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on Entrepreneurship |
| By: | Geoffrey Barrows (CREST) |
| Abstract: | Many organizations around the world implement programs designed to encourage entrepreneurship, including grant prize awards, accelerator programs, incubators, etc. The goal of these programs is to supply entrepreneurs with early-stage support and visibility to help develop ideas and attract capital; but, if capital markets are efficient, good business ideas should find funding anyways. In this paper, I present evidence from the first global-scale, quasi-experimental study of whether entrepreneurship programs improve outcomes for start-up firms. I employ a regression discontinuity design to test whether winners of start-up program competitions perform better ex-post than losers, where the threshold rank for winning the competition provides exogenous variation in program participation. With 460 competitions across 113 countries and over 20,000 competing firms, I find that winning a competitions increases the probability of firm survival by 64%, the total amount of follow-on financing by $260,000 USD, and total employment by 47%, as well as other web-based metrics of firm success. Impacts are driven by medium-size prize competitions, and are precisely estimated both in countries where the costs of starting a business are low and where these costs are high. These results suggest that capital market frictions indeed prohibit start-up growth in many parts of the world. |
| Keywords: | Start-ups, Entrepreneurship, Credit Constraints, Prizes, Accelerators |
| JEL: | G24 L26 M13 O16 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:fae:wpaper:2018.02&r=ent |
| By: | Birkeneder, Antonia; Brunow, Stephan; Rodríguez-Pose, Andrés |
| Abstract: | This paper examines the link between innovation and the endowments of creative and science-oriented STEM - Science, Technology, Engineering and Mathematics - workers at the level of the firm and at the city-/regional-level in Germany. It also looks into whether the presence of these two groups of workers has greater benefits for larger cities than smaller locations, thus justifying policies to attract these workers in order to make German cities 'smarter'. The empirical analysis is based on a probit estimation, covering 115,000 firm-level observations between 1998 and 2015. The results highlight that firms that employ creative and STEM workers are more innovative than those that do not. However, the positive connection of creative workers to innovation is limited to the boundaries of the firm, whereas that of STEM workers is as associated to the generation of considerable innovation spillovers. Hence, attracting STEM workers is more likely to end up making German cities smarter than focusing exclusively on creative workers. |
| Keywords: | Creative workers; Germany; Innovation; Smart Cities; Spillover; STEM workers |
| JEL: | J24 R23 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12695&r=ent |
| By: | Arora, Ashish; Fosfuri, Andrea; Rønde, Thomas |
| Abstract: | Most technology startups are set up for exit through acquisition by large corporations. In choosing when to sell, startups face a tradeoff. Early acquisitions reduce execution errors but later acquisitions improve the likelihood of finding a better match because there are fewer buyers in the early market as early acquisitions require costly absorptive capacity. Moreover, the decision of buyers to invest in absorptive capacity is related to the decision of startups on the timing of the exit sale. In this paper, we build a model to capture this complexity and the related tradeoffs. We find that the early market for startups is inefficiently thin when the timing of exit is a strategic choice, i.e. startups have to commit whether to go early or late. Too few startups are sold early and too few buyers invest in absorptive capacity. Venture capital paradoxically aggravates the inefficiency. Instead, when the timing of exit is a tactical choice, i.e., startups can choose to go late after observing the early offers, there are too many early acquisitions and too much investment in absorptive capacity by incumbents. |
| Keywords: | absorptive capacity; Entrepreneurial exit; markets for technology |
| JEL: | L26 O31 O33 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12724&r=ent |
| By: | Link, Albert (University of North Carolina at Greensboro, Department of Economics); Scott, John (Dartmouth College, Department of Economics) |
| Abstract: | The Schumpeterian hypothesis about the effect of firm size on research and development (R&D) output is studied for a sample of R&D projects for R&D-intensive firms that are small but have substantial variance in their sizes. Across the distribution of firm sizes, the elasticity of patenting with respect to R&D ranged from 0.41 to 0.55, with the elasticities being largest for intermediate levels of firm size and also varying directly with the extent to which the projects are Schumpeterian in the cost or value senses. The paper’s findings at the R&D project level are compared with the literature’s findings at the line of business, firm, and industry levels, and the findings are consistent with the literature’s findings for small firms. |
| Keywords: | Patents; Research and Development (R&D); Firm Size; Schumpeterian hypothesis; Technological Progress; Innovation |
| JEL: | L10 L20 L25 O30 |
| Date: | 2018–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:uncgec:2018_001&r=ent |
| By: | Robert W. Fairlie; Frank M. Fossen |
| 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. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1723&r=ent |
| By: | Natália Barbosa (School of Economics and Management, University of Minho); Ana Paula Faria (School of Economics and Management, University of Minho) |
| Abstract: | We investigate the role of different entrepreneurial origin on firms’ performance by comparing academic spinoff firms with their non-academic counterparts and using alternative growth measures. Estimates based upon dynamic panel-data models reveal that academic spinoffs grow through resources accumulation and internationalization. However, comparatively to non- academic counterparts, they fail to translate these advantages into productivity gains. Also, despite younger academic spinoff outperform, in terms of sales growth, firms from different entrepreneurial origin, they fail to retain these scale effects, as they grow older. Portuguese academic spinoffs are contributing to economic development by creating new jobs, yet their relevance as a source of sustained economic value is limited so far. Policy implications are discussed in light of these findings. |
| Keywords: | Academic Spinoff, firm growth, dynamic estimators |
| JEL: | L21 L25 M13 H32 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0095&r=ent |
| By: | Alex Bryson; John Forth |
| Abstract: | We examine the impact of management practices on firm performance among SMEs in Britain over the period 2011-2014, using a unique dataset which links survey data on management practices with firm performance data from the UK’s official business register. We find that SMEs are less likely to use formal management practices than larger firms, but that such practices have demonstrable benefits for those who use them, helping firms to grow and increasing their productivity. The returns are most apparent for those SMEs that invest in human resource management practices, such as training and performance-related pay, and those that set formal performance targets. |
| Keywords: | SMEs, small and medium-sized enterprises, employment growth, high-growth firms, productivity, workplace closure, management practices, HRM, recession |
| JEL: | L25 L26 M12 M52 M53 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:488&r=ent |
| By: | Bengtsson, Lars (Faculty of Engineering, Lund University); Tavassoli, Sam (RMIT) |
| Abstract: | We analyze the effect of Business Model Innovation (BMI) on the product innovation performance of firms, based on a dynamic capabilities theoretical framework. Our empirical study is based on a large-scale representative sample of cross-industry Swedish firms participating in the last three waves of the Community Innovation Survey (CIS) from 2006–2012. Our findings provide support for the dynamics capabilities theoretical framework as well as broad evidence of a significant and positive association between BMI and product innovation performance. Our results imply that BMI in the form of product innovations combined with different complementary innovations will act as isolating mechanisms towards replication by competitors. Therefore, managers should frame product innovations as part of a business model innovation and dynamically adapt the key elements of the firm’s business model. |
| Keywords: | Business model innovation; Business models; Dynamic capabilities; product innovation; Innovation performance; Community Innovation Survey |
| JEL: | D22 L20 O31 O32 |
| Date: | 2018–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lucirc:2018_004&r=ent |
| By: | Huber, Alexander |
| Abstract: | Entrepreneurship and entrepreneurial activities influence the development and well-being of both economies and societies to a large extent. At the heart of all entrepre-neurial activities are new ventures - vehicles which entrepreneurs use in order to ex-ploit opportunities through the commercialization of newly developed products or services. In addition to the many obstacles entrepreneurs face when creating a new venture and entering new markets, the financing of these entrepreneurial initiatives becomes a large obstacle. In particular, uncertainties regarding market acceptance of the identified opportunity and thus survival and ultimately growth limit the financing options of new ventures notably. Further, the financing decisions made at the begin-ning of the entrepreneurial process have a lasting impact on the development of the new venture once a certain type of financing is acquired. Hence, securing the necessary financing is not only a major challenge for the entrepreneur at the beginning of the entrepreneurial career. The selection of the right amount of financing from the right source also influences the development of the new venture over and beyond the early days of existence. In line with this argumentation and while acknowledging the limited number of fi-nancing options available to new ventures, venture capital is often identified as a via-ble option for firms during in their early stages of development. This form of financing is characterized to be provided by institutional investors that jointly invest financial means, experience, and networks into the firms they consider to be able to generate the desired growth in return. Given the large array of new ventures however, only a few are considered a potential investment, and thereof only a fraction receives the necessary funding. Regarding the latter group of investees however, a venture capital investment has empirically proven to positively influence new venture survival and growth, translating into increased performance of venture capital-backed over non-venture capital-backed firms. Given the fact that venture capital itself is a fascinating field of research but likewise of great importance for the financing of new ventures at the same time, this dissertation develops new empirical insights about the role of ven-ture capital in the context of new ventures that were created in an academic context. Further, crowdfunding as a new means of entrepreneurial finance is analyzed against the background of its signaling value in the investment decision of venture capitalists. The first empirical contribution uses a proprietary dataset of 98 German research-based spin-offs founded between 1997 and 2012 and assesses which firm-specific and system-inherent factors are decisive for the spin-offs’ growth while drawing on the re-source-based view of the firm as theoretical framework. Specifically, this dissertation aims to evaluate whether venture capital-backed research-based spin-offs outperform non venture capital-backed research-based spin-offs and whether a performance differ-ence is explained by venture capitalists’ scouting or coaching capabilities. The empiri-cal findings suggest that a homogeneous educational background of the academic en-trepreneurs is positively associated with the research-based spin-off’s growth. Similar-ly, a training provided by the parent research organization intended to develop entre-preneurial skills and to establish a network to outside professionals as well as the commercialization of a novel technology have a positive impact on a research-based spin-off’s growth. Concerning the involvement of venture capitalists, venture capital-backed research-based spin-offs show a superior employment and revenue growth compared to non-venture capital-backed research-based spin-offs. As a possible cause for this superior performance, the empirical findings support the view that this growth difference can be attributed to venture capitalists’ coaching rather than their scouting capabilities. The second empirical contribution addresses the increasing popularity of crowdfund-ing as a new means to finance new ventures. In particular, this dissertation assesses whether and how crowdfunding campaign-specific signals that affect campaign success influence venture capitalists’ selection decisions in new ventures’ follow-up funding rounds. By doing so, this empirical contribution relies on cross-referencing a proprie-tary dataset of 66,000 crowdfunding campaigns that ran on Kickstarter between 2009 and 2016 with 100,000 investments in the same period from the Crunchbase dataset. Using this approach, 267 new ventures with at least one crowdfunding campaign could be identified. While drawing on signaling theory and the venture capital and micro-finance literature, the empirical findings reveal that a successful crowdfunding cam-paign leads to a higher likelihood to receive follow-up venture capital financing, and that an inverted U-shaped relationship exists between the funding received compared to the funding desired and the probability to receive venture capital funding. Further, the analyses provide statistical evidence that a special endorsement of campaigns by the crowdfunding platform provider as well as social media presence in the form of word-of-mouth volume has a likewise positive impact on the receipt of follow-up ven-ture capital. Interpreting these findings, this dissertation concludes that the results sup-port the view that venture capitalists apparently rely on the decision of the crowd in order to evaluate the potential of the entrepreneurial initiative when selecting new investment opportunities. Over and beyond the signals that a crowdfunding campaign produces and that are ap-parently factored into the investment decision of venture capitalists, this dissertation also elaborates on how the presence of a crowdfunding campaign itself, disregarding all its campaign-relevant aspects, influences the investment decision of venture capital-ists in terms of their decision to form syndicates. For the purpose of this research ques-tion, this dissertation relies again on signaling theory and builds on the syndication literature. The overarching empirical finding is that crowdfunding seems to influence the syndication behavior of venture capitalists. For one thing, the presence of a crowd-funding campaign negatively influences both the likelihood of a syndicated investment as well as the number of syndicate partners. For another, the findings reveal that crowdfunding positively influences the formation of international syndicates. Hence, the results support the assumption that the importance of crowdfunding is also fac-tored into the investment decision of venture capitalists in terms of their decision to syndicate. This dissertation concludes with the major contributions for both theory and practice. In essence, the results derived provide novel insights about growth factors of research-based spin-offs by widening the focus of analysis. This is done by incorporating venture capital into the research scope so as to advance the resource-based view of the firm. Also, this dissertation shows that crowdfunding serves as a catalyst reducing the per-ceived risk in the form of information asymmetries related to new ventures. Thus, this dissertation advances signaling theory and also provides important implications for the microfinance and VC literature. |
| Date: | 2017–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:94924&r=ent |
| By: | Joana Costa (Universidade de Aveiro); Anabela Botelho (Universidade de Aveiro); Aurora Teixeira (CEF.UP, Faculdade de Economia, Universidade do Porto) |
| Abstract: | The analysis of persistence in innovation can improve the understanding of firm dynamics, anticipate the effects of the different policy actions, correct macroeconomic disequilibria, help in designing the correct policies to boost R&D and, consequently, generate prosperity. Persistence of innovation is empirically explored mostly using the case of innovation leaders or followers, which may not apply to countries with poorer performances in terms of innovation. Studying the case of a moderate innovator may shed some light into the different conditions of firms and their attitude towards persistence, as well as the adoption of different policy actions to observe this heterogeneity. Additionally, the effect of firm size and industry has not yet been fully explored by the literature on innovation persistence. The present paper analyses the persistence of innovation using a dynamic panel comprising 1099 firms operating in all economic sectors of a moderate innovator country, Portugal. Firms are observed in three waves of the Portuguese part of the Community Innovation Survey (CIS), from 2004 to 2010. Using the random effects probit model, the persistence hypothesis fails to be corroborated. Such result suggest that innovation policy programs do not have long-lasting effect on innovative behavior of firms and it is unlikely that incumbent past innovators be the drivers of creative accumulation and future innovation. There is, however, some evidence that new, smaller, innovators might lead the creative wave. In this vein, there might be a rational to encourage public policies targeting start-up firms and new market entrants when innovation is the main primary funding goal. |
| Keywords: | Persistence, Innovation, State dependence, Firms, Community Innovation Survey, Portugal |
| JEL: | D22 L20 O31 O32 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0094&r=ent |
| By: | Hwan Jo (National University of Singapore); Tatsuro Senga (Queen Mary University of London) |
| Abstract: | Government policies that attempt to alleviate credit constraints faced by small and young firms are widely adopted across countries. We study the aggregate impact of such targeted credit subsidies in a heterogeneous firm model with collateral constraints and endogenous entry and exit. A defining feature of our model is a non-Gaussian process of firm-level productivity, which allows us to capture the skewed firm size distribution seen in the Business Dynamics Statistics (BDS). We compare the welfare and aggregate productivity implications of our non-Gaussian process to those of a standard AR(1) process. While credit subsidies resolve misallocation of resources and enhance aggregate productivity, increased factor prices, in equilibrium, reduce the number of firms in production, which in turn depresses aggregate productivity. We show that the latter indirect general equilibrium effects dominate the former direct productivity gains in a model with the standard AR(1) process, as compared to our non-Gaussian process, under which both welfare and aggregate productivity increase by subsidy policies. |
| Keywords: | misallocation, collateral constraints, firm dynamics, firm size |
| JEL: | E22 G32 O16 |
| Date: | 2017–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:839&r=ent |