nep-ent New Economics Papers
on Entrepreneurship
Issue of 2017‒05‒07
twelve papers chosen by
Marcus Dejardin
Université de Namur

  1. Knowledge externalities and firm heterogeneity: Effects on high and low growth firms By Grillitsch, Markus; Nilsson, Magnus
  2. Advertising Response to New Entry By Azamat Valei
  3. Who wishes to be an entrepreneur and who prepares for that? : Evidence from statistical micro data in Japan over 30 years By OKAMURO, Hiroyuki; IKEUCHI, Kenta; MATSUDA, Naoko; TSUCHIYA, Ryuichiro
  4. "Mafia Inc.": when godfathers become entrepreneurs By Marco Le Moglie; Giuseppe Sorrenti
  5. The effects of minimum wage hikes on employment and wages in Viet Nam’s micro, small, and medium enterprises By Phan Kim Dung
  6. SME financing in the EU: Moving beyond one-size-fits-all By Demary, Markus; Hornik, Joanna; Watfe, Gibran
  7. What is a Patent Worth? Evidence from the U.S. Patent “Lottery” By Joan Farre-Mensa; Deepak Hegde; Alexander Ljungqvist
  8. Firm Financing and Growth in the Arab Region By Soha Ismail; Juan Jose Cortina Lorente; Sergio L. Schmukler
  9. Urban Productivity in the Developing World By Edward L. Glaeser; Wentao Xiong
  10. Survival of the fittest or does size matter: What are the main drivers of Productivity in Brazil? By Luna, Ivette; Hiratuka, Celio; Haddad Netto, Elias Youssef
  11. Suitable or non-suitable? An investigation of Eurozone SME access to market-based finance By Bongini, Paola; Ferrando, Annalisa; Rossi, Emanuele; Rossolini, Monica
  12. Firms’ financial fragility and credit allocation By Emilia Bonaccorsi di Patti; Paolo Finaldi Russo

  1. By: Grillitsch, Markus (CIRCLE, Lund University); Nilsson, Magnus (CIRCLE, Lund University)
    Abstract: Knowledge externalities affect high and low growth firms differently. The paper develops two theoretical arguments. The knowledge equilibrium argument postulates that knowledge externalities weaken high growth firms for the benefit of low growth firms until performance differences vanish. The knowledge competition argument claims that high growth firms are in a better position to identify, attract, and integrate knowledge, thereby benefiting more from knowledge externalities than low growth firms. Based on 188,936 observations of 32,736 Swedish firms from 2004 to 2011, it is analyzed whether knowledge centers enable high growth firms to surge ahead or low growth firms to catch up.
    Keywords: knowledge spillovers; externalities; firm growth; competitiveness; core-periphery
    JEL: O18 O30 P48 R10 R12
    Date: 2017–04–27
  2. By: Azamat Valei
    Abstract: Empirical studies on advertising outlays report that incumbent firms change their advertising strategies in response to a new entry. While some incumbents reduce their advertising expenditures, others increase them in comparison to the preentry period. Existing literature on strategic advertising in entry games is mostly focused on entry deterrence, meanwhile no theoretical foundation is found in this literature to explain what determines a change in the advertising strategies in the case of entry accommodation. The present work considers four types of advertising and builds a model that examines how accommodating incumbents decide on advertising. The paper also provides results on how advertising is related to the size of the entry. Particularly, informative advertising and advertising enhancing product differentiation allow greater entry, while complementary and business-stealing advertising result in fewer entries since they reduce residual demand for potential entrants. Depending on whether post-entry competition variables are strategic substitutes or strategic complements, incumbent firms may increase or reduce their advertising outlays in response to new entries.
    Keywords: advertising; entry accommodation; industrial organization;
    JEL: D43 L13
    Date: 2017–04
  3. By: OKAMURO, Hiroyuki; IKEUCHI, Kenta; MATSUDA, Naoko; TSUCHIYA, Ryuichiro
    Abstract: Entrepreneurial process has been attracting much attention thus far, but no detailed empirical studies have been conducted on the determinants of the willingness to and the preparation for business start-up with a representative large sample. Especially in Japan, where start-up ratio and the number of people who wish to start their own business have decreased for decades, empirical analyses from a long term perspective are essential to consider why entrepreneurship in Japan experiences such a long-run downturn. However, previous empirical studies use one-shot dataset, and lack such a long term perspective. This paper aims to fill this gap using statistical micro data from the Employment Status Survey in Japan in seven survey cohorts for 30 years. We estimate what types of individuals wish to start up own business and prepare for that considering age, generation, gender, family status, education, income, occupation and employment types, firm size, job tenure, and industry. We find that the determinants of the willingness to and the preparation for business start-up are partially different and that household head dummy has positive, while female dummy, firm size and job tenure have negative effects on both willingness to and preparation for self-employment in all survey cohorts. We also find that the age effect on entrepreneurial process changes over time, with the peak of the willingness to start-up shifting towards older generation.
    Keywords: willingness, preparation, start-up, entrepreneurship, micro data, Japan
    Date: 2017–04
  4. By: Marco Le Moglie; Giuseppe Sorrenti
    Abstract: We study the investment of criminal organizations in the legal economy. We focus on Italy, a country historically plagued by a conspicuous presence of mafia-type organizations. By using the exogenous credit contraction imposed by the 2007 financial crisis we highlight how the consequences for newly established enterprises have been less severe in areas with organized crime. Although criminal organizations are largely detrimental for local economic conditions, their economic activity might act as an economic stabilizer in the short-run, especially in a context of weak institutional presence. The investment in the legal economy allows criminal organizations to launder money, make profits, and raise social consensus through the provision of alternative sources of social insurance.
    Keywords: Mafia, organized crime, illegal enterprises, financial crisis
    JEL: K42 L26
    Date: 2017–04
  5. By: Phan Kim Dung
    Abstract: Very little is known about the extent to which wage and employment offsetting behaviours change by firm size to mitigate the detrimental effects of minimum wage regulation. Do micro establishments react more aggressively to minimum wage shocks compared to small and medium establishments? To answer this question, this paper examines the impact of minimum wage hikes on employment and wages in Viet Nam’s micro enterprises, and small and medium enterprises (SMEs), respectively. In particular, I exploit the differences in the rates of increases in minimum wages across minimum wage regions to identify the effects of minimum wage changes. The findings indicate that minimum wage has greater employment effects on SMEs, but alters employment structure of micro firms.
    Date: 2017
  6. By: Demary, Markus; Hornik, Joanna; Watfe, Gibran
    Abstract: The proposal for a European Capital Markets Union (CMU) carries large potential economic benefits from enhancing the financing possibilities for Small and Medium-Sized Enterprises (SMEs). By deepening the capital markets and strengthening cross-border integration, the European Commission hopes to stimulate economic growth and boost employment. In this paper, we discuss to what extent these goals can be achieved, in light of the complex business environment of European SMEs. We outline the different types of SMEs in terms of their financing structures as well as the pervasive differences across the EU, concluding that any policy approach must take into account the diversity of the companies' financing needs and the market realities in the Member States. We argue that the CMU is likely to have a heterogeneous impact, with some types of SMEs and certain regions gaining more than others.
    Date: 2016
  7. By: Joan Farre-Mensa; Deepak Hegde; Alexander Ljungqvist
    Abstract: We provide evidence on the value of patents to startups by leveraging the random assignment of applications to examiners with different propensities to grant patents. Using unique data on all first-time applications filed at the U.S. Patent Office since 2001, we find that startups that win the patent “lottery” by drawing lenient examiners have, on average, 55% higher employment growth and 80% higher sales growth five years later. Patent winners also pursue more, and higher quality, follow-on innovation. Winning a first patent boosts a startup’s subsequent growth and innovation by facilitating access to funding from VCs, banks, and public investors.
    JEL: D23 G24 L26 O34
    Date: 2017–03
  8. By: Soha Ismail (The World Bank); Juan Jose Cortina Lorente; Sergio L. Schmukler
    Abstract: This paper provides a first analysis of the extent to which firms in the Arab region use capital markets to obtain financing and grow. It addresses two questions: First, how many and which firms issue equity, bonds, and syndicated loans in the Arab region? Second, how do these firms perform relative to non-issuing firms? To tackle these questions, a uniquely matched dataset of firm-level issuances and balance sheet information of 1,462 firms in the Arab region is constructed. Two main findings emerge from the analysis. (1) Over the last two decades, the amounts raised in equity, bond, and syndicated loan markets have considerably increased and been associated with an increasing number of issuing firms. (2) The typical issuing firm is larger, grows faster, is more leveraged, and holds more long-term debt relative to the typical non-issuer. Moreover, issuers seem to be initially larger than non-issuers in terms of assets, turnover, and the number of employees, and even grow faster over time. The firm size distribution of issuers lies to the right and shifts more rightwards over time compared to the distribution of non-issuers, indicating a divergence in firm size among listed firms.
    Date: 2017–11–05
  9. By: Edward L. Glaeser; Wentao Xiong
    Abstract: Africa is urbanizing rapidly, and this creates both opportunities and challenges. Labor productivity appears to be much higher in developing-world cities than in rural areas, and historically urbanization is strongly correlated with economic growth. Education seems to be a strong complement to urbanization, and entrepreneurial human capital correlates strongly with urban success. Immigrants provide a natural source of entrepreneurship, both in the U.S. and in Africa, which suggests that making African cities more livable can generate economic benefits by attracting talent. Reducing the negative externalities of urban life requires a combination of infrastructure, incentives, and institutions. Appropriate institutions can mean independent public authorities, public-private partnerships, and non-profit entities depending on the setting.
    JEL: L26 O18 R00
    Date: 2017–03
  10. By: Luna, Ivette; Hiratuka, Celio; Haddad Netto, Elias Youssef
    Abstract: This article aims to explore learning and selection effects of productivity change for three classes of firm’s sizes in Brazilian manufacturing and service sectors from 1996 to 2011. The methodology is based on the Price Equation. Our results support the international evidence about the weak intensity of the selection effect to explain aggregate productivity change for medium and large size firms. Small firms, however, are much more affected. Besides, size, measured by number of employees, appears to be a good proxy for capital intensity. There are as well signs that the learning effect is highly correlated with the economic cycle.
    Keywords: Productivity, innovation, evolutionary theory, productive structure
    JEL: D22 L11 L60 L80
    Date: 2016
  11. By: Bongini, Paola; Ferrando, Annalisa; Rossi, Emanuele; Rossolini, Monica
    Abstract: The present paper provides in-depth analysis of SME access to capital markets among Eurozone countries. First, we detect the factors - at the firm and country level - that are able to influence the likelihood of SME access to market-based finance. Second, we construct an index of what we call "market suitability",, i.e., a score that can be measured at the dimensional, sectoral and national level, which provides the percentage of firms potentially fit for market-based finance. Our results highlight that a few Eurozone countries seem to have deployed the "potential" for capital market financing, while there exists a large percentage of unexploited potential for firms fit for market-based finance. It should also be highlighted that overall business conditions - measured by GDP growth, the degree of development of domestic financial markets, and the quality of the legal and judicial enforcement system - greatly influence a firm's market suitability. In the period under consideration (2000-2014), macro factors tended to reduce the likelihood of SME access to market-based finance in most countries in our sample
    Keywords: Eurozone; market-based finance; SMEs
    JEL: G10 G32 L25 L26
    Date: 2017–04
  12. By: Emilia Bonaccorsi di Patti (Bank of Italy); Paolo Finaldi Russo (Bank of Italy)
    Abstract: In 2015 bank lending to larger firms expanded whereas it continued to contract for smaller ones; this gap is also observed for companies belonging to the same sector of economic activity or with similar budgetary conditions. Econometric estimates confirm that, taking into account a large number of firms’ characteristics (profitability, liquidity, sales dynamics, capital expenditure, economic sector and geographical area), the contraction in lending was especially pronounced for micro-firms and for riskier companies. The greater financial fragility of micro-firms, particularly due to their higher indebtedness, accounts for more than 70 per cent of the difference in the annual growth rate of loans to large companies and about 40 of that to small and medium-sized enterprises. A non-negligible proportion of these gaps is not explained by the firms’ characteristics considered in the analysis; it may instead reflect supply factors associated with a lower propensity on the part of some banks to finance small firms.
    Keywords: credit risk, credit allocation, flight to quality, evergreening
    JEL: G21 G32
    Date: 2017–02

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