nep-ent New Economics Papers
on Entrepreneurship
Issue of 2018‒05‒14
seven papers chosen by
Marcus Dejardin
Université de Namur

  1. How Redeployable are Patent Assets? Evidence from Failed Startups By Carlos J. Serrano; Rosemarie Ziedonis
  2. Hours Worked of the Self-Employed and Agglomeration By Cai, Zhengyu
  3. Reconciling the Firm Size and Innovation Puzzle By Anne Marie Knott; Carl Vieregger
  4. Does the Utilization of Information Communication Technology Promote Entrepreneurship: Evidence from Rural China By William Barnett; Mingzhi Hu; Xue Wang
  5. It's never too late: funding dynamics and self pledges in reward-based crowdfunding By Paolo Crosetto; Tobias Regner
  6. Optimal financial contracts with unobservable investments By Tirelli, Mario
  7. The entrepreneurial development of regions: Exploring the socio-technical transition of Lusatia from a multi-level perspective By Tomenendal, Matthias; Lange, Hans Rüdiger; Kirch, Johannes; Rosin, Anna Frieda

  1. By: Carlos J. Serrano; Rosemarie Ziedonis
    Abstract: Entrepreneurial firms are important sources of patented inventions. Yet little is known about what happens to patents “released” to the market when startups fail. This study provides a first look at the frequency and speed with which patents originating from failed startups are redeployed to new owners, and whether the value of patents is tied to the original venture and team. The evidence is based on 1,766 U.S. patents issued to 285 venture capital-backed startups that disband between 1988 and 2008 in three innovation-intensive sectors: medical devices, semiconductors, and software. At odds with the view that the resale market for patented inventions is illiquid, we find that most patents from these startups are sold, are sold quickly, and remain “alive” through renewal fee payment long after the startups are shuttered. The patents tend to be purchased by other operating companies in the same sector and retain value beyond the original venture and team. We do find, however, that the patents and people sometimes move jointly to a new organization following the dissolution of the original venture, and explore the conditions under which such co-movement is more likely. The study provides new evidence on a phenomenon—of active markets for buying and selling patents—underexplored in the literature and consequential for both entrepreneurial and established firms.
    JEL: G24 G33 L14 L26 O16 O3
    Date: 2018–04
  2. By: Cai, Zhengyu
    Abstract: This paper investigates the causal effects of agglomeration on hours worked by the self-employed. The IV estimations instrument for urbanization and localization using the minimum distance from the work Public Use Microdata Area centroid to the United States’ coastlines and estimated industry share in 1930. The 2SLS results demonstrate that urbanization and localization decrease and increase hours worked of the self-employed, respectively. These results are mainly from outsourcing and competition, whereas sorting, simultaneity, and agglomeration wage effect are less likely to be influential. Additionally, only small business owners perceive the pressures of competition in localization economies. The young unincorporated self-employed are more likely to be affected by peer competitors, whereas the elder unincorporated perceive more pressures from large firms.
    Keywords: Self-employed,hours worked,urbanization,localization,competition,coastlines
    JEL: J10 J22 J31 R11 R12
    Date: 2018
  3. By: Anne Marie Knott; Carl Vieregger
    Abstract: There is a prevailing view in both the academic literature and the popular press that firms need to behave more entrepreneurially. This view is reinforced by a stylized fact in the innovation literature that R&D productivity decreases with size. However, there is a second stylized fact in the innovation literature that R&D investment increases with size. Taken together, these stylized facts create a puzzle of seemingly irrational behavior by large firms—they are increasing spending despite decreasing returns. This paper is an effort to resolve that puzzle. We propose and test two alternative resolutions: 1) that it arises from mismeasurement of R&D productivity, and 2) that firm size endogenously drives R&D strategy, and that the returns to R&D strategies depend on scale. We are able to resolve the puzzle under the first tack--using a recent measure of R&D productivity, RQ, we find that both R&D spending and R&D productivity increase with scale. We had less success with the second tack--while firm size affects R&D strategy in the manners expected by theory, there is no strategy whose returns decrease in scale. Taken together, our results are consistent with the Schumpeter view that large firms are the major engine of growth, they both spend more in aggregate than small firms, and are more productive with that spending. Moreover the prescription that firms should behave more entrepreneurially, should be treated with caution--one small firm strategy has lower returns to scale than its large firm counterpart.
    Date: 2018–04
  4. By: William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Mingzhi Hu (Department of Investment, School of Public Economics and Administration, Shanghai University of Finance and Economics,Shanghai, China;); Xue Wang (Department of Finance; College of Economics, Jinan University, Guangzhou, China;)
    Abstract: Impacts on the probability of transition to entrepreneurship in rural China associated with the utilization of information communication technology (ICT) are estimated using longitudinal data from the China Family Panel Studies (CFPS) survey. We identify cell phone ownership and internet use as proxy variables for ICT utilization and find that cell phone ownership and internet use have positive impacts on entrepreneurship. After controlling for observables and time and regional fixed effects, cell phone users (internet users) are 2.0 (6.4) percentage points more likely to engage in entrepreneurship than the others. Considering that the average entrepreneurship rate for rural households is only 9.5% in the sample, the influence of cell phone ownership and internet use are very strong in the economic sense. Our results are robust to unobservable individual characteristics, model misspecification, and reverse causality of entrepreneurship to ICT utilization. Evidence also suggests that social network and information and knowledge acquisition play the mediating roles in the impact of ICT utilization on entrepreneurship.
    Keywords: ICT; social network; information acquisition; entrepreneurship
    JEL: D10 M51 Q55
    Date: 2018–02
  5. By: Paolo Crosetto (INRA - Institut National de la Recherche Agronomique); Tobias Regner (Friedrich-Schiller-Universität Jena)
    Abstract: Crowdfunding recently emerged as an alternative funding channel for entrepreneurs. We use pledge-level data from Startnext, the biggest German platform, to gain insights on funding dynamics and pledgers' motivations. We find that the majority of projects that eventually succeed are not on a successful track at 75% of their funding period. These late successes are boosted by information cascades during the final 25% of the funding duration. We conclude – in contrast with earlier literature – that project success is only partially path-dependent. While early pledges do anticipate project success, a lack of them does not necessarily mean that projects will fail. Interviews and questionnaire responses indicate that projects' communication efforts play a role in making severely under track projects succeed eventually. Moreover, our dataset uniquely allows us to quantify the extent of self funding. Self pledges account for about 10% of all initial pledges and 9% of all pledges that secure funding. Nonetheless, the late surges at severely under track projects are mostly driven by external funders. Furthermore, we find no evidence of subsequent herding triggered by self pledges.
    Keywords: crowdfunding,entrepreneurial finance,donations,pre-selling,innovation,self funding
    Date: 2018–04–01
  6. By: Tirelli, Mario
    Abstract: In this article we propose a security-design problem in which risk neutral entrepreneurs make unobservable investment decisions while employing the investment funds of risk-neutral outside investor/creditor(s). Contracts are restricted to satisfy limited liability and monotonicity of the payment schedule. The model we present extends the classical one proposed by Innes (1990, Journal of Economic Theory 52, 47-67) along three main directions: agents' decisions may be restricted by their initial capital and outside financial opportunities; their investment decisions may also consist in hiding funds in an asset placed outside their firms; initial firms' capital, which identifies entrepreneur types, may only be imperfectly observed by creditors (i.e. types are private information). We motivate our interest in this security-design problem referring to the 'opacity' that often characterizes the financial situation and decisions of small firms, a particularly large fraction of the non-financial sector in most developed countries.
    Keywords: Security design; asymmetric information; moral hazard; investment decisions; firm financial structure; debt contracts, collateral.
    JEL: D82 D86 G11 G32
    Date: 2018–02
  7. By: Tomenendal, Matthias; Lange, Hans Rüdiger; Kirch, Johannes; Rosin, Anna Frieda
    Abstract: In the pursuit of strict climate policy targets the German government has decided that several lignite power plants have to be closed down by the year of 2019. One of the most affected regions is the Lusatia mining area in Eastern Germany. Here the question is raised how economic restructuring induced by climate policy can be achieved without bringing havoc on an entire region. We aim to give a first answer by developing a multi-level perspective (MLP) model for supporting regions towards more entrepreneurial activities. Based on different literature streams we suggest a model for strategic niche management towards an entrepreneurial socio-technical regime, which consists of the mid-level in the MLP as the dependent variable and resulting thrusts of strategic niche management as independent variables. The findings are illustrated by the case of Lusatia but are of general nature and can also be applied to other regions.
    Date: 2018

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