nep-ent New Economics Papers
on Entrepreneurship
Issue of 2017‒10‒08
eleven papers chosen by
Marcus Dejardin
Université de Namur

  1. High-Growth Entrepreneurship By J. David Brown; John S. Earle; Mee Jung Kim; Kyung Min Lee
  2. The Returns to Entrepreneurship: Evidence from Matched Person-firm Data By Mirjam (C.M.) van Praag; Arvid Raknerud
  3. Does inequality foster or hinder the growth of entrepreneurship in the long-run? By Roxana Gutiérrez; Luciana Méndez
  4. The Growth and Human Capital Structure of New Firms over the Business Cycle By Murmann, Martin
  5. Entrepreneurship and Information on Past Failures: A Natural Experiment By C. Cahn; M. Girotti; A. Landier
  6. The Externalities of Corruption: Evidence from Entrepreneurial Activity in China By Giannetti, Mariassunta; Liao, Guanmin; You, Jiaxing; Yu, Xiaoyun
  7. Venture capitalists at work: what are the effects on the firms they finance? By Raffaello Bronzini; Giampaolo Caramellino; Silvia Magri
  8. Employment Effects of Innovations over the Business Cycle: Firm-Level Evidence from European Countries By Peters, Bettina; Hud, Martin; Dachs, Bernhard; Köhler, Christian
  9. Entrepreneurship, College and Credit: The Golden Triangle By M Samaniego, Roberto; Yu Sun, Juliana
  10. The Effect of Competition Law on Brunei’s Small and Medium Enterprises By Michael, Bryane
  11. Boosting productivity for inclusive growth in Japan By Randall Jones; Yosuke Jin

  1. By: J. David Brown; John S. Earle; Mee Jung Kim; Kyung Min Lee
    Abstract: We study the patterns and determinants of job creation for a large cohort of start-up firms. Analysis of the universe of U.S. employers reveals strong persistence in employment size from firm birth to age seven, with a small fraction of firms accounting for most employment at both ages, patterns that are little explained by finely disaggregated industry controls or amount of finance. Linking to data from the Survey of Business Owners on characteristics of 54,700 founders of 36,400 start-ups, and defining “high growth” as the top 5% of firms in the size distribution at age zero and seven, we find that women have a 30% lower probability of founding high-growth entrepreneurships at both ages. A similar gap for African-Americans at start-up disappears by age seven. Other differences with respect to race, ethnicity, and nativity are modest. Founder age is initially positively associated with high growth probability but the profile flattens after seven years and even becomes slightly negative. The education profile is initially concave, with advanced degree recipients no more likely to found high growth firms than high school graduates, but the former catch up to those with bachelor’s degrees by firm age seven, while the latter do not. Most other relationships of high growth with founder characteristics are highly persistent over time. Prior business ownership is strongly positively associated, and veteran experience negatively associated, with high growth. A larger founding team raises the probability of high growth, while diversity (by gender, age, race/ethnicity, or nativity) either lowers the probability or has little effect. More start-up capital raises the high-growth propensity of firms founded by a sole proprietor, women, minorities, immigrants, veterans, novice entrepreneurs, and those who are younger or with less education. Perhaps surprisingly, women, minorities, and those with less education tend to choose high growth industries, but fewer of them achieve high growth compared to their industry peers.
    Date: 2017–01
  2. By: Mirjam (C.M.) van Praag (Copenhagen Business School, University of Amsterdam, CEPR, IZA; Tinbergen Institute, The Netherlands); Arvid Raknerud (Statistics Norway, Norges Bank)
    Abstract: Empirical studies show low pecuniary returns of switching from wage employment to entrepreneurship. We reconsider the pecuniary gains of this switching by employing a two-stage procedure, where the randomness in the timing of inheritance transfers is used as an exclusion restriction to identify causal effects. The model is estimated on data covering the whole Norwegian population of individuals matched to the entire population of firms established in the period 2002–2011. The results indicate that the average returns to entrepreneurship are significantly negative for individuals entering entrepreneurship through self-employment and modest, but significantly positive, for incorporated startups.
    Keywords: Returns to entrepreneurship; Earnings distribution; Matched person-firm data; Self-employment; Random effects probit model
    JEL: L26 C23 J31 G32
    Date: 2017–09–22
  3. By: Roxana Gutiérrez (Queen Mary University of London. School of Business and Management); Luciana Méndez (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: This article assesses the extent to which historical levels of inequality affect the creation and survival of businesses over time. To this end, we use the Global Entrepreneurship Monitor (GEM) survey across 66 countries over 2005–2011. We complement this survey with data on income inequality dating back to early 1800s and current institutional environment, such as the number of procedures to start a new business, countries’ degree of financial inclusion, corruption and political stability. We find that although inequality increases the number of firms created out of need, inequality reduces entrepreneurial activity as in net terms businesses are less likely to be created and survive over time. These findings are robust to using different measures of inequality across different points in time and regions, even if excluding Latin America the most unequal region in the world. Our evidence then supports theories that argue early conditions, crucially inequality, influence development path.
    Keywords: Inequality; entrepreneurship; panel data; instrumental variables
    JEL: M2 O1 D3 C23
    Date: 2017–10
  4. By: Murmann, Martin
    Abstract: Recent research based on aggregate data suggests that employment in young firms is more negatively impacted during economic crises than employment in incumbent firms. Using firm-level data, we show that under constant human capital of the firms' founders, employment growth in less than 1 1/2-year-old start-ups reacts countercyclically and employment growth in older start-ups reacts procyclically. The young start-ups realize their countercyclical growth by hiring qualified labor market entrants.
    JEL: E32 J23 L26 M13 L25 L11 D22
    Date: 2017
  5. By: C. Cahn; M. Girotti; A. Landier
    Abstract: We analyze how public information on past entrepreneurial failure affects entrepreneurs’ ability to borrow. We exploit a policy shock from 2013 in France, which eliminated a highly salient public reporting to banks of managers involved in non-fraudulent corporate liquidations. We find that the flag removal makes failed entrepreneurs significantly more likely to restart a business or to borrow from a surviving business, despite the fact that bankers can find the failure information from other public sources for a small cost. Restarters create companies that have a higher probability of default.
    Keywords: Entrepreneurship, Access to credit, Bankruptcy.
    JEL: G33 L26
    Date: 2017
  6. By: Giannetti, Mariassunta; Liao, Guanmin; You, Jiaxing; Yu, Xiaoyun
    Abstract: We show that corruption affects negatively the performance of small entrepreneurial firms, which compete with corrupted industry peers. We exploit the Chinese anti-corruption campaign to establish causality and identify the channels through which corruption causes negative externalities. Small firms have lower sales growth in industries with high corruption, arguably because demand is diverted to the largest firms in their industries, which spend more in corrupting officials. Small firms also have higher financing costs in industries with high corruption and therefore invest less. Furthermore, corruption decreases the efficiency of labor and capital allocation and deters firm entry.
    Keywords: capital and labor allocation; China; corporate governance; Corruption
    JEL: D22 D62 G30 L20 O12 P26
    Date: 2017–10
  7. By: Raffaello Bronzini (Bank of Italy); Giampaolo Caramellino (London School of Economics); Silvia Magri (Bank of Italy)
    Abstract: Italian startups financed by venture capitalists (VCs) experience a faster growth in size and become more innovative compared with other startups. VC-backed firms also show a much larger increase in equity and a reduction in their leverage. This evidence is obtained by comparing a representative sample of firms financed by private VCs in the period 2004-2014 with a sample of firms rejected by VC at the very last stage of the screening process or in the due diligence phase. These firms narrowly lost the contest and before VC financing have very similar observable and unobservable characteristics to the VC-backed firms; self-selection is specifically taken into account. The effects on firms' size and innovation are not exclusively explained by equity financing. The results hold when we restrict the comparison to firms in the control group that also increase their equity from investors other than VCs: this suggests that VC effects can also be linked to their managerial expertise and network connection. Finally, the results are exclusively driven by independent VC investors compared with captive VCs.
    Keywords: venture capital, innovation, firm financial structure, differences-in-differences
    JEL: G21 G24 G32 O30
    Date: 2017–09
  8. By: Peters, Bettina; Hud, Martin; Dachs, Bernhard; Köhler, Christian
    Abstract: We investigate employment effects of innovations over the business cycle using data of manufacturing firms from 26 EU countries for the period 1998-2010. Using a structural model, our empirical analysis reveals three important findings: 1) The net effect of product innovation on employment growth is pro-cyclical. It is positive in all BC phases except for the recession. 2) Product innovators are more resilient to recessions than non-product innovators. 3) We only find resilience for SMEs.
    JEL: O33 J23 C26 D2
    Date: 2017
  9. By: M Samaniego, Roberto (The George Washington University); Yu Sun, Juliana (School of Economics, Singapore Management University)
    Abstract: We develop a model to evaluate the impact of college education finance on welfare, inequality and aggregate outcomes. Our model captures the stylized fact that entrepreneurs with college are more common and more profitable. Our calibration to US data suggests this is mainly because higher labor earnings allow college educated agents to ameliorate credit constraints when they become entrepreneurs. The welfare benefits of subsidizing education are greater than those of eliminating financing constraints on education because subsidies ameliorate the impact of financing constraints on would-be entrepreneurs.
    Date: 2016–04–28
  10. By: Michael, Bryane
    Abstract: Brunei must enact an effective competition policy in order to participate as a member in regional trading blocs like the APEC, ASEAN and the Trans-Pacific Partnership. What effect would Brunei’s Competition Order have on Brunei – and specifically its small and medium enterprises or SMEs (the motor of non-petrol led growth)? We develop an indication of the scope of competition policy – and use that indicator in cross-country analysis to figure out competition’s effect on Brunei’s SMEs. Using back-of-the-envelope calculation methods, increasing competition under the status quo would likely cost Brunei US$100 million. Yet, if serious innovation policy tags along with Brunei’s expanding competition policy, Brunei’s SMEs could experience a $10 billion jump in GDP. Without policies to boost the effectiveness of the US$1.5 billion in Wawasan innovation spending, increased competition could harm Brunei’s SMEs. We identify the lack of Competition Commission independence and information dissemination.
    Keywords: antitrust,Brunei,competition policy,Competition Order
    JEL: K21 L44
    Date: 2017
  11. By: Randall Jones; Yosuke Jin
    Abstract: Never in the past 30 years has productivity growth been lower than since the 2008 global financial crisis, and never has income inequality been higher than it is today in Japan, and in the OECD area. The two challenges have some common origins, including a widening productivity and wage gap between leading firms and those that are lagging. This creates scope for positive synergy between policies to promote productivity and inclusive growth. Exit policy should be improved to facilitate the closure of non-viable firms, whose survival hampers the growth of viable firms in Japan. This would also increase firm entry, along with policies to promote entrepreneurship. The growing gap between small and medium-sized enterprises and large firms also needs to be addressed. Breaking down labour market dualism, which limits human capital accumulation by non-regular workers and contributes to earnings and income inequality, is also a priority. Finally, ensuring appropriate skills, including those needed for digitalisation, would help support higher productivity and inclusive growth. This Working Paper relates to the 2017 OECD Economic Survey of Japan ( y-japan.htm)
    Keywords: Abenomics, bankruptcy law, corporate governance, entrepreneurship, firm exit, human capital, income inequality, innovation, labour market dualism, product market regulation, productivity, SMEs
    JEL: J4 K3 O3 O4
    Date: 2017–10–04

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