italy: their special features and the effects of the 2012 law By Paolo Finaldi Russo; Silvia Magri; Cristiana Rampazzi
  10. Institutions and Managerial Task Allocation: Evidence from Chinese Entrepreneurs By Guo, Di; Jiang, Kun; Xu, Cheng-Gang
  11. Brighter Prospects? Assessing the Franchise Advantage using Census Data By Francine Lafontaine; Marek Zapletal; Xu Zhang
  12. Peer Effects and Risk-Taking Among Entrepreneurs: Lab-in-the-Field Evidence By Steeve Marchand; Maria Adelaida Lopera
  13. Welcome Home in a Crisis: Effects of Return Migration on the Non-migrants' Wages and Employment By Ljubica Nedelkoska; Ricardo Hausmann
  14. Incumbents' Asymmetric Responses to Environmentally Friendly Entrants in the Automotive Industry By Uwe Cantner; Josefine Diekhof
  15. Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown By Ryan A. Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
  16. Eco‐systems for young digital innovators By Reinhilde Veugelers
  17. Female firm leadership. Extent and performance in 14 EU member states By Theune, Katja; Behr, Andreas
  18. Innovation in an Aging Population By Legge, Stefan
  19. Moral hazard in VC finance: More expensive than you thought By Tennert, Julius; Lambert, Marie; Burghof, Hans-Peter

  1. By: Louis-Philippe Beland; Bulent Unel
    Abstract: There is a strong belief that Republicans are more pro-business than Democrats. In this paper, we investigate the causal impact of partisan allegiance of governors (Republican or Democratic) on entrepreneurial activity by exploiting random variation in close gubernatorial elections in 50 states over the last three decades in a Regression Discontinuity design. We ?nd that Republican governors are not di?erent than Democratic governors in either business creation or destruction. Our ?ndings are robust to several sensitivity checks.
  2. By: Koelle, Michael
    Abstract: I look at the dynamics of firms when investment decisions interact with occupational choice. To model the implications for firm survival and growth, I extend a neoclassical growth model by an endogenous shutdown condition that is driven by the reservation wage in alternative employment. This model is able to generate multiple steady-state equilibria that arise through convexities in the optimal growth path of a firm. I provide empirical evidence consistent with the model predictions using panel data from urban Colombia. I also structurally estimate the model to identify the wage function in a way that is robust to occupational choices being driven by particular wage offers that are observed as subsequent outcomes. The findings are useful for understanding heterogeneous economic decisions of the large number of self-employed small firm owners in developing countries.
    JEL: J24 L26 O10
    Date: 2016
  3. By: Cumurovic, Aida; Hyll, Walter
    Abstract: In this paper we study the relationship between financial literacy and self-employment. We use established financial knowledge-based questions to measure financial literacy levels. The analysis shows a highly significant correlation between self-employment and financial literacy scores. To investigate the impact of financial literacy on being self-employed, we apply instrumental variable techniques based on information on economic education before entering the labour market and education of parents. Our results reveal that financial literacy positively affects the probability of being self-employed. As financial literacy is acquirable, findings suggest that entrepreneurial activities may be raised via enhancing financial knowledge.
    JEL: A20 D03 J24
    Date: 2016
  4. By: Tania Babina
    Abstract: Using US Census employer-employee matched data, I show that employer financial distress accelerates the exit of employees to found start-ups. This effect is particularly evident when distressed firms are less able to enforce contracts restricting employee mobility into competing firms. Entrepreneurs exiting financially distressed employers earn higher wages prior to the exit and after founding start-ups, compared to entrepreneurs exiting non-distressed firms. Consistent with distressed firms losing higher-quality workers, their start-ups have higher average employment and payroll growth. The results suggest that the social costs of distress might be lower than the private costs to financially distressed firms.
    Date: 2017–01
  5. By: Tania Babina; Paige Ouimet; Rebecca Zarutskie
    Abstract: Using matched employee-employer US Census data, we examine the effect of a successful initial public offering (IPO) on employee departures to startups. Accounting for the endogeneity of a firm’s choice to go public, we find strong evidence that going public induces employees to leave for start-ups. Moreover, we document that the increase in turnover following an IPO is driven by employees departing to start-ups; we find no change in the rate of employee departures for established firms. We present evidence that, following an IPO, many employees who received stock grants experience a positive shock to their wealth which allows them to better tolerate the risks associated with joining a startup or to obtain funding. Our results suggest that the recent declines in IPO activity and new firm creation in the US may be causally linked. The recent decline in IPOs means fewer workers may move to startups, decreasing overall new firm creation in the economy.
    Date: 2017–01
  6. By: Mohammadi, Ali (Department of Industrial Economics and Management, Royal Institute of Technology (KTH), Centre of Excellence for Science and Innovation Studies (CESIS) and Swedish house of finance.); Shafi, Kourosh (Center for Entrepreneurship and Innovation Warrington College of Business, University of Florida.)
    Abstract: Funding small businesses used to be the exclusive domain of angel investors, venture capitalists, and banks. Crowd have only recently been recognized as an alternative source of financing. Whereas some have attributed great potential to the funding provided by crowd (“crowdfunding”), others have clearly been more skeptical. We join this debate by examining the performance of crowd to screen the creditworthiness of small and medium sized enterprises (SMEs) compared with institutions in the context of new online peer-to- business lending markets. Exploiting the randomized assignment of originated loans to institutions and the crowd in the online peer-to-business platform of FundingCircle, we find that crowd underperform institutions in screening SMEs, thereby failing to lend at interest rates that adjust for the likelihood of defaulting on a loan. Moreover, the underperformance gap of crowd compared with institutions widens with risky and small loans, suggesting that crowd lack the expertise to assess the risks or the incentive to expend resources to perform due diligence. Overall, our findings highlight when crowd face limitations in screening SMEs.
    Keywords: peer-to-peer lending; institutional investors; online loan market; SME; wisdom of the crowd
    JEL: D80 G11 G20
    Date: 2017–03–03
  7. By: Murmann, Martin
    Abstract: Existing management research has so far dealt with the consequences of labor turnover for established firms, but has not addressed its effect on young entrepreneurial businesses. In this paper I assess, both theoretically and empirically, the productivity effects of worker replacement in young firms. Worker replacement isolates labor turnover due to employee replacement as a separate category of turnover and has been shown to positively affect the productivity of established firms in previous research. Using a large and representative sample of German start-ups, I show that worker replacement has negative effects on young firms' productivity that remain even when controlling for moderating factors. These effects are even more negative when the founder does not have prior managerial experience.
    Keywords: Firm productivity,Labour turnover,Churning,Entrepreneurship
    JEL: L26 M13 J24 J63 D22
    Date: 2017
  8. By: Brudevold-Newman, Andrew (University of Maryland); Honorati, Maddalena (World Bank); Jakiela, Pamela (University of Maryland); Ozier, Owen (World Bank)
    Abstract: We conducted a randomized evaluation of two labor market interventions targeted to young women aged 18 to 19 in three of Nairobi's poorest neighborhoods. One treatment offered participants a bundled intervention designed to simultaneously relieve credit and human capital constraints; a second treatment provided women with an unrestricted cash grant, but no training or other support. Both interventions had economically large and statistically significant impacts on income over the medium-term (7 to 10 months after the end of the interventions), but these impacts dissipated in the second year after treatment. Our results are consistent with a model in which savings constraints prevent women from smoothing consumption after receiving large transfers – even in the absence of credit constraints, and when participants have no intention of remaining in entrepreneurship. We also show that participants hold remarkably accurate beliefs about the impacts of the treatments on occupational choice.
    Keywords: youth unemployment, microenterprises, entrepreneurship, credit constraints, cash grants, training, Africa, gender
    JEL: J24 M53 O12
    Date: 2017–02
  9. By: Paolo Finaldi Russo (Banca d'Italia); Silvia Magri (Banca d'Italia); Cristiana Rampazzi (Banca d'Italia)
    Abstract: In 2012 the Italian Parliament introduced into Italian law a special section in the Companies Register and a large number of financial incentives to create a favorable environment for the development of ‘innovative start-ups’ (ISUPs). In this paper we compare ISUPs with other start-ups. In accordance with the eligibility criteria established by law, ISUPs show a striking capacity for innovation apparent in a higher incidence of intangible assets and the longer time it takes to begin selling their products. ISUPs also report higher investment rates and stronger growth in sales and assets, while their financial structures are characterized by higher capitalization and greater availability of liquid assets. Based on propensity score matching, we also highlight some direct effects of the 2012 law on their financial structures, almost exclusively on ISUPs operating in the service sectors: their external funding, either debt or equity, increases more than for other similar firms; higher investment rates are specifically associated with a stronger upsurge in their capital.
    Keywords: start-ups, financing innovation, equity, financial structure. Classification-JEL: G24, G32, H81, O38
    Date: 2016–07
  10. By: Guo, Di; Jiang, Kun; Xu, Cheng-Gang
    Abstract: This study presents theoretical and empirical analyses of time allocation of entrepreneurs as a response to weak property rights protection. Using a nationwide random sampling survey of more than 3,000 entrepreneurs in over 100 cities in China, we find that entrepreneurs, responding to the violation of property rights, spend large proportions of their working time on lobbying activities to protect their businesses at the cost of management time. Moreover, the sensitivity of lobbying time to property rights protection is reduced if the entrepreneur is politically connected or if the firm is larger or older.
    Keywords: Chinese Economy; entrepreneurship; Institution; Property rights; Time allocation
    JEL: L26 M12 O12 P31
    Date: 2017–02
  11. By: Francine Lafontaine; Marek Zapletal; Xu Zhang
    Abstract: This paper uses Census micro data to examine how starting a business as a franchise rather than an independent business affects its survival and growth prospects. We first consider the factors that influence the business owner's decision about being franchised, and then use different empirical approaches to correct for selection bias in our performance analyses. We find that franchised businesses on average benefit from higher survival rates and faster initial growth relative to independent businesses. However, the effects are not large and, conditional on first-year survival, the differences basically disappear. We briefly discuss potential mechanisms to explain these results. U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. Support for this research at the Michigan Census Research Data Center is gratefully acknowledged.
    Keywords: Independent Business, Business Survival, Business Growth, Franchising Decision, Survey of Business Owners, Retail, Services
    Date: 2017–01
  12. By: Steeve Marchand; Maria Adelaida Lopera
    Abstract: We study how social interactions influence entrepreneurs' attitudes toward risk. We conduct two risk-taking experiments within workshops organized for young Ugandan entrepreneurs. Between the two experiments, the entrepreneurs participate in a networking activity where they build relationships and discuss with each other. We collect detailed data on peer network formation and on participants' choices before and after the networking activity. Our design implicitly controls for homophily effects (i.e. the tendency of individuals to develop relationships with people who have similar characteristics). We find that risk aversion is affected by social conformity. Participants tend to become more (less) risk averse in the second experiment if the peers they discuss with are on average more (less) risk averse in the first experiment. This suggests that social interactions play a role in shaping risk preferences.
    Keywords: preference, risk aversion, entrepreneur, social norms
    JEL: D03 D81 M13 Z13
    Date: 2017
  13. By: Ljubica Nedelkoska (Center for International Development at Harvard University); Ricardo Hausmann (Center for International Development at Harvard University)
    Abstract: Albanian migrants in Greece were particularly affected by the Greek crisis, which spurred a wave of return migration that increased Albania’s labor force by 5% between 2011 and 2014 alone. We study how this return migration affected the employment chances and earnings of Albanians who never migrated. We find positive effects on the wages of low-skilled non-migrants and overall positive effects on employment. The gains partially offset the sharp drop in remittances in the observed period. The employment gains are concentrated in the agricultural sector, where most return migrants engage in self-employment and entrepreneurship. Businesses run by return migrants seem to pull Albanians from non-participation, self-employment and subsistence agriculture into commercial agriculture.
    JEL: J21 J23 J24 J31 J61
    Date: 2017–01
  14. By: Uwe Cantner (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Josefine Diekhof (DFG-GRK-1411 "The Economics of Innovative Change", PhD program of the Max Planck Institute of Economics & Friedrich-Schiller University Jena)
    Abstract: In the context of technological change, the influence of innovative entrants on incumbents is considered a major driving force. Using global patent data, we analyze this influence for the case of the transition from combustion engine vehicles towards alternative technology vehicles (ATVs). Entrants play a key role in developing ATV-related patents, whereas automotive incumbents are considered as being less motivated in pursuing this new technology. Our results indicate that entrants' ATV-related knowledge accumulation stimulates incumbents' ATV-related research. Domestic entrants had a positive effect on the large incumbent majority that exhibited low ATV patent stocks whereas incumbents with high ATV patent stocks reacted with decreasing patenting; which is assumed to be a sign of R&D outsourcing or strategic acquisitions. Entrants in foreign countries yielded increasing incumbent responses along increasing incumbents' ATV patent stocks; which is in line with previously found competitive reactions to entry. Further, younger entrants, pre-entry patent- inexperienced entrants, and entrant leaders with greater technological relevance were more influential than their counterparts (old, experienced, and less technological relevant). This suggests that not only diversifying but also new establishments have an effect on incumbents. As technological leading and inexperienced entrants showed a stronger effect on incumbents but were outnumbered by their counterparts, it underpins that entrants with important characteristics and not the pure number of entrants drive these effects on incumbents.
    Keywords: Environmental Economics, Technological Change, Industry Dynamics, Entrepreneurship, Transport Industry, Electric Vehicle
    JEL: Q55 O3 Q52 R49 L91 L26 O31
    Date: 2017–03–10
  15. By: Ryan A. Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
    Abstract: A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within- firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.
    Date: 2017–01
  16. By: Reinhilde Veugelers
    Abstract: This contribution takes a closer look at innovation in ICT sectors and the failing ability of young innovative firms in Europe to grow into leading world innovators in these sectors. The analysis suggests that Europe might be missing strong digital regional clusters with a symbiotic relationship between young ICT innovators and incumbent ICT leading companies.
    Keywords: Young digital innovators, eco‐systems, regional clusters
    Date: 2017–03–02
  17. By: Theune, Katja; Behr, Andreas
    Abstract: Evidence on female firm leadership is scarce and often confined to a small number of firms included in share price indices. Our large firm level data set from 2011 contains 441287 firms from 14 EU states. Based on management information, we provide evidence for the extent and the performance of female-led firms. We find strong differences in the extent of female firm leaders between the 14 states but for most countries no evidence for significant performance differences between male- and female-led firms, neither for the whole country samples nor within six broadly defined sectors. This result is confirmed when applying a matching approach to account for potential selection problems.
    JEL: J16 L25 M12
    Date: 2016
  18. By: Legge, Stefan
    Abstract: What is the effect of population aging on the rate of innovation? In this paper, I examine a new channel and argue that demographic shifts affect the demand for innovative goods. In an overlapping-generations model, it is assumed that individuals must spend time on learning how to use new technology. This creates age-dependent demand structures because older individuals have limited time windows for investments to pay off. The result is that in an aging population a larger fraction of the population does not invest in acquiring new skills. The amount of R&D is reduced as demand for innovative goods falls. Using data from all OECD countries for the period 1978-2010, I find support for these theoretical predictions. Those countries that faced the largest demographic shifts experienced the sharpest growth reduction in patent applications.
    JEL: J11 J31 O41
    Date: 2016
  19. By: Tennert, Julius; Lambert, Marie; Burghof, Hans-Peter
    Abstract: Venture projects are fraught with exogenous market risk and endogenous agency risk. We apply a real options perspective to analyze the investment decision of the venture capitalist (VC) in this set-up. The solutions presented are conflictive: the VC reduces his exposure to exogenous risk by delaying investments to wait for informational updates (delay option), but he mitigates endogenous risk by advancing investments to discover entrepreneur's effort. So far, papers focus on the optimal timing of investments considering independence of exogenous and endogenous risk. We show that interdependence of exogenous risk and endogenous risk exists. We find that endogenous risk prompts the VC to accelerate the discovery process when exogenous risk is high, and to abandon the delay option when it is most valuable.
    Keywords: Venture Capital,Real Option,Agency Cost,Moral Hazard
    JEL: G11 G12 G24 D53
    Date: 2017

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