nep-ent New Economics Papers
on Entrepreneurship
Issue of 2019‒01‒14
seven papers chosen by
Marcus Dejardin
Université de Namur

  1. Growth paths and routes to exit: ‘Shadow of Death’ effects for new firms in Japan By Alex Coad; Masatoshi Kato
  2. Financial Frictions, Cyclical Fluctuations, and the Growth Potential of New Firms By Christoph Albert; Andrea Caggese
  3. Advancing Conceptualization of University Entrepreneurship Ecosystems: The Role of Knowledge-based Entrepreneurial Firms By Link, Albert; Sarala, Riikka
  4. Entrepreneurial Spillovers from Corporate R&D By Tania Babina; Sabrina T. Howell
  5. Exploring the Impact of R&D on Patenting Activity in Small Women-Owned and Minority-Owned Entrepreneurial Firms By Link, Albert; van Hasselt, Martijn
  6. The Promise and Peril of Youth Entrepreneurship in MENA By Caroline Krafft; Reham Rizk
  7. A Study of Startups in Hong Kong By Lee, Paul S. N.

  1. By: Alex Coad (CENTRUM Catolica Graduate Business School, Pontificia Universidad Católica del Perú); Masatoshi Kato (School of Economics, Kwansei Gakuin University)
    Abstract: Research has recently emphasized that the non-survival of entrepreneurs can be disaggregated into distinct exit routes such as merger and acquisition (M&A), voluntary closure and failure. Firm performance is an alleged determinant of exit route. However, there is a lack of evidence linking exit routes to their previous growth performance. We contribute to this gap by analysing a cohort of incorporated firms in Japan, and find some puzzles for the standard view. In the Japanese context, not all exit routes are available to all firms: small firms do not realistically face the options of M&A or bankruptcy, but essentially face a choice between survival and voluntary liquidation. Our empirical analysis suggests that sales growth generally reduces the probability of exit by merger,voluntary liquidation, and also bankruptcy. However, the relationship is U-shaped - such that rapid growth actually increases the probability of exit. More generally, each of the three exit routes can occur all across the growth rate distribution. Large firms are more likely to exit via merger or bankruptcy, while small firms are more likely to exit via voluntary liquidation.
    Keywords: Exit routes, shadow of death, post-entry growth, start-up size, voluntary liquidation, M&A.
    Date: 2018–12
  2. By: Christoph Albert; Andrea Caggese
    Abstract: We develop a model in which entrepreneurs choose between startup types with heterogeneous short- and long-run growth potential, and we generate testable predictions on the differential effects of financial factors and cyclical fluctuations on these startups. Using a multi-country entrepreneurship survey, we find that, consistent with the model, higher borrowing costs during financial crises negatively affect high-growth startups considerably more than low-growth startups, especially during severe downturns. Our results, supported by additional tests using sector-level financial frictions indicators, uncover a new channel that is potentially important to explain slow recoveries after financial crises.
    Keywords: financial crisis, entrepreneurship
    JEL: E20 E32 D22 J23 M13
    Date: 2018–12
  3. By: Link, Albert (University of North Carolina at Greensboro, Department of Economics); Sarala, Riikka (University of North Carolina at Greensboro, Department of Management)
    Abstract: University entrepreneurship ecosystems are increasingly important in facilitating innovation and entrepreneurial opportunities in today’s knowledge-based economies. However, we have an incomplete understanding of the role of the entrepreneurial firm as the key user of university knowledge. We propose that use of university knowledge positively influences entrepreneurial firm performance and that the entrepreneurial firm’s resource and capabilities facilitate its ability to create value from university knowledge. We test our hypotheses with survey data on knowledge intensive entrepreneurial firms from 10 European countries. Our study contributes to an increased understanding of the economic, societal, and technological contributions of universities by illustrating empirically the role of entrepreneurial firm’s resources and capabilities as moderators of value in university ecosystems.
    Keywords: entrepreneurship; strategic behavior; university-based knowledge; European Union;
    JEL: L26 O31
    Date: 2019–01–04
  4. By: Tania Babina; Sabrina T. Howell
    Abstract: This paper documents that corporate R&D investment increases employee departures to entrepreneurship. We use U.S. Census data, and instrument for R&D with its tax credit-induced cost. The ideas or skills that spill into startups seem to benefit from focused, high-powered incentives; for example, R&D-induced startups are much more likely to receive venture capital. The effect also seems to reflect ideas or skills that are poor complements to the firm’s assets. As human capital is inalienable and portable, and startups are crucial to economic growth, R&D-induced labor reallocation to startups appears to be a novel channel of R&D spillovers.
    JEL: G3 O3
    Date: 2018–12
  5. By: Link, Albert (University of North Carolina at Greensboro, Department of Economics); van Hasselt, Martijn (University of North Carolina at Greensboro, Department of Economics)
    Abstract: The relevant economics literature on the impact of R&D on patenting activity falls within two methodological areas of inquiry. The first area might be classified as a test of the Schumpeterian hypothesis. The second and lesser research area might be classified as an estimation of the knowledge production function relationship between R&D and patenting. This paper focuses on estimates of the R&D-to-patenting relationship for a random sample of small, entrepreneurial firms whose research projects were supported through the U.S. Small Business Innovation Research (SBIR) program. Our paper contributes to the R&D-to-patenting literature in two ways. It examines empirically a unique set of small, entrepreneurial firms funded by the public sector, and it explores the effect of the gender and ethnicity of firm owners on the propensity of their firms to patent from funded research projects.
    Keywords: Patenting; R&D; Entrepreneurship; Gender; Minorities;
    JEL: J15 J16 L26 O32 O34
    Date: 2019–01–04
  6. By: Caroline Krafft (St. Catherine University); Reham Rizk
    Abstract: Entrepreneurship is promoted by government policies and international agencies as a solution to high rates of youth unemployment in the Middle East and North Africa. This paper investigates the potential for entrepreneurship to deliver on promises of alleviating unemployment. We specifically examine who entrepreneurs are (in comparison to the unemployed), their working conditions and earnings, and the dynamics of their occupational choices. We find that entrepreneurs, and especially the employers who are relatively more successful entrepreneurs and who can create jobs for others, are essentially the opposite of the unemployed. For example, entrepreneurs are older and less educated, while the unemployed are highly educated new entrants. Entrepreneurship does not generally lead to higher earnings, and does have fewer benefits. Thus, promoting entrepreneurship is not only unlikely to be successful in reducing unemployment, but also, if it is successful, may even be harmful to youth.
    Date: 2018–11–19
  7. By: Lee, Paul S. N.
    Abstract: This study examines the factors contributing to the success of startups in attaining a unicorn status by comparing three successful companies, namely, WeLab, SenseTime, and GoGoVan. We investigate the development of these startups and the various stages of their growth, with a focus on the success factors for getting continuing funding from various sources. We found that a competitive business model of a startup is a first factor to nurture a unicorn. The second factor is the executive power of the founder(s). Almost without exception, there are ups and downs of running a startup, which highlights the importance of leadership. The founders do not need only vision and passion, but soft skills in managing the business and attracting financial support as well. We also found that all three startups have a "China" element. The attractiveness to Chinese market and capital seems to be a must for Hong Kong unicorn to come into shape. Interestingly, profit is not that important a factor for a startup to become a unicorn. Very often, investors buy on the potential of the startup rather than immediate profit. The four factors, namely, competitiveness, executive power of founder(s), attractiveness to Chinese market and capital, and future potential have proved to be important for a startup to succeed in Hong Kong. At the end of the paper, we discuss three different models of running a successful startup. It ranges from facilitating financial loans, using innovative AI technology to solve specific problems, to providing a one-stop e-commerce platform. We anticipate that more startups will succeed in Hong Kong since the unicorns have thrown light on the path which latecomers can follow.
    Date: 2018

This nep-ent issue is ©2019 by Marcus Dejardin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.