nep-ent New Economics Papers
on Entrepreneurship
Issue of 2018‒02‒05
nine papers chosen by
Marcus Dejardin
Université de Namur

  1. Dinner Table Human Capital and Entrepreneurship By Hans K. Hvide; Paul Oyer
  2. Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation By Fairlie, Robert W.; Fossen, Frank M.
  3. Technological Innovation, Entrepreneurship and Productivity in Germany, 1871-2015 By Wim Naudé; Paula Nagler
  4. Heterogeneous Effects of Credit Constraints on SMEs' Employment: Evidence from the Great Recession By Cornille, David; Rycx, Francois; Tojerow, Ilan
  5. Man vs. Machine in Predicting Successful Entrepreneurs: Evidence from a Business Plan Competition in Nigeria By McKenzie, David J.; Sansone, Dario
  6. Does strategy formalization foster innovation? Evidence from a French sample of small to medium-sized enterprises By Marc Fréchet; Hervé Goy
  7. Clustering, Growth, and Inequality in China By Guo, Di; Jiang, Kun; Xu, Cheng-Gang; Yang, Xiyi
  8. Ecosystem complexity, firm learning and survival: UK evidence on intra-industry age and size diversity as exit hazards By Trushin, Eshref; Ugur, Mehmet
  9. Organising against appropriation. How self-employed workers in the creative industries make things work By Cnossen, Boukje

  1. By: Hans K. Hvide; Paul Oyer
    Abstract: We document three new facts about entrepreneurship. First, a majority of male entrepreneurs start a firm in the same or a closely related industry as their fathers’ industry of employment. Second, this tendency is correlated with intelligence: higher-IQ entrepreneurs are less likely to follow their fathers. Third, an entrepreneur that starts a firm in the same 5-digit industry as where his father was employed tends to outperform entrepreneurs in the same industry whose fathers did not work in that industry. We consider various explanations for these facts and conclude that “dinner table human capital”, where children obtain industry knowledge through their parents, is an important factor behind what type of firm is started and how well it performs.
    JEL: G3 J24 L26
    Date: 2018–01
  2. By: Fairlie, Robert W. (University of California, Santa Cruz); Fossen, Frank M. (University of Nevada, Reno)
    Abstract: A common finding in the entrepreneurship literature is that business creation increases in recessions. This counter-cyclical pattern is examined by separating business creation into two components: "opportunity" and "necessity" entrepreneurship. Although there is general agreement in the previous literature on the conceptual distinction between these two factors driving entrepreneurship, there are many challenges to creating a definition that is both objective and empirically feasible. We propose an operational definition of opportunity versus necessity entrepreneurship using readily available nationally representative data. We create a distinction between the two types of entrepreneurship based on the entrepreneur's prior work status that is consistent with the standard theoretical economic model of entrepreneurship. Using this definition we document that "opportunity" entrepreneurship is pro-cyclical and "necessity" entrepreneurship is counter-cyclical. We also find that "opportunity" vs. "necessity" entrepreneurship is associated with the creation of more growth-oriented businesses. The operational distinction proposed here may be useful for future research in entrepreneurship.
    Keywords: opportunity entrepreneurship, necessity entrepreneurship, business creation, business cycle
    JEL: J22 J23 L26
    Date: 2018–01
  3. By: Wim Naudé (Maastricht University, Maastricht School of Management and UNU-MERIT/MGSoG, Maastricht, The Netherlands and IZA-Institute of Labor Economics, Bonn, Germany); Paula Nagler (Erasmus Research & Business Support, Erasmus University Rotterdam and UNU-MERIT/MGSoG, Maastricht, The Netherlands.)
    Abstract: Entrepreneurship in Germany has been stagnating. As a result, the effectiveness of technological innovation to improve labor productivity weakened, which has been implicated in rising income inequality and poverty. In this paper we provide an overview of technological innovation and labor productivity growth from 1871. From this we show that over the past three decades the economy has found it increasingly difficult to transform technological innovation into labor productivity growth: in glaring contrast to earlier periods. Despite higher spending on R&D and more personnel than ever working in research labs, labor productivity growth continues to decline. Two interrelated reasons are offered for this phenomenon. The first is that the national innovation system itself has certain weaknesses. The second is entrepreneurial stagnation. We discuss the weaknesses of the innovation system and the nature and causes of entrepreneurial stagnation. We call for policies that will improve the innovation system, educational and managerial capabilities, venture capital investments, and the contestability of markets. Strengthening social protection and raising real wages are important supportive measures.
    Keywords: Entrepreneurship, Germany, Innovation, Social Protection, Industrial Policy
    JEL: D31 L26 O33 O38 O52
    Date: 2018–01
  4. By: Cornille, David (National Bank of Belgium); Rycx, Francois (Free University of Brussels); Tojerow, Ilan (Free University of Brussels)
    Abstract: This paper takes advantage of access to detailed matched bank-firm data to investigate whether and how employment decisions of SMEs have been affected by credit constraints in the wake of the Great Recession. Variability in banks' financial health following the 2008 crisis is used as an exogenous determinant of firms' access to credit. Findings, relative to the Belgian economy, clearly highlight that credit matters. They show that SMEs borrowing money from pre-crisis financially less healthy banks were significantly more likely to be affected by a credit constraint and, in turn, to adjust their labour input downwards than pre-crisis clients of more healthy banks. These results are robust across types of loan applications that were denied credit, i.e. applications to finance working capital, debt or new investments. Yet, estimates also show that credit constraints have been essentially detrimental for employment among SMEs experiencing a negative demand shock or facing strong product market competition. In terms of human resources management, credit constraints are not only found to foster employment adjustment at the extensive margin but also to increase the use of temporary layoff allowances for economic reasons. This outcome supports the hypothesis that short-time compensation programmes contribute to save jobs during recessions.
    Keywords: SMEs, banks' financial health, credit constraints, employment, short-time compensation programmes, Great Recession, matched bank-firm data
    JEL: C35 C36 D22 G01 G21 J21 J23
    Date: 2018–01
  5. By: McKenzie, David J.; Sansone, Dario
    Abstract: We compare the relative performance of man and machine in being able to predict outcomes for entrants in a business plan competition in Nigeria. The first human predictions are business plan scores from judges, and the second are simple ad-hoc prediction models used by researchers. We compare these (out-of-sample) performances to those of three machine learning approaches. We find that i) business plan scores from judges are uncorrelated with business survival, employment, sales, or profits three years later; ii) a few key characteristics of entrepreneurs such as gender, age, ability, and business sector do have some predictive power for future outcomes; iii) modern machine learning methods do not offer noticeable improvements; iv) the overall predictive power of all approaches is very low, highlighting the fundamental difficulty of picking winners; and v) our models can do twice as well as random selection in identifying firms in the top tail of performance.
    Keywords: business plans; entrepreneurship; Machine Learning; Nigeria
    JEL: C53 L26 M13 O12
    Date: 2017–12
  6. By: Marc Fréchet (COACTIS - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet [Saint-Étienne], CRM - Centre de Recherche en Management - UT1 - Université Toulouse 1 Capitole - CNRS - Centre National de la Recherche Scientifique); Hervé Goy (COACTIS - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet [Saint-Étienne])
    Abstract: Despite abundant research, the relationship between strategy formalization and innovation remains unclear. Some acknowledge a positive impact of strategy formalization on innovation while others consider it an impediment to novelty and creation. Going beyond the conflicting views over the influence of formalization, we combine open innovation and socio-material perspectives. This study aims to contribute to the debate by considering the possibility that formalization is a means of benefiting from openness with respect to innovation. Therefore, we predict that formalization might positively moderate the impact of openness on innovation. Relying on a unique sample of 555 SMEs, we investigate the effects of strategy formalization and openness—according to their various facets and interactions—on new product innovation. We find a positive influence of formalization (whether it is approached as a process or as a strategic tool) on product innovation. Our findings also support the idea that formalization increases the effectiveness of openness on innovation performance. Implications are discussed, and future research directions are outlined at the end.
    Keywords: innovation,open innovation,strategy formalization,SMEs
    Date: 2017
  7. By: Guo, Di; Jiang, Kun; Xu, Cheng-Gang; Yang, Xiyi
    Abstract: This study examines the effects of China's industrial clusters on its economic growth and urban-rural income inequality. A density-based index (DBI) is developed to capture the unique features of such clusters in China. From a county-level DBI panel data constructed based on firm-level and county-level datasets, we find that strong clusters and entrepreneurial clusters substantially enhance economic growth. Moreover, entrepreneurial clusters reduce urban-rural income inequality by increasing the income of rural residents. Identification issues are carefully addressed by deploying an instrumental variable approach.
    Keywords: China; clustering; Geography; growth and inequality; institutions
    JEL: D2 H7 O1 R1 R3
    Date: 2017–12
  8. By: Trushin, Eshref; Ugur, Mehmet
    Abstract: Firm age or size diversity in an industry is taken for granted but its implications for industry evolution and firm survival have remained below the radars of empirical research. We address this knowledge gap by drawing on an interdisciplinary theoretical framework informed by theoretical biology, organizational ecology and industrial organisation. We hypothesize that firms in more diverse industries are more likely to exit as a result of rugged fitness distributions where a global fitness optimum is less likely to emerge. We also hypothesize that investment in research and development (R&D) may counterbalance the adverse effect of diversity on survival by enabling the firm to engage in active learning about its market and technology niches. Evidence from discrete-time hazard estimators and an unbalanced panel dataset of 35,136 R&D-active UK firms lend support to these hypotheses. The findings remain robust to: (i) a battery of sensitivity checks, including step-wise estimations, different diversity measures and various firm cohorts; (ii) control for frailty and for a wide range of firm, industry, and macroeconomic factors considered in the survival literature; and (iii) taking account of direct effects of age, size and R&D intensity.
    Keywords: Diversity; complexity; firm survival; R&D; ecosystem
    JEL: C4 L2 O32 O33
    Date: 2018–01–25
  9. By: Cnossen, Boukje (Tilburg University, School of Economics and Management)
    Abstract: Although larger firms have several advantages when it comes to operating in competitive markets, western economies have a growing number of one-person firms or individual entrepreneurs. This creates new relevance for the question of how selfemployed workers can organise themselves in order to capture some of the benefits that come with being part of an organisation. This dissertation looks at this question by using three qualitative case studies, each zooming in on a particular setting where self-employed workers share space and work together. It employs a practicebased approach to organising and borrows from literature on labour in the creative and cultural industries across various disciplines, such as sociology, anthropology, and management. The main theoretical approach adopted in this dissertation sees organisations as temporary results of communicative practices. Such practices are explored in the context of two creative spaces and a network-like organisation of community artists in Amsterdam. Countering the widely-held idea that organisations must have a clear identity, or display unity in how they present themselves to the outside world, it is argued that the organising and organisations discussed in this dissertation all rely on selective modes of appropriation. This term is put forward to capture the fact that the organisations and the modes of organising discussed, make no attempt to appropriate the artistic and creative content their members produce. It is theorized that this allows for flexible modes of membership negotiation and institutional positioning, which better serves the members’ fluctuating strategic needs.
    Date: 2018

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