nep-ent New Economics Papers
on Entrepreneurship
Issue of 2017‒04‒16
eight papers chosen by
Marcus Dejardin
Université de Namur

  1. Self-Employment Differentials among Foreign-Born STEM and Non-STEM Workers By Cai, Zhengyu; Winters, John V.
  2. Entrepreneurial skills, technological progress and firm growth By Amaia Iza
  3. Financial constraints and productivity: Evidence from Canadian SMEs By Cao, Shutao; Leung, Danny
  4. The missing middle: Growing and strengthening Viet Nam’s micro, small, and medium-sized enterprises By Catherine Y. Co; Thu Kim Nguyen; Tung Nhu Nguyen; Que Nguyet Tran
  5. Direct and Indirect Effects of Private- and Government Sponsored Venture Capital By Engberg, Erik; Halvarsson, Daniel; Tingvall, Patrik
  6. The Long-Term Performance of IPO’s, Revisited By Hoechle, Daniel; Karthaus, Larissa; Schmid, Markus
  7. Are IPOs “Overpriced?” Strategic Interactions between the Entrepreneur and the Underwriter By Kazunori MIWA; Satoshi TAGUCHI; Tatsushi YAMAMOTO
  8. Assessing the potential of social enterprises through social network analysis: Evidence from Albania By Imbert, Enrica; Morone, Piergiuseppe; Bigi, Francesca

  1. By: Cai, Zhengyu; Winters, John V.
    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
  2. By: Amaia Iza
    Abstract: One recent empirical regularity is that Örm-growth is negatively related to Örmís age. Besides, employment-age proÖles are áatter in less developed economies, but it is also observed áatter employmentage proÖles among fast growing economies rather than in slow growing economies. This paper develops an occupational choice life-cycle model based on Guner et al. (2015), where entrepreneursískills determine entrepreneurial technology in a similar way to Poschke (2015). We consider that exogenous technological advances imply a higher degree of complexity. Entrepreneursí skills determine the degree of complexity they can manage. As in Guner et al. (2015), entrepreneurs invest in their skills over their life-cycle. But, unlike Guner et al. (2015), entrepreneursí skills depreciation depends also on the rhythm at which skills of newborn entrepreneurs are growing. The empirical implication of the stationary equilibrium concerning Örm growth is consistent with these observed facts This paper develops an occupational choice life-cycle version of Lucas (1978) span-of-control model based on the assumption that entrepreneurs' skills determine entrepreneurial technology in a similar way to Poschke (2015). We consider that there are exogenous technological advances in the economy and that new advances imply a higher degree of complexity. Entrepreneurs' skills determine the degree of complexity they can manage and, hence, the degree of adoption of new technologies. As in Guner et al. (2015), entrepreneurs invest in their skills over their life-cycle. But, unlike Guner et al. (2015), entrepreneurs' skills investment also depends on the depreciation of their relative skill with respect to newborn entrepreneurs' skills. Faster exogenous growth of technological advances can lead to a higher firms' productivity growth over their life cycle, but also may imply a higher depreciation of old entrepreneurs abilities. We analyze the empirical implications of the stationary equilibrium concerning firms' age-TFP profile, employment-age profile, managers' income life-cycle profile, and aggregate TFP growth depending on the country's level of development and growth rate of technological advances.
    Keywords: European countries and the US., Miscellaneous, Growth
    Date: 2016–07–04
  3. By: Cao, Shutao; Leung, Danny
    Abstract: The degree to which financial constraints are binding is often not directly observable in commonly used business data sets (e.g., Compustat). In this paper, we measure and estimate the likelihood of a firm being constrained by external financing using a data set of small and medium-sized Canadian firms. Our measure separates the need for financing from the degree of being constrained, conditional on the need for financing. We find that firm size, the current debt-to-asset ratio and cash flow are robust indicators that can be used as a proxy for financial constraint. The total debt-to-asset ratio is not, however, a statistically significant indicator of financial constraint. In addition, firms with higher cash flow are less likely to need external financing and to be constrained if they do need it. We then estimate the firm-level total factor productivity by taking into account the measured likelihood of binding financial constraints. Coefficient estimates for labor and capital in the structural estimation of production function can be downward biased if financial constraints are omitted, because production inputs are negatively correlated with the likelihood of being constrained by external financing. This in turn leads to an upward bias in total factor productivity, which is about 4 percent according to our estimation. Finally, both investment and employment growth are negatively affected by the measured degree of financial constraints, pointing to the contribution of financial constraints to misallocation.
    Keywords: Productivity, Financial constraint, Production function,
    Date: 2017
  4. By: Catherine Y. Co; Thu Kim Nguyen; Tung Nhu Nguyen; Que Nguyet Tran
    Abstract: We study the exporting and subcontracting decisions, mark-ups, market concentration, and growth of a panel of Vietnamese private micro, small, and medium-sized enterprises. Our main findings are as follows. First, we find that among subcontractors, subcontracting is a supplementary rather than primary activity. Second, there is strong evidence that the propensity to export increases with managers’ or owners’ knowledge of customs law. Third, all else equal, mark-ups are lower for larger micro, small, and medium-sized enterprises. Fourth, there is significant home province bias in the sales of Viet Nam’s micro, small, and medium-sized enterprises. Membership of business associations and having internationally recognized quality certifications attenuate the size of the home market bias. Fifth, a significant number of enterprises did not grow or even contracted in size between 2010 and 2014. Finally, we find no evidence that inspections deter enterprises from expanding beyond their core competencies.
    Date: 2017
  5. By: Engberg, Erik (The Ratio Institute); Halvarsson, Daniel (The Ratio Institute); Tingvall, Patrik (Södertörn University, The Ratio Institute and the Swedish Agency for Growth Policy Analysis)
    Abstract: This paper studies the real effects of venture capital on targeted firms. Specifically, using a unique dataset with comprehensive information on private- and governmental venture capital investments, we examine the effects of such investments on firms' sales, employment and investments in physical capital. The results suggest that both private and public venture capital boost firm sales two to three years after the investment. The sales increase can, in turn, partially be traced to an investment effect, and partially to increased efficiency, whereas no employment effects are found. Finally, our findings suggest that government investors are more prone than private VC firms to make follow-up investments in stagnating non-growing firms.
    Keywords: Venture capital; Start-ups; Firm growth; Investments; Governmental venture capital
    JEL: C21 C23 D22 G24 G28 H44 L25 L26
    Date: 2017–04–03
  6. By: Hoechle, Daniel; Karthaus, Larissa; Schmid, Markus
    Abstract: The literature on IPO long-term performance generally focuses on three- to five-year post-issue time horizons. Research published in the 2000s shows that the apparent underperformance of IPOs docu-mented in the 1990s disappears when the different risk exposures between IPO and mature firms are accounted for by using a Carhart (1997) factor model. In this paper, we show that a sample of 7,487 U.S. IPOs between 1975 and 2014 continues to significantly underperform mature firms in terms of Carhart-alphas over two years, with underperformance peaking one year after going public. We apply a regression-based portfolio sorts approach (RPS), which allows to decompose the Carhart-alpha into firm-specific characteristics, to explain one-year IPO underperformance using a multitude of market and firm characteristics in a statistically robust setting. In fact, our RPS-model that augments the Carhart factors by a set of firm characteristics related to investments, internationality, liquidity, and leverage can explain IPO underperformance. We find similar results when using the Fama-French three-factor model or an augmented version of the Carhart model. We challenge our RPS-model by applying it to the most severely underperforming sub-samples in terms of firm size, time period, venture capital involvement, and IPO underpricing, and find it to explain IPO underperformance across all sub-samples.
    Keywords: IPO Underperformance, Long-Term Performance Evaluation, Time Horizon, Firm Characteristics
    JEL: G14 G24 G32
    Date: 2017–03
  7. By: Kazunori MIWA (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Satoshi TAGUCHI (Doshisha University, Japan); Tatsushi YAMAMOTO (Osaka University, Japan)
    Abstract: Two major problems are well-known in IPO research as “IPO puzzles.” First, a first listing price is much higher than the offering price set by the underwriter, which is called “underpricing.” Second, in the long-run the share price becomes much lower than the offering price, which is called “long-run underperformance.” A vast body of research explains why these IPO puzzles coexist.Assuming that investors' opinions diverge, we conclude that even the offering price is distorted through strategic interaction between the entrepreneur and the underwriter. Specifically, the offering price is already “overpriced.” Hence, the share price will drop substantially as information asymmetry between both the entrepreneur and the underwriter and investors is mitigated after the IPO, which delivers long-run underperformance. Our experiment supports these conclusions.
    Keywords: IPO puzzles; Earnings management; Experiment
    Date: 2017–07
  8. By: Imbert, Enrica; Morone, Piergiuseppe; Bigi, Francesca
    Abstract: Organizations falling within the category of ‘social enterprises’ are rapidly expanding in developing and transition countries, representing an innovative instrument for poverty reduction and endogenous development. However, economic long-term sustainability remains a major problem. Acquisition of knowledge is then claimed as a key issue for their competiveness and survival in the market. A critical factor for implementing successful knowledge transfer relates to the creation of well-connected networks of relationships. Stable and collaborative contacts among social entrepreneurs also allow more effective coordination, reducing the risk of dispersed and fragmented initiatives. This paper investigates the Albanian social enterprise sector, focusing on their network of relationships (i.e. social enterprises’ networks and supporting actors’ networks) by means of a social network analysis. Results are based on empirical evidence collected at the firm level from organizations operating in the Tirana and Scutari regions, the heart of the country’s economic growth engine. Visual social network investigation along with networks’ correlation analysis have showed that Albanian social enterprises are poorly aware of advantages arising from their network of relationships, still showing low entrepreneurial attitudes.
    Keywords: social enterprises, social networks, knowledge flows, foreign aid, sustainable development
    JEL: D85 L31 O35
    Date: 2016

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