nep-ent New Economics Papers
on Entrepreneurship
Issue of 2018‒08‒20
seventeen papers chosen by
Marcus Dejardin
Université de Namur

  1. Financial Frictions, Cyclical Fluctuations and the Innovative Nature of New Firms By Christoph Albert; Andrea Caggese
  2. Online Syndicates and Startup Investment By Christian Catalini; Xiang Hui
  3. Policy Entrepreneurship and Regional Development By Yasmine Willi, Marco Pütz, Heike Mayer
  4. Bidding against the odds? The impact evaluation of grants for young micro and small firms during the recession By Stjepan Srhoj; Bruno Škrinjarić; Sonja Radas
  5. Fear the walking dead: zombie firms, spillovers and exit barriers By Christian Osterhold; Ana Fontoura Gouveia
  6. High-Skill Immigration, Innovation, and Creative Destruction By Gaurav Khanna; Munseob Lee
  7. Firm Performance and Macro Forecast Accuracy By Mari Tanaka; Nicholas Bloom; Joel M. David; Maiko Koga
  8. The Persistent Effects of Entry and Exit By Aubhik Khan; Julia Thomas; Tatsuro Senga
  9. Resource misallocation in European firms: The role of constraints, firm characteristics and managerial decisions By Gorodnichenko, Yuriy; Revoltella, Debora; Švejnar, Jan; Weiss, Christoph T.
  10. Selling hope? A review of current youth unemployment initiatives in Cairo By Pettit, Harry
  11. The impact of firm performance on the business transfer mode By Kay, Rosemarie; Pahnke, André; Schlepphorst, Susanne
  12. Centers of Gravity: The Effect of Stable Shared Leadership in Top Management Teams on Firm Growth and Industry Evolution By Rajshree Agarwal; Serguey Braguinsky; Atsushi Ohyama
  13. An Integrative Framework for Entrepreneurship Research in Africa By Richard Adu-Gyamfi; John Kuada; Simplice Asongu
  14. An empirical investigation of factors affecting the performance of women entrepreneurs in Harare: a case of food vendors By NYONI, THABANI
  15. Boosting productivity and preparing for the future of work in Germany By Naomitsu Yashiro; Stephanie Lehmann
  16. Is Equity Crowdfunding a Good Tool for Social Enterprises? By Stefano Cosma; Alessandro G. Grasso; Francesco Pagliacci; Alessia Pedrazzoli
  17. Strumenti per il sostegno finanziario di famiglie e microimprese: il caso italiano (Policies to help financially vulnerable Italian households and micro-businesses) By Simonetta Cotterli

  1. By: Christoph Albert (UPF and Barcelona GSE); Andrea Caggese (Pompeu Fabra University)
    Abstract: How do financial factors and cyclical fluctuations affect the innovative content of new businesses? This paper answers this question by combining a multi-country entrepreneurial level dataset with country level business cycle data and sector level information on technology. Our main data source is the Global Entrepreneurship Monitor dataset, which is a multi-country multi-year survey of entrepreneurial decisions. We merge this dataset with a country specific business cycle indicator (GDP growth) and a financial crisis indicator from Laeven and Valencia (2013). Finally, we also combine it with two sector level indicators: an external financial dependence indicator (Kroszner et al, 2007) and an indicator of intangibility (share of intangible over total assets, see Falato et al, 2014, and Caggese and Perez, 2018). We use the dataset to identify three types of startups which are likely to be innovative and/or with high growth potential: i) Businesses started to provide a new product or service. ii) Startups for which the new entrepreneur is expecting high employment growth (controlling for country effects). iii) Startups in high-intangible industries, which should have higher growth potential given the more innovative content of intangible technologies. We control for country fixed effects, as well as for individual characteristics such as age, education and income group, and we find that all startups, but especially startups with high growth potential, were much more procyclical in the presence of the financial crisis. That is, the financial crisis reduced significantly more startups with high growth potential than the other types, especially in countries with greater contraction in output. Importantly we also show that startups with high growth potential were strongly negatively affected by the financial crisis only in industries classified as with high external financial dependence. In other words, we find evidence strongly consistent with the hypothesis that financial frictions affected the composition of business startups during the financial crisis, reducing the incentives of entrepreneurs to start riskier and more innovative businesses with more growth potential.
    Date: 2018
  2. By: Christian Catalini; Xiang Hui
    Abstract: Early crowdfunding platforms were based on a premise of complete disintermediation from traditional experts. This approach becomes problematic when equity is involved because of asymmetric information between entrepreneurs and investors. Moreover, it favors regions that already attract a disproportionate share of capital offline. We find that the introduction of intermediaries through online syndicates reverses this trend, leading to a large 33% increase in capital flows to new regions. At the same time, this "democratization effect" relies on the presence of intermediaries with professional networks that can bridge these new regions with California. Evidence from a large-scale field experiment with over 26,000 investors corroborates the idea that social networks constitute a key friction to additional democratization, since they shape how online investors screen and evaluate intermediaries. Intermediaries use their reputation to vouch for high potential startups that would otherwise be misclassified because of information asymmetry. This allows them to arbitrage opportunities across regions and shift capital flows to startups from new regions that are 36.9% more likely to generate above median returns. We discuss implications for the design of equity crowdfunding platforms.
    JEL: G24 L26 O31 O33
    Date: 2018–06
  3. By: Yasmine Willi, Marco Pütz, Heike Mayer
    Abstract: The scholarly regional governance debate usually divides actors into two categories: state actors, representing the public domain and politics, and non-state actors, repre- senting the economy and civil society. However, these categories are based on the functional context and not on the actual behaviour patterns of the actors. Also, this dichotomy fails to explain why actors contribute differently to regional develop- ment processes. In analysing the design and implementation phases of regional de- velopment strategies, we observe that some of the involved actors show entrep re-neurial behaviour. We understand these actors as governance entrepreneurs. Based on their behaviour, we differentiate between two new categories: realising and ena- bling governance entrepreneurs. Realising governance entrepreneurs contribute to regional development processes through creativity and innovation, alertness to op- portunities and a willingness to invest personal resources and take risks. Enabling governance entrepreneurs contribute through a large network, persistence in negoti- ation and the capacity to operate across various government levels and economic sectors. The findings are based on 33 in-depth expert interviews across six rural and peripheral regions in Switzerland where two National Development Policies are applied to strengthen regional development processes.
    Keywords: regional governance, regional development, policy entrepreneurs, entrepreneur- ship, actor typology
    JEL: H7 L3 O2 R1 R5
    Date: 2018–07
  4. By: Stjepan Srhoj; Bruno Škrinjarić; Sonja Radas
    Abstract: Impact evaluations of entrepreneurship policies targeting young firms have been somewhat neglected thus far in the literature. While most research studies focus on the impact of research and development (R&D) grants, a larger percentage of young firms would benefit from grants that assist them in other activities. In this paper we examine the impact of small business development grants on survival and performance of young firms. We study this topic in the context of a long recession in Croatia (2009 to 2014), which makes it possible to better observe the effect of the public instrument intervention. As the grants were too small to produce any direct effects, the positive effects were achieved indirectly through enabling young firms to get bank loans, either by means of certification effect or because of behavoral additionality which raised their ability to apply for loans. The results show positive impact on firm survival after the recession.
    Keywords: Grants, recession, young firms, survival, firm performance, bank loans
    JEL: H25
    Date: 2018–07
  5. By: Christian Osterhold; Ana Fontoura Gouveia
    Abstract: Productivity growth is slowing down among OECD countries, coupled with increased misallocation of resources. A recent strand of literature focuses on the role of non-viable firms ("zombie firms") to explain these developments. Using a rich firm-level dataset for one of the OECD countries with the largest drop in barriers to firm exit and restructure, we assess the role of zombies on firm dynamics, both in the extensive and intensive margins. We confirm the results on the high prevalence of zombie firms, significantly less productive than their healthy counterparts and thus dragging aggregate productivity down. Moreover, while we find evidence of positive selection within zombies, with the most productive restructuring and the least productive exiting, we also show that the zombies' productivity threshold for exit is much lower than that of non-zombies, allowing them to stay in the market, distorting competition and sinking resources. Zombie prevalence curbs the growth of viable firms, in particular the most productive, harming the intra-sectoral resource reallocation. We show that a reduction in exit and restructuring barriers promotes a more effective exit channel and fosters the restructuring of the most productive, highlight the role of public policy in addressing zombies' prevalence, fostering a more efficient resource allocation and enabling productivity growth.
    JEL: D24 E22 E24 G33 J24 L25
    Date: 2018
  6. By: Gaurav Khanna; Munseob Lee
    Abstract: Economists have identified product entry and exit as a primary channel through which innovation impacts economic growth. In this paper, we document how high-skill immigration affects product reallocation (entry and exit) at the firm level. Using data on H-1B Labor Condition Applications (LCAs) matched to retail scanner data on products and Compustat data on firm characteristics, we find that H-1B certification is associated with higher product reallocation and revenue growth. A ten percent increase in the share of H-1B workers is associated with a two percent increase in product reallocation rates -- our measure of innovation. These results shed light on the economic consequences of innovation by high-skill immigrant to the United States.
    JEL: D22 D24 F22 J61
    Date: 2018–07
  7. By: Mari Tanaka; Nicholas Bloom; Joel M. David; Maiko Koga
    Abstract: Ever since Keynes’ famous quote about animal spirits, there has been an interest in linking firms’ expectations and actions. However, empirical evidence has been limited due to a lack of firm-level panel data on expectations and outcomes. In this paper, we build such a dataset by combining a unique survey of Japanese firms’ GDP forecasts with company accounting data for 25 years for over 1,000 large Japanese firms. We find four main results. First, firms’ GDP forecasts are positively associated with their employment, investment, and output growth in the subsequent year. Second, both optimistic and pessimistic forecast errors lower profitability. Third, while over-optimistic forecasts lower measured productivity, over-pessimistic forecasts do not tend to have an effect on productivity. Overall, these results are stronger for firms whose performance is more sensitive to the state of macroeconomy. We show that a simple model of firm input choice under uncertainty and costly adjustment can rationalize there results. Finally, larger and more cyclically sensitive firms make more accurate forecasts, presumably reflecting a higher return to accuracy for these firms. More productive, older, and bank-owned firms also make more accurate forecasts, suggesting that forecasting ability is also linked to management ability, experience, and governance. Collectively, our results highlight the importance of firms’ forecasting ability for micro and macro performance.
    JEL: E0 M0
    Date: 2018–06
  8. By: Aubhik Khan (Ohio State University); Julia Thomas (Ohio State University); Tatsuro Senga (Queen Mary University of London)
    Abstract: We develop a model with endogenous entry and exit in an economy subject to aggregate total factor productivity shocks that are non-stationary. Firms exhibit a life-cycle consistent with data and our model economy reproduces both their size and age distribution. In this setting, persistent shocks to aggregate total factor productivity growth rates endogenously drive long term reductions in business formation. The economic consequences of this persistent decline in entry grows over time. In our model, individual firms vary in both the permanent and transitory components of their total factor productivity and in their capital stock. Capital adjustment is subject to one period time-to-build and involves both convex and nonconvex costs. Our dynamic stochastic general equilibrium model involves an aggregate state that includes a distribution of firms over total factor productivity and capital. Changes in this distribution, following aggregate shocks to the common component of TFP, drive persistent fluctuations in aggregate economic activity. We show that equilibrium movements in firms' stochastic discount factors, following persistent shocks to TFP growth, imply long-run declines in the value of entry. The resulting fall in the number of firms propagates a reduction in economic activity. This slows down the recovery. We apply our model to understanding the last decade of economic activity in the U.S. This period began with a large recession followed by a period of slow economic growth. At the same time there was a persistent reduction in the new business formation. Our dynamic stochastic general equilibrium analysis is consistent with relatively small reductions in the level of total factor productivity, as seen in the last recession, and large reductions in GDP and Business Fixed Investment. Moreover, the recovery from such a large recession is slowed by a persistent reduction in firm entry.
    Date: 2018
  9. By: Gorodnichenko, Yuriy; Revoltella, Debora; Švejnar, Jan; Weiss, Christoph T.
    Abstract: Using a new survey, we show that the dispersion of marginal products across firms in the European Union is about twice as large as that in the United States. Reducing it to the US level would increase EU GDP by more than 30 percent. Alternatively, removing barriers between industries and countries would raise EU GDP by at least 25 percent. Firm characteristics, such as demographics, quality of inputs, utilization of resources, and dynamic adjustment of inputs, are predictors of the marginal products of capital and labor. We emphasize that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature. We also show that cross-country differences in the dispersion of marginal products are more due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes than to the differences in firm characteristics per se.
    Keywords: Marginal products,resource allocation,firm-specific factors,economic growth
    JEL: O12 O47 O52 D22 D24
    Date: 2018
  10. By: Pettit, Harry
    Abstract: Young university educated Egyptians continue to face difficulties in securing employment, particularly employment that matches their skill-level and provides a solid foundation for marriage. This has direct implications for the country’s social stability, and for maximisation of its labour resources. Existing initiatives – including soft-skills and entrepreneurship training, as well as a promotion of call centre work – which are designed to tackle the problem are not making a positive difference. Using eleven months of grounded qualitative research, this paper argues that they rather promote a false sense of hope to youth who become stuck in cycles of precarious work, by extending the meritocratic idea that individual hard work alone leads to success. The paper finishes by suggesting that policy-makers must focus more attention on addressing shortages in secure white-collar work, as well as inequalities in access to capital, education and social connections, instead of placing blame on ‘lazy’ youth, in order to maximize the potential of Egypt’s youth and deliver inclusive economic prosperity.
    Keywords: youth,unemployment,training,entrepreneurship,meritocracy,hope
    Date: 2018
  11. By: Kay, Rosemarie; Pahnke, André; Schlepphorst, Susanne
    Abstract: This paper analyzes the impact of family firms' past and future economic viability on the incumbents' decision on the business transfer mode. Using the German IAB Establishment Panel and estimating logistic regression models we show that the decision on the business transfer mode rather depends on the expected future performance than on the past one. Moreover, family businesses that are exclusively managed by their owners are more likely to be planning an intra-family succession. However, ambiguity about the future performance overrides the original intention and induces the incumbents to sell the business.
    Keywords: family businesses,business succession,transfer mode,performance
    JEL: L25 L26 M2
    Date: 2018
  12. By: Rajshree Agarwal; Serguey Braguinsky; Atsushi Ohyama
    Abstract: We study the processes of firm growth in the evolution of the Japanese cotton spinning industry during 1883-1914 by integrating strategy and historical approaches and utilizing rich quantitative firm-level data and detailed business histories. The resultant conceptual model highlights growth outcomes of path dependencies as firms evolve across periods of single vs. shared leadership, establish stability in shared leadership, or experience repeated discord-induced TMT leader departures. While most firms do not experience smooth transitions to stable shared TMT leadership, a focus on value creation, in conjunction with talent recruitment and promotion, enabled some firms to achieve stable shared leadership in spite of discord-induced departures, engage in long term expansion, and emerge as “centers of gravity” for output and talent in the industry.
    JEL: L2 L25 L26 M12 M13 N85
    Date: 2018–06
  13. By: Richard Adu-Gyamfi (International Trade Centre, Switzerland); John Kuada (Aalborg University, Denmark); Simplice Asongu (Yaoundé/Cameroon)
    Abstract: Despite the good intentions in sub-Sahara Africa (SSA), previous policy initiatives on entrepreneurship have been disjointed, unambitious, and implemented without commitment and required resources. Furthermore, there has been limited research that can provide insight into the reasons why some of the policy initiatives appear to be successful while others fail. Some scholars have suggested that without a context-specific classificatory guide, policymakers are unlikely to be accurate in their assessment of the growth capabilities of prospective candidates for specific promotion initiatives and this can explain some of the policy failures. This observation has motivated the present paper. Our aim is to provide a framework that helps identify the different contextual dimensions influencing enterprise creation processes in SSA.
    Keywords: Entrepreneurship; Africa
    JEL: O38 O40 O55
    Date: 2018–05
    Abstract: Zimbabwe, whose economy is under life support; continues to be characterized by company closures with many workers losing their jobs through retrenchments (Nyathi et al, 2018). This fragile economic situation has resulted in a number of Zimbabweans resorting to entrepreneurship as their last option. We note with kin interest that the growth of women entrepreneurs in Zimbabwe has also increased significantly. This study seeks to empirically investigate the factors that affect the performance of women entrepreneurs in Harare. The study adopts a case study approach, specifically focused on food vendors in Harare. Questionnaires consisting of structured and unstructured questions were used for data collection. The research employed purposive sampling to select the target population and 190 questionnaires were completed and analyzed. While consistent with both the psychological and economic theories of entrepreneurship, the results of this study also indicate that the performance of women entrepreneurs in the food vending sector in Zimbabwe continues to be hindered by a serious lack of adequate financial resources. The study managed to come up with two main policy recommendations that are envisioned to go a long way in improving the performance of women entrepreneurs in Zimbabwe.
    Keywords: Entrepreneurship, food vendors, women entrepreneurs
    JEL: L2 L25 L26 M13 M20 M21 M29 M3
    Date: 2017–12–06
  15. By: Naomitsu Yashiro; Stephanie Lehmann
    Abstract: This paper reviews policies to strengthen Germany’s productivity growth and prepare for changes in labour markets brought about by new technologies. This paper also discusses how social protection and the bargaining framework should be reformed for the future of work. Germany enjoys a relatively high labour productivity level but productivity growth has been modest in recent years. There is room to boost productivity growth by accelerating the diffusion of new technologies throughout the economy. Vigorous entrepreneurship and innovation by small and medium enterprises are key for such technology diffusion while strong broadband and mobile networks widen the scope of data-intensive technologies that can be exploited to increase productivity. Widespread use of new technologies will bring about significant changes in skill demand and work arrangements. As in many countries, Germany saw a decline in the share of middle-skilled jobs in employment. A relatively high share of jobs is expected to be automated or undergo significant changes in task contents as a result of technological change. New technologies are also likely to increase individuals engaging in new forms of work, such as gig work intermediated by digital platforms. Such workers are less covered by public social safety nets such as unemployment insurance than regular employment.
    Keywords: automation, digital platform, entrepreneurship, Productivity, self-employment, technology diffusion
    JEL: J23 J24 J29 O33 O38 O43 O52
    Date: 2018–08–17
  16. By: Stefano Cosma; Alessandro G. Grasso; Francesco Pagliacci; Alessia Pedrazzoli
    Abstract: Equity crowdfunding is an emerging financing tool that can help social start-ups and firms to bring people and resources together around a project. This paper focuses on equity crowdfunding. We look at this as a complementary financing channel useful for promoting innovation and social change by paring down the traditional features of financial investment. Our unique dataset regards all the Italian Equity Crowdfunding campaigns launched by different platforms on the Italian equity crowdfunding market from 2013 to 2018. Our aim is twofold: a) to describe some characteristics of the Italian Equity crowdfunding market; b) to describe the characteristics of the social firms which have had recourse to equity crowdfunding, in order to investigate which factors influence the campaign’s success. The results suggest that social firms’ investment offerings are not different from those of non-social ones, but so far, the Italian equity crowdfunding market does not seem suitable for supporting the financial needs of this type of firm, on the side of either investors or firms.
    Keywords: equity crowdfunding; sustainability; social enterprises; entrepreneurial finance
    JEL: G23 G24
    Date: 2018–02
  17. By: Simonetta Cotterli
    Abstract: This study aims to review and evaluate several policies enacted in the financial field to alleviate the negative consequences of the economic crisis on families and micro-businesses. Two different, yet complementary aspects of the effects of the crisis have been examined: the increased difficulty in gaining access to credit and the increased problems in meeting debt repayment obligations. Firstly the recent regulations governing micro-credit - enacted to facilitate access to credit for families and micro-businesses (the latter in light of the increasing need for self-sufficient entrepreneurial projects, as a response to increased unemployment in the job market) - are evaluated. This is followed by an examination of the efficacy of the law relating to over-indebtedness of families and micro-businesses, with particular focus on the concept of creditor-blame. This study ends with a question: could an interpretation of the new rules governing responsible credit to consumers constitute a legal right to such credit?Classification-JEL: G21, G28, I38, K35, K36
    Keywords: microcredit, overindebtness, creditor blame, responsible credit
    Date: 2016–12

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