nep-ent New Economics Papers
on Entrepreneurship
Issue of 2017‒05‒21
eighteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Schumpeterian Entrepreneurship in Europe Compared to Other Industrialized Regions By Henrekson, Magnus; Sanandaji, Tino
  2. High growth firms in employment and productivity: dynamic interactions and the role of financial constraints? By Cristina Guillamón; Enrique Moral-Benito; Sergio Puente
  3. Size-dependent Policy and Firm Growth By HOSONO Kaoru; TAKIZAWA Miho; TSURU Kotaro
  4. Stock Option Taxation: A Missing Piece in European Innovation Policy? By Henrekson, Magnus; Sanandaji, Tino
  5. Self-Employment Differentials among Foreign-Born STEM and Non-STEM Workers By Cai, Zhengyu; Winters, John V.
  6. Success, Survive or Escape? Aspirations and Poverty Traps By David Chivers
  7. Entrepreneurship, Institutions and Skills in Low-Income Countries By Brixiova, Zuzana; Égert, Balázs
  8. Tax Administration and Firm Performance; New Data and Evidence for Emerging Market and Developing Economies By Era Dabla-Norris; Florian Misch; Duncan Cleary; Munawer Khwaja
  9. Capital as Power in the Creative Industries: A Case Study of Freelance Creative Work in the Netherlands By Pitts, Frederick Harry
  10. 7 ways to boost digital innovation and entrepreneurship in Europe. Key messages from the European innovation policies for the digital shift project By Daniel Nepelski; Marc Bogdanowicz; Federico Biagi; Paul Desruelle; Giuditta De Prato; Garry Gabison; Giuseppe Piroli; Annarosa Pesole; Nikolaus Thumm; Vincent Van Roy
  11. Household Matters: Revisiting the Returns to Capital among Female Micro-entrepreneurs By Arielle Bernhardt; Erica Field; Rohini Pande; Natalia Rigol
  12. Bank-Firm Relationship and Small Business Innovation By XU Peng
  13. Public guarantees on loans to SMEs: an RDD evaluation By Guido de Blasio; Stefania De Mitri; Alessio D'Ignazio; Paolo Finaldi Russo; Lavina Stoppani
  14. An Estimated Structural Model of Entrepreneurial Behavior By Jones, John Bailey; Pratap, Sangeeta
  15. Dynamics of Investor Communication in Equity Crowdfunding By Gregor Dorfleitner; Lars Hornuf; Martina Weber
  16. The Multiprod project: A comprehensive overview By Giuseppe Berlingieri; Patrick Blanchenay; Sara Calligaris; Chiara Criscuolo
  17. Romania: Many Entrepreneurs but Few Innovators By Badulescu, Daniel; Cadar, Otilia
  18. Les modalités d’introduction en bourse des PME-ETI innovantes : le cas des jeunes pépites bio/medtech françaises, The Characteristics of initial public offering for innovative small and medium-sized firms: the case of young french bio/medtech firms By Evelyne POINCELOT

  1. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF), Stockholm School of Economics)
    Abstract: We examine whether Europe has an “entrepreneurship deficit” compared to other industrialized regions. Cross-country comparisons are difficult due to the lack of standard empirical definitions of entrepreneurship. Measures focusing on small business activity and startup rates suggest that Europe has the same or higher rates of entrepreneurship than the U.S. and East Asia. However, most business activity is not entrepreneurial in the Schumpeterian sense. We rely on empirical measures that more closely tally Schumpeterian entrepreneurship. These include top global firms founded in recent decades, highly valued unicorn startups, venture capital investments as a share of GDP, and the number of self-made dollar billionaires per capita who earned their wealth by creating new firms. Western Europe is shown to underperform in all four measures of high-impact Schumpeterian entrepreneurship relative to the U.S. Once we account for Europe’s strong performance in technological innovation, an “entrepreneurship deficit” relative to China and East Asia becomes apparent. This underperformance is missed by most standard measures, but captured by the GEM measure China is found to perform surprisingly well in Schumpeterian entrepreneurship, especially compared to Eastern Europe.
    Keywords: Billionaire entrepreneurs; Entrepreneurship; Innovation; Institutions; Regulation; Self-employment
    JEL: L50 M13 O31 P14
    Date: 2017–05–16
  2. By: Cristina Guillamón (Banco de España); Enrique Moral-Benito (Banco de España); Sergio Puente (Banco de España)
    Abstract: Using a panel of Spanish firms over the period 2002-2012, we investigate the interactions between high growth episodes in terms of size and productivity. We find that high growth in productivity (size) increases the likelihood of high growth in size (productivity). However, the effect from size to productivity is smaller than the effect from productivity to size. We also explore the potential role of firm-level financial constraints using information from the Central Credit Register (CIR) of Banco de España. Our results indicate that credit constraints hamper high growth episodes in terms of both size and productivity.
    Keywords: keyword, high-growth firms, high-impact firms, productivity, panel firm-level data
    JEL: L25 L11 D24 C23
    Date: 2017–05
  3. By: HOSONO Kaoru; TAKIZAWA Miho; TSURU Kotaro
    Abstract: Governments in most countries regulate, tax, and subsidize firms depending on whether firm size is larger or smaller than some preset thresholds. Firms that remain below the thresholds can receive benefits from the government, but may incur costs or distortions that could arise from being below the optimal size without such policies. Such benefits and costs are likely to depend on firm and industry characteristics. Using the policy reform in Japan that raised the thresholds as a natural experiment, we examine (1) whether and to what extent the distribution of firm size is distorted due to the presence of the thresholds, (2) the characteristics of firms that grow beyond the thresholds, and (3) how firms that grow beyond the thresholds perform as compared to those that remain below the thresholds. We have obtained evidence for some, although not all, industries as follows. First, bunching and its shift can be found at the thresholds in the size distribution in terms of stated capital. Second, capital structure is distorted under the threshold of stated capital. Third, firms with lower productivity are more likely to be small and medium enterprises (SMEs) after the policy reform. Finally, while the ex-post research and development (R&D) intensity of firms that grew to large firms decreases as compared to those that remain as SMEs, the ex-post profitability and productivity of firms that grew to large firms increase. Overall, our results suggest that size-dependent policies in Japan cause distortions on firms' financial policy, R&D, and operating performance. However, the degree of such distortions greatly differs across industriess.
    Date: 2017–05
  4. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF), Stockholm School of Economics)
    Abstract: Venture capital has become a dominant form of innovation finance, used by many high-tech startups. Europe lags the U.S. in both VC activity and the creation of successful startups, and has recently been surpassed by China. Few European countries have rates of VC activity commensurable to their deep finan­cial markets, strong legal institutions and high R&D spending. This paper points to the tax treatment of employee stock options as an important and neglected explanation. Innovative entrepreneurship is a complex activity that normally requires support structures and collaboration by actors providing financial and human capital to startups. As a response to high uncertainty and transaction costs, VC financiers developed a model where founders and key recruitments are compensated with stock options under complex contracts. While most countries tax stock options as labor earnings, the U.S. allow them to be taxed at a low capital gains tax rate. This has led to near universal use of stock options in U.S. VC deals, while this remains less common in Europe. There is a strong correlation between favorable tax treatment of employee stock options and VC activity. We discuss the interaction between tax policy and contract theory to show why employee stock options are a suitable solution to agency and incentive problems in this sector. A major advantage of this tax policy is that it narrowly targets entrepreneurial startups without requiring broad tax cuts.
    Keywords: Business taxation; Corporate governance; Entrepreneurship; Innovation; Institutions; Tax policy; Stock options; Venture capital
    JEL: H25 H30 K34 L26
    Date: 2017–05–12
  5. By: Cai, Zhengyu (Southwestern University of Finance and Economics); Winters, John V. (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: 2017–04
  6. By: David Chivers (Durham Business School)
    Abstract: I present a model of occupational choice where an agent decides whether to invest in a project that yields risky returns or a project that yields safe returns. An agentís utility is affected by the presence of an aspiration level which will only be satisÖed if their Önal income is above the poverty line. I show that agents who are sufficiently above the poverty line will invest in the risky project and are able to aspire for success. An agent, however, who is just above the poverty line, may be so concerned about falling into poverty that they choose to invest in the safe project. These individuals aspire only to survive. Alternatively, if an agent is su¢ ciently below the poverty line, then they will invest in the risky project even if expected returns are lower than the safe project. These individuals have "nothing left to lose" and therefore aspire to escape. Two forms of poverty traps emerge from the resulting equilibria: one above the poverty line, and one below the poverty line. Finally, I o§er empirical support for the model based on individual level survey data across a large number of ountries.Keywords: Poverty Traps, Entrepreneurship, Aspirations, Loss aversion, Development
    JEL: D31 D81 E24 L26 O11
    Date: 2017–05
  7. By: Brixiova, Zuzana (University of Cape Town); Égert, Balázs (OECD)
    Abstract: This paper develops a model of costly firm creation in an economy with weak institutions, costly business environment as well as skill gaps where one of the equilibrium outcomes is a low-productivity trap. The paper tests the implications of the model using a cross-sectional dataset including about 100 countries. Both theoretical and empirical results suggest that to move the economy into a productive equilibrium, complementarity matters: reforms to improve the business environment tend to be more effective in creating productive firms when accompanied by narrowing skill gaps. Similarly, more conducive business regulations amplify the positive impact on firm creation of better education and reduced skill mismatches. To escape a low-productivity trap, policymakers should thus create a pro-business framework and a well-functioning education system.
    Keywords: model of start-ups and strategic complements, institutions, education, low-income countries, threshold regression
    JEL: L26 J24 J48 O17
    Date: 2017–04
  8. By: Era Dabla-Norris; Florian Misch; Duncan Cleary; Munawer Khwaja
    Abstract: Tax compliance costs tend to be disproportionately higher for small and young businesses. This paper examines how the quality of tax administration affects firm performance for a large sample of firms in emerging market and developing economies. We construct a novel, internationally comparable, and multidimensional index of tax administration quality (the TAQI) using information from the Tax Administration Diagnostic Assessment Tool. We show that better tax administration attenuates the productivity gap of small and young firms relative to larger and older firms, a result that is robust to controlling for other aspects of tax policy and of economic governance, alternative definitions of small and young firms, and measures of the quality of tax administration. From a policy perspective, we provide evidence that countries can reap growth and productivity dividends from improvements in tax administration that lower compliance costs faced by firms.
    Date: 2017–04–14
  9. By: Pitts, Frederick Harry
    Abstract: Using Nitzan and Bichler’s understanding of the dissonant relationship between creativity and power and business and industry, this paper investigates the rhythms of freelance creative work. It reports findings from interviews conducted with freelancers working in the Dutch creative industries. The findings suggest that freelancers enjoy more responsibility and autonomy than formal employees. But this autonomy represents a risk that their clients must manage. Different client relationships, and the proximity they imply, produce different rhythms. The research explores freelancers’ experiences of these rhythms in graphic design, advertising and branding. The research begins from the premise that risk and responsibility are both assumed and apportioned as a function of relationships of power and discipline in the sphere of work. Freelancers are agents of the management of these two interrelated categories. They are subject to the competing rhythms implied by the relation between these two categories. With reference to these rhythms, the research draws upon Nitzan and Bichler’s theory of ‘capital as power’ as an analytical tool. Nitzan and Bichler develop a conceptualisation of the tension between ‘industry’ and ‘business’. This explains how the latter sabotages the creativity of the former. This produces a ‘dissonance’ between the two. This dissonance is the productive driving force of capital accumulation. Applying this to the relationship of risk and responsibility in freelance creative work, I explore how these differing rhythms manifest. The conflict between the freedom to be creative and the management of creativity is not a deficiency of creative production. Rather, it is its moving principle.
    Date: 2016
  10. By: Daniel Nepelski (European Commission - JRC); Marc Bogdanowicz; Federico Biagi (European Commission - JRC); Paul Desruelle (European Commission - JRC); Giuditta De Prato (European Commission - JRC); Garry Gabison (European Commission - JRC); Giuseppe Piroli; Annarosa Pesole (European Commission - JRC); Nikolaus Thumm (European Commission - JRC); Vincent Van Roy (European Commission - JRC)
    Abstract: This report attempts to summarise findings and conclusions of over 30 studies published within the EURIPIDIS project (European Innovation Policies for the Digital Shift). The objective of EURIPIDIS was to better understand how digital innovation and entrepreneurship work; to assess the EU's digital innovation and entrepreneurship performance; and to suggest how policy makers could make digital innovation and entrepreneurship in the EU work better. Because digital technologies facilitate the modernization of firms and economies, digital innovation and entrepreneurship requires a comprehensive policy response. The current report focuses on 7 issues. (1) Digital innovation and entrepreneurship require skills and capabilities ranging from technical, managerial and financial; entrepreneurial culture; failure acceptance; large funding and innovation-friendly regulatory environment. Capacity building and specific policies are needed in all those fields. (2) Resisting digital disruption and protecting the status quo is likely to be a short-term strategy. Negative social and economic effects need to be mitigated. (3) The ecosystem of digital innovation and entrepreneurship consists of a wide range of different players. Policy responses need to address this heterogeneity. (4) Digital innovation and entrepreneurship takes place through collaborative interactions between various players. To facilitate collaboration, knowledge flow and spillovers need to become a more central focus of public policies. (5) In addition to increasing funding for innovation, closer attention needs to be paid to the availability of funding for scaling-up of digital enterprises. (6) To guarantee technological interoperability and create technology-related network effects, coordination between various players to, for example, set technological standards is needed. (7) Technological complexity combined with the cumulativeness of digital innovation requires a balance between two conflicting goals: the provision of incentives to create new products and the stimulation of knowledge dissemination.
    Keywords: ICT, digital economy, big data, innovation
    Date: 2017–04
  11. By: Arielle Bernhardt; Erica Field; Rohini Pande; Natalia Rigol
    Abstract: Several field experiments fi nd positive returns to grants for male and not female micro-entrepreneurs. But, these analyses largely overlook that male and female micro-entrepreneurs often belong to the same household. Using data from randomized trials in India, Sri Lanka and Ghana, we show that the gender gap in microenterprise performance is not due to a gap in aptitude. Instead, low average returns of female-run enterprises are observed because women's capital is invested into their husbands' enterprises rather than their own. When women are the sole household enterprise operator, capital shocks lead to large increases in profits. Household-level income gains are equivalent regardless of the grant or loan recipient's gender.
    JEL: D1 H31 J16 O12
    Date: 2017–04
  12. By: XU Peng
    Abstract: This paper empirically investigates the effect of banks' soft information on small business innovations. Using data from a sample of Japanese small and medium enterprises (SMEs), we find that multiple banking prevails. Moreover, besides the main bank, the sub bank also acquires soft information for a number of multiple banking firms. Nonetheless, there coexists no bank information: the main bank's information monopoly and multiple bank information competition. Importantly, such information competition in multiple banking is positively related to both product and process innovation while the main bank's information monopoly has no significant effects on innovation. Also, we offer additional consistent evidence that information competition decreases the likelihood of worsening of the lending attitude of the main bank during the financial crisis. For single banking firms, bank information monopolies have a negative effect on product and process innovation.
    Date: 2017–04
  13. By: Guido de Blasio (Bank of Italy); Stefania De Mitri (Bank of Italy); Alessio D'Ignazio (Bank of Italy); Paolo Finaldi Russo (Bank of Italy); Lavina Stoppani (Catholic University of Milan)
    Abstract: The paper evaluates the impact of the guarantees provided by the Italian scheme Fondo di Garanzia on the access to credit for small and medium enterprises. The study exploits the mechanism that assigns the guarantees, which is based on a scoring system to assess eligibility. By using regression discontinuity techniques, the paper finds that at the threshold between eligible and non-eligible firms, the program has a positive impact on bank loans to firms; however, the scheme has no impact on the interest rate charged by the banks, while it affects positively the likelihood that a firm becomes unable to repay its loans. The guaranteed loans were mostly used to finance working capital. Finally, the paper provides inference for far-from-the-threshold firms.
    Keywords: credit guarantees, public guarantees, access to credit, SMEs financing
    JEL: L25 O12 G28
    Date: 2017–04
  14. By: Jones, John Bailey (Federal Reserve Bank of Richmond); Pratap, Sangeeta (Hunter College & Graduate Center - CUNY)
    Abstract: Using a rich panel of owner-operated New York dairy farms, we provide new evidence on entrepreneurial behavior. We formulate a dynamic model of farms facing uninsured risks and financial constraints. Farmers derive nonpecuniary benefits from operating their businesses. We estimate the model via simulated minimum distance, matching both production and financial data. We find that financial factors and nonpecuniary benefits are of first-order importance. Collateral constraints and liquidity restrictions inhibit borrowing and the accumulation of capital. The nonpecuniary benefits to farming are large and keep small, low-productivity farms in business. Although farmers are risk averse, eliminating uninsured risk has only modest effects on capital and output.
    Keywords: Entrepreneurs; financial constraints
    JEL: G31 G32 L26
    Date: 2017–05–08
  15. By: Gregor Dorfleitner; Lars Hornuf; Martina Weber
    Abstract: In crowdfunding, start-ups can voluntarily communicate with their investors by posting updates. We investigate whether start-ups strategically use updates, which were previously shown to increase investments. To this end, we use hand-collected data of 751 updates and 39,036 investment decisions from the two major German equity crowdfunding portals Seedmatch and Companisto. We find evidence for strategic communication behavior of startups during an equity crowdfunding campaign. During the funding period, start-ups post updates with linguistic devices that enhance the group identity and the group cohesion. Furthermore, the probability of an update during the funding period increases with a strong competition of other contemporary crowdfunding campaigns.
    Keywords: Crowdfunding, Investor Communication, Entrepreneurial Finance, Sentiment Analysis, Linguistic Devices
    Date: 2017
  16. By: Giuseppe Berlingieri; Patrick Blanchenay; Sara Calligaris; Chiara Criscuolo
    Abstract: This paper is a technical document, designed to serve as a reference document for subsequent papers arising out of MultiProd, a project of the Committee on Industry, Innovation and Entrepreneurship and the Working Party on Industry Analysis, aimed at studying productivity patterns across countries and over time. MultiProd provides harmonised micro-aggregated data of paramount importance for investigating the extent to which different policy frameworks can shape firm productivity and examining the way resources are allocated to more productive firms. The paper discusses the project’s main contributions in relation to the current literature, in particular how using micro-aggregated data can help policy-makers understand and measure the efficiency of resource allocation in the economy, the dependence of economic activity on a small number of large firms, and wage inequality.
    Date: 2017–05–16
  17. By: Badulescu, Daniel; Cadar, Otilia
    Abstract: Entrepreneurship is considered an essential element for the development and prosperity of contemporary economies. The already known traits: creating jobs, boosting growth, revenues to the state budget, are supplemented by vitality and adaptability, and not least, a capacity for innovation. Thus, innovation became one of the most important factors in the companies’ activity. However, innovation doesn’t only mean new products and services. It is closely related to the capacity of entrepreneurs and managers to apply new business models, embedding an organizational culture capable to identify how new ideas could be converted into value for business and society. Innovation supports the efforts of ambitious entrepreneurs to pursue their objectives and stimulate other potential entrepreneurs to enter into businesses. Innovation generates, directly and indirectly, positive effects not only within a company but also within the national economy, as a whole. Despite this empirical evidence, the link between entrepreneurship and innovation is difficult to describe, to introduce it in strong theoretical models, in order to substantiate viable political programs. First, only a relatively small part of entrepreneurs really innovate. Secondly, researchers reveal deep, but subtle, ties between the entrepreneurs’ profile, availability for innovation and effects on states’ competitiveness and prosperity. Finally, the number (or proportion) of entrepreneurs isn’t the most relevant, but their availability to innovate, the type of innovation chosen and, especially, how entrepreneurial organizations stimulate innovative initiatives among their employees (intrapreneurship). From this point of view, Romania's situation is difficult and challenging. The importance and size of the sector, entrepreneurial motivations, or the share of early stage innovative entrepreneurs indicate an average position at a global or European Union (EU) level. However, Romania is a modest innovator, often ranked last in the EU for a several innovation indicators, and its innovation performance in 2014 is at a significantly lower level compared to 2007. The poorest relative performance has been registered for the Linkages & entrepreneurship indicator. Our research also performs a comparison between entrepreneurship and innovation indicators, for Romania and selected Central and Eastern European states, to better understand the gap regarding a reasonable performance in innovation.
    Keywords: innovation, entrepreneurship, competitiveness, EU, Romania
    JEL: L26 M21 O31
    Date: 2016–05–26
  18. By: Evelyne POINCELOT (IAE DIJON - Université de Bourgogne (CREGO))
    Abstract: (VF) Les différentes mesures gouvernementales en faveur des PME innovantes, le nombre de sociétés du secteur de biotechnologie introduites en bourse sur les dix dernières années, les caractéristiques de leur financement pré-introduction sont différents facteurs qui justifient de s’intéresser particulièrement aux entreprises dans les secteurs biotechnologies et de l’équipement médical ainsi qu’à leur modalités d’introduction (décote, flottant, procédure de cotation). Différents tests de différence de moyenne ont permis de dégager des résultats significatifs. En comparant avec un échantillon de contrôle (entreprises non éligibles au PEA-PME et n’ayant pas obtenu le statut de Jeune Entreprise Innovante), nous avons constaté que les PME-ETI de ce secteur s’introduisent en bourse plus rapidement, en recourant davantage à la procédure d’offre à prix ouvert (OPO) et font l’objet d’un financement préalable plus important par des actionnaires financiers. Bien que la détention du capital et le désengagement des actionnaires financiers qui sont également les principaux actionnaires soient plus importants, nous ne constatons pas de différence significative avec les sociétés de contrôle. Pour ces sociétés biotech, le désengagement des actionnaires financiers se caractérise davantage par un effet de dilution de leur participation car aucun ne cède de titres et ne souhaite souscrire de nouvelles actions lors de l’introduction. Cet article a permis également de caractériser, de façon approfondie, les entreprises de ce secteur, notamment les actionnaires financiers participant au financement. Les résultats obtenus par les régressions ne mettent pas en évidence de variables significatives susceptibles d’expliquer la décote ou l’importance de la dilution relativement au flottant. (VA) The various government measures in favor of innovative SMEs, the number of biotechnology firms listed on the stock exchange over the last ten years, the characteristics of their pre-introduction financing are different factors that justify a particular interest for these firms and their methods of introduction (discount, float, quotation procedure). Different tests of mean difference have significant results. Comparing with a control sample, we found that SME in this sector are listed on the stock exchange faster, by making greater use of the open-price offer procedure (OPO) and are subject to greater prior financing by financial stockholders. Although the ownership of the capital and the disengagement of the financial stockholders, who are also the main shareholders, are larger, we do not see any significant difference with the control firms. For these biotech companies, the disengagement of financial shareholders is characterized more by a dilution effect of their participation because none sells securities and does not wish to subscribe for new shares at the time of the introduction. This article has also made it possible to characterize, in depth, the firms in this sector, in particular the financial shareholders participating in the financing. The results obtained by the regressions do not reveal any significant variables that may explain the discount or the size of the dilution relative to the float rate.
    Keywords: introduction en bourse, Pme innovante, société de biotechnologie;IPO, innovative SMEs, biotechnology firms
    JEL: G32 G30
    Date: 2017–03

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