nep-ent New Economics Papers
on Entrepreneurship
Issue of 2018‒03‒19
thirteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Subsidy Entrepreneurs By Gustafsson, Anders; Gustavsson Tingvall, Patrik; Halvarsson, Daniel
  2. Waiting for the Payday? The Market for Startups and the Timing of Entrepreneurial Exit By Ashish Arora; Andrea Fosfuri; Thomas Roende
  3. Habitual Entrepreneurs in the Making: How Labour Market Rigidity and Employment Affects Entrepreneurial Re-entry By Fu, Kun; Larsson, Anne-Sophie; Wennberg, Karl
  4. Taxes, Regulations of Businesses and Evolution of Income Inequality in the US By Benjamin Pugsley; Sebastian Dyrda
  5. Saving and Wealth Inequality By Mariacristina De Nardi; Giulio Fella
  6. Insuring entrepreneurial downside risk By Sumudu Kankanamge; Alexandre Gaillard
  7. Leapfrogging: Time of Entry and Firm Productivity By Josh Ederington; Georg Goetz
  8. Labor market opportunities for women in the digital age By Krieger-Boden, Christiane; Sorgner, Alina
  10. Bank credit supply and firm innovation By Giebel, Marek; Kraft, Kornelius
  11. European Funds and Firm Dynamics: Estimating Spillovers from Increased Access By João Pereira dos Santos; José Tavares
  12. Mothers’ non-farm entrepreneurship and child secondary education in rural Ghana: By Janssens, Charlotte; Van den Broeck, Goedele; Maertens, Miet; Lambrecht, Isabel
  13. Marketing-Kommunikation für Startups By Nufer, Gerd; Halbauer, Claudia

  1. By: Gustafsson, Anders (Jönköping International Business School and the Ratio Institute); Gustavsson Tingvall, Patrik (The Ratio Institute & The European Institute of Japanese Studies (EIJS), Stockholm School of Economics); Halvarsson, Daniel (The Ratio Institute)
    Abstract: In this paper, we study the selection process and incentives of firms that apply for and eventually receive one or multiple governmental grants intended to stimulate innovation and growth in supported firms. The analysis departs from a rent-seeking model of heterogeneous entrepreneurs who are free to allocate their effort between production and rent-seeking. In equilibrium, highly productive entrepreneurs choose not to enter the rent-seeking contest altogether, and moderately productive entrepreneurs allocate a share of their effort both to rent-seeking and production, whereas low-productivity entrepreneurs are incentivized to allocate most, if not all, of their effort to seeking grants and can thus be called subsidy entrepreneurs. These firms also have a higher probability of receiving grants. Using detailed data over all grants administered by the three largest grant distributing agencies in Sweden, the empirical analysis suggests that supported firms tend to have relatively low productivity, higher wages, and a larger share of workers with higher education than do non-supported firms. These characteristics become more pronounced as we move from single to multiple supported firms, thus supporting the notion of subsidy entrepreneurs.
    Keywords: Rent-seeking; Firm subsidies; R&D grants; Industrial policy
    JEL: D72 H25 L52 O38 P16
    Date: 2017–12–29
  2. By: Ashish Arora; Andrea Fosfuri; Thomas Roende
    Abstract: Most technology startups are set up for exit through acquisition by large corporations. In choosing when to sell, startups face a tradeoff. Early acquisition reduces execution errors but later acquisition improves the likelihood of finding a better match since in the early market, there are fewer buyers because early acquisition requires costly absorptive capacity. Moreover, the buyer’s decision to invest in absorptive capacity is related to the startup’s decision about 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 if the timing of exit is a strategic choice, i.e. startups have to commit to whether to exit early or late. Too few startups are sold early, and too few buyers invest in absorptive capacity. Paradoxically, venture capital aggravates the inefficiency. However, if 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
    JEL: L26 O34
    Date: 2018–02
  3. By: Fu, Kun (Loughborough University London); Larsson, Anne-Sophie (The Ratio Institute); Wennberg, Karl (Linköping University and the Ratio Institute)
    Abstract: We investigate the impact of country-level labour market regulations on the re-entry decision of experienced entrepreneurs, whereby they become habitual entrepreneurs. Multilevel logit models on entry decisions among 15,709 individuals in 29 European countries show that labour market regulations have a positive influence on the decision to re-enter into entrepreneurship. This positive impact is stronger among individuals holding wage jobs at the time of re-entry compared to those that do not. Our results indicate that novice and habitual entrepreneurs may respond very differently to labour market rigidity. We discuss and provide tentative explanations for these differences, and outline potential policy implications.
    Keywords: Habitual entrepreneurship; employment; labour market rigidity; institutional context; multilevel modelling
    JEL: J24 J41 K31 L26
    Date: 2017–12–15
  4. By: Benjamin Pugsley (Federal Reserve Bank of NY); Sebastian Dyrda (University of Toronto)
    Abstract: From 1980 to 2012 the share of U.S.~business receipts from businesses organized as pass-through entities (for example LLCs and S-corporations) rather than traditional C-corporations nearly triples following a sequence of tax reforms that reduced the tax rate of business income that "passes through" to an entrepreneur's individual income tax form. We show this shift in the pattern of business organization is economically significant. We propose a novel reduced form decomposition of data from the Survey of Consumer Finances, which reveals the increase in pass through entities explains over 50 percent of the increase in the share of pre-tax income for the top 1 percent of households. Importantly, this increase is not just accounting: there is an economic trade-off when choosing a legal form that affects the investment behavior of the entrepreneurs. We develop a heterogeneous agent equilibrium model with workers, entrepreneurs and endogenous choice of legal forms to capture a key trade-off between tax benefits and diversification of investment risk. We test the model using confidential firm-level microdata from the U.S.~ Census, and with the model calibrated to capture the actual firm dynamics across legal forms following several tax reform episodes, we quantify the contribution of tax reforms through the business reorganization channel on the evolution of income, wealth and consumption inequality of workers and entrepreneurs.
    Date: 2017
  5. By: Mariacristina De Nardi (University College London); Giulio Fella (Queen Mary University of London)
    Abstract: Why are some people wealth rich while others are poor? To what extent can governments affect inequality? Which instruments should they use? Answering these questions requires understanding why people save. Dynamic quantitative models of wealth inequality can help us to understand and quantify the determinants of the outcomes that we observe in the data and to evaluate the consequences of policy reform. This paper surveys the savings mechanisms generated by the transmission of bequests and human capital, by preference heterogeneity, by rate of return heterogeneity, by entrepreneurship, by richer earnings processes, and by medical expenses. It concludes that the transmission of bequests and human capital, entrepreneurship, and medical-expense risk are crucial determinants of savings and wealth inequality and that we need to look at more data to measure their relative importance.
    Keywords: Human Capital; Bequests; Taxation; Entrepreneurship; Rates of Return; Earnings Shocks
    JEL: E21 D14 D3
    Date: 2017–05–09
  6. By: Sumudu Kankanamge (Toulouse School of Economics); Alexandre Gaillard (Toulouse School of Economics)
    Abstract: This paper examines the effects of entrepreneurial downside risk insurance on the level and composition of the entrepreneurial pool and to a larger extent on unemployment, production and welfare. We build a rich theoretical framework combining occupational choice, heterogenous agents and incomplete markets to address our main policy concerns. Using CPS, SCF and SBO data, we match our economy to fundamental empirical elements on unemployment, entrepreneurship and mobility and provide contributions on the transition between occupations with respect to individual ability such as matching the U-shaped curve of the transition from worker to self-employed or the hump-shaped curve of the reverse transition. Depending on the downside risk insurance policy considered, we find that this insurance can have a significative impact not only on the level of entrepreneurship but also on the firm size in the entrepreneurial pool and production, although the impact on unemployment is modest.
    Date: 2017
  7. By: Josh Ederington (University of Kentucky); Georg Goetz (University of Giessen)
    Abstract: We develop a model in which ex ante identical firms make endogenous entry and technology adoption decisions. We show that this model is capable of matching the stylized facts in which entry and adoption are dispersed over time and that, in many industries, it is the newest firms which are the most likely to exhibit high productivity growth and adopt new innovations (i.e., leapfrogging). We then derive the characteristics of those industries where such leapfrogging is likely to occur and show that leapfrogging can induce reverse preemption (i.e., forward-looking incumbent firms delaying entry and adoption due to leapfrogging behavior). As an application, we demonstrate how, in an industry conducive to leapfrogging, research subsidies can actually reduce short-run consumer welfare by discouraging firms from entering the market with a basic technology.
    Keywords: entry, technology adoption
    JEL: L11
    Date: 2018
  8. By: Krieger-Boden, Christiane; Sorgner, Alina
    Abstract: Digitalization offers a variety of opportunities for female empowerment and for a more equal female participation in labor markets, financial markets, and entrepreneurship. Currently, digitalization seems to favor female labor force, since women face on average lower risk of being replaced by machines, as compared to men. Women's often superior social skills represent a comparative advantage in the digital age, and this is particularly so when social skills are complemented with higher education and advanced digital literacy. However, the same barriers and deficits that obstruct women's current advancement in many countries may deprive them from many beneficial opportunities in the digital age, including new entrepreneurial opportunities. Major efforts by policy makers are required to invalidate these barriers. New digital technologies should be used more decisively to achieve the goal of gender equality.
    Keywords: digitalization,gender equality,labor markets,entrepreneurship,financial inclusion
    JEL: O3 J7
    Date: 2018
  9. By: Armanda Cetrulo; Valeria Cirillo; Dario Guarascio
    Abstract: In the last decades, labour flexibility has been introduced all across Europe with the aim of spurring jobs and productivity. This work explores the link between the use of temporary employment and the propensity to introduce product innovations by firms. The analysis performed at the sectoral level combines information on innovation, economic performance and employment for five major European economies observed over the period 1998-2012. Taking into account the variety of technological patterns, the authors find that industries using temporary employment more intensively are characterized by a weak product innovation propensity. The negative correlation between temporary employment and innovation is stronger in medium and high-tech sectors identified alternatively by Peneder classification and by the concentration of firms’ intangible assets proxing different Schumpeterian regimes of accumulation.
    Date: 2018–03
  10. By: Giebel, Marek; Kraft, Kornelius
    Abstract: We analyze the causal effect of the credit supply shock to banks induced by interbank market disruptions in the recent financial crisis 2008/2009 on their business customers' innovation activity. Using a matched bank-firm data set for Germany, we find that having relations with a more severely affected bank seriously hampers firms' current innovation activities due to funding shortages. Furthermore, we find that firms with a relationship to a less severely affected bank are more likely to initiate new product and process innovations and to reallocate human resources to innovation during the financial crisis.
    Keywords: financing of innovations,credit supply,financial crisis,innovative activities
    JEL: G01 G21 G30 O16 O30 O31
    Date: 2018
  11. By: João Pereira dos Santos (Nova School of Business and Economics); José Tavares (Nova School of Business and Economics and Centre for Economic Policy Research (CEPR))
    Abstract: We take advantage of a quasi-natural experiment to assess the impact of European funds on firm dynamics in regions that, while not having their status changed, saw their neighbours increased access to European funds. Causality is established in a difference-in-differences intention to treat setting, using a rich dataset that considers the universe of Portuguese mainland municipalities from 2003 to 2010, and controlling for socio-economic, political and demographic variables. Our findings suggest a causal impact of between 1 and 2 percent in private sector firms´ entry and net entry rates, while we find no impact on firm exit rates. We consider time and space placebos to assure the reliability of our estimates. Our findings suggest that EU regional funds have a greater impact in times of distress, such as the world economic crisis, as far as entry rates are concerned. The analysis of the cross-section of firm demonstrates it is domestic owned micro firms in the primary and tertiary sectors that are most impacted by regional funds.
    Keywords: quasi-natural experiment, European funds, firm creation; municipalities
    JEL: C21 R10
    Date: 2018–03
  12. By: Janssens, Charlotte; Van den Broeck, Goedele; Maertens, Miet; Lambrecht, Isabel
    Abstract: In this paper we empirically analyse the impact of mothers’ non-farm entrepreneurship on child secondary school enrollment in rural Ghana. We use nationally representative quantitative data from the sixth round of the Ghana Living Standard Survey (GLSS) and qualitative data from focus group discussions throughout rural Ghana. We apply instrumental variable estimation techniques with instruments that pass weak and overidentification tests. We test interaction effects between mothers’ non-farm entrepreneurship and other important determinants of child schooling. We use qualitative data to support our quantitative findings.
    Keywords: nonfarm income, employment, gender, education, rural development, secondary education, children, mothers, developing countries, rural population, econometrics,
    Date: 2018
  13. By: Nufer, Gerd; Halbauer, Claudia
    Abstract: Social Media ist in der heutigen Gesellschaft von enormer Bedeutung, weltweit gibt es rund 2,46 Mrd. Nutzer. Aufgrund dieser Tatsache nimmt auch die Bedeutung für Unternehmen, insbesondere im Bereich des Marketing, immer mehr zu. Instrumente im Social Media Marketing sind nicht nur Soziale Netzwerke wie Facebook, Instagram und Snapchat, sondern auch Blogs, Webforen, Podcasts, Bewertungsportale sowie Foto- und Videosharing-Portale wie Youtube. Social Media Marketing wird von Unternehmen überwiegend zur Steigerung der Bekanntheit, Kundenbindung, Verbesserung des Images und für den besseren Zugang zur Zielgruppe und anderen potentiellen Kunden eingesetzt. Diese Gründe stimmen mit wesentlichen Zielsetzungen bei der Gründung eines Unternehmens bzw. von jungen Unternehmen, sogenannten Startups, überein. Darüber hinaus ist Social Media Marketing ein besonders kostengünstiges Marketinginstrument mit hoher Reichweite und somit ideal für Startups, die meist nur über begrenzte finanzielle Ressourcen verfügen, geeignet. Im Rahmen dieser Arbeit werden zu Beginn einige wichtige theoretische Grundlagen zum Thema Startup und Marketing-Kommunikation betrachtet. Anschließend wird die besondere Rolle des Social Media Marketing für Startups analysiert. Vor einem abschließenden Fazit wird als Best-Practice-Beispiel das Startup Freeletics vorgestellt, um einen direkten Bezug zur Praxis herzustellen.
    Date: 2018

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