nep-ent New Economics Papers
on Entrepreneurship
Issue of 2018‒09‒10
fourteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Innovation, Knowledge Diffusion, and Selection By Danial Lashkari
  2. Self-Employment Dynamics and the Returns to Entrepreneurship By Eleanor Dillon; Christopher Stanton
  3. Exporting a Bit Faster: The Long-Run Performance of Born Globals in Computing By Ferguson, Shon; Henrekson, Magnus
  4. Reviving American Entrepreneurship? Tax Reform and Business Dynamism By Sedlacek, Petr; Sterk, Vincent
  5. Entrepreneurship and Job Satisfaction: The Role of Age By Michael Fritsch; Alina Sorgner; Michael Wyrwich
  6. Skill variety in entrepreneurship: A literature review and research directions By Krieger, Alexander; Block, Joern; Stuetzer, Michael
  7. European Funds and Firm Dynamics: Estimating Spillovers from Increased Access By Pereira dos Santos, João; Tavares, José
  8. Doing Business and Inclusive Human Development in Sub-Saharan Africa By Simplice Asongu; Nicholas Odhiambo
  9. Financing Ventures By Jeremy Greenwood; Juan Sanchez; Pengfei Han
  10. Design of insolvency regimes across countries By Muge Adalet McGowan; Dan Andrews
  11. Can Government Intervention Make Firms More Investment-Ready? A Randomized Experiment in the Western Balkans By Cusolito, Ana Paula; Dautovic, Ernest; McKenzie, David J.
  12. Measuring and Examining Innovation in Philippine Business and Industry By Albert, Jose Ramon G.; Llanto, Gilberto M.; Serafica, Ramonette B.; Vizmanos, Jana Flor V.; Quimba, Francis Mark A.; Bairan, Jose Carlos Alexis C.
  13. Disruptions, Resilience and Performance of Emerging Market Entrepreneurs: Evidence from Uganda By Anderson, Stephen J.; Kundu, Amrita; Ramdas, Kamalini

  1. By: Danial Lashkari (Yale University)
    Abstract: This paper constructs a theory of industry growth through innovation and selection-driven creative destruction. Firms’ ideas determine their productivity and stochastically evolve over time. Firms innovate to improve their ideas and endogenously exit if unsuccessful. Entrants adopt the ideas of incumbents. In this model, when better ideas are innovated or adopted, they selectively replace worse ideas. Innovation externalities vary based on firm productivity: ideas generated by more productive firms create 1) longer-lasting positive externalities due to knowledge diffusion and 2) stronger negative externalities due to dynamic displacement of other firms. Therefore, the net external effect of innovation on aggregate productivity is heterogeneous and market equilibrium misallocates investments across firms. The solution to the social planner's problem suggests that optimal innovation policy instruments should depend on firm productivity. Quantitatively, the misallocations are large when the model is calibrated to firm-level data from US manufacturing and retail trade, and imply first-order considerations for the design of innovation policy.
    Date: 2018
  2. By: Eleanor Dillon (Amherst College); Christopher Stanton (Harvard University)
    Abstract: Small business owners and others in self-employment have the option to transition to paid work. If there is initial uncertainty about entrepreneurial earnings, this option increases the expected lifetime value of self-employment relative to pay in a single year. This paper rst documents that moves between paid work and self-employment are common and consistent with experi- mentation to learn about earnings. This pattern motivates estimating the expected returns to entrepreneurship within a dynamic lifecycle model that allows for non-random selection and gradual learning about the entrepreneurial earnings process. The model accurately ts entry patterns into self-employment by age. The option value of returning to paid work is found to constitute a substantial portion of the monetary value of entrepreneurship. The model is then used to evaluate policies that change incentives for entry into self-employment.
    Date: 2018
  3. By: Ferguson, Shon (Research Institute of Industrial Economics (IFN)); Henrekson, Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: Policymakers in several countries have recently taken steps to promote the rapid export expansion of high-tech small- and medium-sized enterprises (SMEs). The goal of these policies has been to create successful export-intensive firms, which are often referred to as born globals. To the best of our knowledge, we are the first to study born globals in computing using firm-level register data, which cover the universe of firms in a particular country and sector. Using data on all Swedish computing startups founded 2007–2015, we find a systematic positive relationship between the propensity of a computing firm to reach customers globally via digital platforms and its long-run employment growth relative to domestically-oriented computer firms. We find mixed evidence that born globals in computing grow faster in terms of sales or value added. Our analysis also indicates that very few computing firms fit the profile of born globals; only 15 percent of the 250 largest computing employers in 2015 were born globals. Moreover, only 1.5 percent of computing startups founded 2007–2015 were computer game publishers, which arguably have the highest propensity to be born global. Thus, although we find positive born global effects at the firm level, policymakers must be aware that encouraging more born globals need not necessarily lead to large benefits for the overall economy.
    Keywords: Born globals; Computing industry; Exporting; Firm growth; Globalization; Job creation
    JEL: F14 F23 L25 M13
    Date: 2018–08–10
  4. By: Sedlacek, Petr; Sterk, Vincent
    Abstract: The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous firms model, we investigate the long-run effects of such tax reforms on firm dynamics. We find that they can substantially increase business dynamism, potentially off-setting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform stimulates firm entry, leading to an increase in labor demand and wages, which in turn makes firm selection more stringent. Related to this is a large boost of the number of firms and of aggregate output, investment and employment.
    JEL: D21 E22 E24 H25
    Date: 2018–07
  5. By: Michael Fritsch (FSU Jena); Alina Sorgner (John Cabot University Rome); Michael Wyrwich (University of Groningen)
    Abstract: This paper investigates the relationship between job satisfaction and age for self-employed persons as compared to paid employees. While, on average, there are higher levels of job satisfaction in self-employment as compared to paid employment, we find that an individual's age is an important moderator in this relationship. Specifically, the probability of the self-employed to experience high levels of job satisfaction is quite similar across all age cohorts, but the job satisfaction of paid employees varies significantly with age. The degree to which self-employed people are more satisfied with their work than paid employees, therefore, is affected by the age of the individuals involved. We find that only those paid employees at the final stage of their working life have the same probability of experiencing a high level of job satisfaction as a self-employed person with comparable individual characteristics.
    Keywords: Entrepreneurship, well-being, job satisfaction, age
    JEL: L26 I31 J10 D91
    Date: 2018–09–05
  6. By: Krieger, Alexander; Block, Joern; Stuetzer, Michael
    Abstract: Lazear’s concept of skill variety has been established in entrepreneurship research and is con-sidered an important extension to human capital theory. The literature on skill variety, its de-terminants and its effects on entrepreneurial outcomes is growing. But especially the literature on determinants of skill variety as well as the relation between gender and skill variety is still in its infancy. Thus, this article takes stock of the academic knowledge collected about skill variety, its outcomes and determinants, its measurement alternatives as well as the role of gender. Overall, it can be summarized that skill variety is an important driver of entrepreneur-ship - above all for the entry-decision into entrepreneurship. The literature on skill variety and entrepreneurial success shows mixed evidence. Looking at the determinants of skill variety, extant literature is scarce. The debate whether the acquisition of skill variety is driven by a purposeful investment strategy or by the possession of certain endowment factors (such as risk aversion or a taste for variety) has not come to a conclusion. Regarding the topic of gender and skill variety, the studies under investigation report negative correlations between being female and skill variety. Measurement alternatives of skill variety used in academic research are diversely and sometimes inconsistently used. This makes it difficult to compare the results of different studies.
    Keywords: Skill variety; Balanced Skills, Literature Review
    JEL: I25 L26 M13
    Date: 2018
  7. By: Pereira dos Santos, João; Tavares, José
    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: European funds; firm creation; municipalities.; quasi-natural experiment
    JEL: C21 R10
    Date: 2018–07
  8. By: Simplice Asongu (Yaoundé/Cameroun); Nicholas Odhiambo (Pretoria, South Africa)
    Abstract: Purpose- This study examines how doing business affects inclusive human development in 48 sub-Saharan Africa for the period 2000-2012. Design/methodology/approach- The measurement of inclusive human development encompasses both absolute pro-poor and relative pro-poor concepts of inclusive development. Three doing business variables are used, namely: the number of start-up procedures required to register a business; time required to start a business; and time to prepare and pay taxes. The empirical evidence is based on Fixed Effects and Generalised Method of Moments regressions. Findings- The findings show that increasing constraints to the doing of business have a negative effect on inclusive human development. Originality/value- The study is timely and very relevant to the post-2015 Sustainable Development agenda for two fundamental reasons: (i) Exclusive development is a critical policy syndrome in Africa because about 50% of countries in the continent did not attain the MDG extreme poverty target despite enjoying more than two decades of growth resurgence. (ii) Growth in Africa is primarily driven by large extractive industries and with the population of the continent expected to double in about 30 years, scholarship on entrepreneurship for inclusive development is very welcome. This is essentially because studies have shown that the increase in unemployment (resulting from the underlying demographic change) would be accommodated by the private sector, not the public sector.
    Keywords: Doing Business; Inclusive Development; Entrepreneurship; Africa
    JEL: M20 I30 O10 O30 O55
    Date: 2018–01
  9. By: Jeremy Greenwood (University of Pennsylvania); Juan Sanchez (Federal Reserve Bank of St. Louis); Pengfei Han (University of Pennsylvania)
    Abstract: The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of fi nancing, venture capitalists evaluate the viability of startups. If viable, VCs provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rate, failure rate, investment rate, equity shares, and the value of an IPO. Raising capital gains taxation reduces growth and welfare.
    Date: 2018
  10. By: Muge Adalet McGowan; Dan Andrews
    Abstract: This paper explores cross-country differences in the design of insolvency regimes, based on quantitative indicators constructed from countries’ responses to a recent OECD policy questionnaire. The indicators – which are available for 36 countries for 2010 and 2016 – aim to better capture the key design features of insolvency which impact the timely initiation and resolution of personal and corporate insolvency proceedings. According to these metrics, the design of insolvency regimes varies significantly across countries, with important differences emerging with respect to the treatment of failed entrepreneurs, the availability of preventative and streamlining tools and ease of corporate restructuring. While a comparison of indicator values for 2010 and 2016 imply that recent reform efforts have improved policy design, there remains much scope to reform insolvency regimes in many OECD countries. This is particularly significant in light of complementary analysis which shows that the design of insolvency regimes is relevant for understanding three inter-related sources of contemporary labour productivity weakness: the survival of “zombie” firms, capital misallocation and stalling technological diffusion.
    Keywords: capital misallocation, firm exit, personal and corporate insolvency, productivity, zombie firms
    JEL: D24 K35 O40 O43 O47
    Date: 2018–09–11
  11. By: Cusolito, Ana Paula; Dautovic, Ernest; McKenzie, David J.
    Abstract: Many innovative start-ups and SMEs have good ideas, but do not have these ideas fine-tuned to the stage where they can attract outside funding. Investment readiness programs attempt to help firms to become ready to attract and accept outside equity funding through a combination of training, mentoring, master classes, and networking. We conduct a five-country randomized experiment in the Western Balkans that works with 346 firms and delivers an investment readiness program to half of these firms, with the control group receiving an inexpensive online program instead. A pitch event was then held for these firms to pitch their ideas to independent judges. The investment readiness program resulted in a 0.3 standard deviation increase in the investment readiness score, with this increase occurring throughout the distribution. Two follow-up surveys show that these judges' scores predict investment readiness and investment outcomes over the subsequent two years. Treated firms attain significantly more media attention, and are 5 percentage points (p.p.) more likely to have made a deal with an outside investor, although this increase is not statistically significant (95 confidence interval of -4.7 p.p., +14.7p.p.).
    Keywords: entrepreneurship; equity investment; Innovation; Investment readiness; randomized controlled trial.; start-ups
    JEL: L26 M13 M2 O12
    Date: 2018–08
  12. By: Albert, Jose Ramon G.; Llanto, Gilberto M.; Serafica, Ramonette B.; Vizmanos, Jana Flor V.; Quimba, Francis Mark A.; Bairan, Jose Carlos Alexis C.
    Abstract: Innovation involves implementing new or significantly improved goods and services, production processes, marketing, or organizational methods for adding value. The measurement of innovation provides a mechanism for benchmarking national performance, as well as allows a better understanding of its relation to economic growth. Further, examining determinants and bottlenecks to innovation among firms provides inputs to mainstreaming of policies on innovation. In this paper, results of the 2015 Survey of Innovation Activities, conducted by the Philippine Institute for Development Studies, are described and discussed. Survey results suggest that less than half of the firms in the country were innovators, with larger-sized firms innovating more than the micro, small, and medium establishments. The most common innovative behavior among firms was process innovation. Effects of innovation were observed to be largely customer-driven. Firms identified cost factors as the most important barrier to innovation. Knowledge and cooperation networks for innovation need strengthening. Government support and its role on innovation was also limited. Firms hardly accessed technical assistance from the government and research institutions. Similarly, firms have limited cooperation with the academe in terms of innovation activities. Firms cooperated more internally with establishments within their enterprise, their customers, and suppliers for their innovation activities. Given these issues, the government needs to have a champion for developing stronger policies and interventions to support and encourage innovation. It is also important to improve information dissemination regarding public programs available to assist firms to pursue innovation. Networking, linkages, and collaboration among the government, industry associations, and universities and research institutions also require further enhancement.
    Keywords: innovation, business, Philippines, process innovation, product innovation, organizational innovation, marketing innovation, MSMEs, micro, small, and medium enterprises, 2015 Survey of Innovation Activities of Establishments
    Date: 2018
  13. By: Anderson, Stephen J. (Stanford University); Kundu, Amrita (London Business School); Ramdas, Kamalini (London Business School)
    Abstract: We examine the effect of firm-specific business disruptions on the performance of small firms in emerging markets. We study the impact of both managerial disruptions (which result in the absence of the entrepreneur-owner or more broadly a key manager) and operational disruptions (e.g., supply glitches). We examine the effectiveness of resilience strategies in buffering against disruptions. We propose the use of relational resilience--i.e., the availability of suitable cover for the absent entrepreneur / key manager--as a measure of buffering against managerial disruptions. We also examine whether resource resilience (e.g., maintaining safety stock) helps recover from operational disruptions. In the absence of publicly available data, we hand-build a panel dataset by interviewing 646 randomly selected small firms over four time periods in Kampala, Uganda between June 2015 and November 2016. We find that disruptions are highly prevalent and have a statistically and economically significant effect on firm performance. When a firm faces multiple exogenous and severe disruptions in a six month period, its monthly sales go down by 13.7% (p = 0.013) and sales growth reduces by 17.1% on average over the six months (p = 0.070). Importantly, we find that both relational and resource resilience significantly buffer against the negative impact of disruptions; in some cases firms with high resilience are able to completely overcome the negative effect of disruptions on sales and sales growth. We discuss implications for policy makers and for large multi-nationals that buy from or sell to small emerging market firms.
    Date: 2018–07
  14. By: CHRISTIANAH ADEKUNBI FALADE (Ekiti State University. Faculty of Education Department of Vocational and Technical Education)
    Abstract: The Federal Government of Nigeria wants every citizen to acquire functional, relevant, practical, and appropriate skills for developing competencies as equipment for the individuals to live and contribute to the development of the nation. This had lead to the introduction of Entrepreneurship Education at all level of education. Despite the importance of entrepreneurship education to Nigerian graduate upon graduation some graduate still finds it difficult to establish a business of their own because of fear of risk-taking involved. This paper discussed the relationship between entrepreneurship education and risk-taking behavior of Nigerian graduates upon graduation. The following points are mentioned in the article: entrepreneurship education, entrepreneur, attributes of an entrepreneur, entrepreneur risks and types of entrepreneur risks. Conclusion: to reduce the rate of unemployment among graduates in Nigeria, graduates must be willing to take a risk to establish their businesses. Recommendation: risk-taking attitude of students must change hence, they must develop a positive attitude towards risk-taking.
    Keywords: Risk-taking behavior, Entrepreneurship Education and Entrepreneur
    JEL: E24 L26 H50
    Date: 2018–07

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