nep-ent New Economics Papers
on Entrepreneurship
Issue of 2019‒03‒25
fifteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Reconsidering the returns to entrepreneurship: Applying a modified version of Lazear’s occupational choice model By Hårsman, Björn; Mattsson, Lars-Göran
  2. Does Mandating Social Insurance Affect Entrepreneurial Activity? By Youssef Benzarti; Jarkko Harju; Tuomas Matikka
  3. Immigrant Entrepreneurs and Innovation in the U.S. High-Tech Sector By Brown, J. David; Earle, John S.; Kim, Mee Jung; Lee, Kyung Min
  4. Who Creates and Destroys Jobs over the Business Cycle? By Andrea Colciago; Volker Lindenthal; Antonella Trigari
  5. Transitioning from Solo Self-Employed to Microbusiness Employer: Local Economic Environment or Owner Characteristics? By Henley, Andrew
  6. Business dynamics and digitalisation By Flavio Calvino; Chiara Criscuolo
  7. Digital platform innovation in European SMEs. An analysis of SME Instrument Business Proposals and Case Studies. By Chiara Eleonora De Marco; Alberto Di Minin; Cristina Marullo; Daniel Nepelski
  8. Taxation and Self-Employment By Zsofia Barany
  9. Strategic Growth and Implementation: Thriving in a Disruptive Landscape By Mom, T.J.M.
  10. Establishment of the Credit Risk Database: Concrete Use to Evaluate the Creditworthiness of SMEs By Kuwahara, Satoshi; Yoshino, Naoyuki; Sagara, Megumi; Taghizadeh-Hesary, Farhad
  11. The Role of Credit Guarantee Schemes in the Development of Small and Medium-Sized Enterprises with an Emphasis on Knowledge-Based Enterprises By Aboojafari, Roohollah; Daliri, Alireza; Taghizadeh-Hesary, Farhad; Mokhtari, Mohammad; Ekhtiari, Mohsen
  12. Factorial Network Models To Improve P2P Credit Risk Management By Ahelegbey, Daniel Felix; Giudici, Paolo; Hadji-Misheva, Branka
  13. The Role of Credit Rating Agencies in Addressing Gaps in Micro and Small Enterprise Financing: The Case of India By Shankar, Savita
  14. Flexible Production and Entry: Institutional, Technological, and Organizational Determinants By Sharon Belenzon; Victor Manuel Bennett; Andrea Patacconi
  15. La sensibilisation à l’esprit d’entreprendre dans l’enseignement secondaire du système éducatif By Marcus Dejardin

  1. By: Hårsman, Björn (Department of Industrial Economics and Management, KTH Royal Institute of Technology); Mattsson, Lars-Göran (Department of Civil and Architectural Engineering, KTH Royal Institute of Technology)
    Abstract: The paper analyzes a modified version of Lazear’s (2004, 2005) model for occupational choice that includes a utility adjustment factor reflecting non-pecuniary net benefits associated with entrepreneurship. The model is used to derive analytical expressions for the relative income returns to entrepreneurship defined in two ways: in relation to the incomes of observationally similar wage employed and in relation to the counterfactual incomes of entrepreneurs as wage employed. The analysis shows that the upper bound on the income returns defined in counterfactual terms increases with the market value of entrepreneurial talent and that the lower bound decreases with increasing non-pecuniary benefits. If the entrepreneurial incomes are instead related to the incomes of observationally similar wage employed, and if the skill profiles in the population are assumed to follow a Fréchet distribution, then the upper bound on the relative expected returns will decrease with increasing non-pecuniary benefits. We also show that entrepreneurs on average will earn less than observationally similar wage employed even if there are no net benefits and that the associated self-selection bias will increase the higher the fraction of entrepreneurs. Individual-based data from the Swedish employment register is used to calibrate the parameters of the modified Lazear model and to compute the income returns to entrepreneurship. The model-based income distributions for entrepreneurs and wage employed are consistent with the observed distributions.
    Keywords: entrepreneurship; occupational choice; self-employment; self-selection bias; skill distribution; Fréchet distribution; entrepreneurship puzzle; returns to entrepreneurship
    JEL: J24 J30 L26 M13
    Date: 2019–03–13
  2. By: Youssef Benzarti; Jarkko Harju; Tuomas Matikka
    Abstract: This paper estimates the effect of relaxing the social insurance mandate on entrepreneurial activity. We use a unique discontinuity in Finland that allows certain entrepreneurs not to pay social insurance contributions on their income. Using rich administrative data, we find that relaxing the social insurance mandate leads entrepreneurs to significantly reduce their contributions, which they channel instead into their firms. While young firms use this windfall to increase business activity, older ones use it to improve their net lending position by purchasing stocks. Our results imply that the social insurance mandate is binding and its efficiency cost is heterogeneous.
    JEL: H25 H32 H55
    Date: 2019–03
  3. By: Brown, J. David (U.S. Census Bureau); Earle, John S. (George Mason University); Kim, Mee Jung (George Mason University); Lee, Kyung Min (George Mason University)
    Abstract: We estimate differences in innovation behavior between foreign versus U.S.-born entrepreneurs in high-tech industries. Our data come from the Annual Survey of Entrepreneurs, a random sample of firms with detailed information on owner characteristics and innovation activities. We find uniformly higher rates of innovation in immigrant-owned firms for 15 of 16 different innovation measures; the only exception is for copyright/trademark. The immigrant advantage holds for older firms as well as for recent start-ups and for every level of the entrepreneur's education. The size of the estimated immigrant-native differences in product and process innovation activities rises with detailed controls for demographic and human capital characteristics but falls for R&D and patenting. Controlling for finance, motivations, and industry reduces all coefficients, but for most measures and specifications immigrants are estimated to have a sizable advantage in innovation.
    Keywords: immigration, entrepreneur, innovation, high-tech, patent
    JEL: F22 J15 J60 J61 L26 O15 O30 O31 O32
    Date: 2019–02
  4. By: Andrea Colciago; Volker Lindenthal; Antonella Trigari
    Abstract: Using US annual data spanning four decades and several business cycles, we show that that job flow rates of young firms are more cyclical than those of mature firms and detect no difference between the cyclicality of job flow rates of small and large firms. Further, we find that job flow rates due to contractions and expansions of continuing establishments are more cyclical than those due to entry and exit. At the same time the job flow rates of mature firms provide a larger contribution to the overall variability of aggregate job flow rates with respect to those of young firms. The reason is that mature firms employ the vast majority of US workers, and the fraction of aggregate variability of aggregate job flows explained by the job flow of firms belonging to a specific category is proportional to the category's employment share. On the contrary, there is no relevant difference in the contribution to aggregate fluctuations between the job flow rates of firms of different sizes. Our findings hold independently of whether we focus simply on the Great Recession period or on the full sample.
    Keywords: Job Creation; Job Destruction; Business Cycle; Small Firms; Large Firms; Young Firms; Mature Firms
    JEL: D22 E23 E32 J23 L25
    Date: 2019–03
  5. By: Henley, Andrew (Cardiff University)
    Abstract: Only a minority of micro-businesses create jobs for others. This paper addresses whether personal characteristics and resources of the microbusiness owner or the local external economic environment are drivers of job creation. In the UK context of significant growth in self-employment but a declining proportion who create jobs, an investigation using longitudinal data is provided. Individual demographic and resource characteristics are found to be more important, but place effects are relatively weak. Entrepreneurship policy needs to target particular groups, including women and less experienced business owners in their localities.
    Keywords: self-employment, micro-business, job creation, local environment, longitudinal analysis
    JEL: J23 L26 M13 R12
    Date: 2019–02
  6. By: Flavio Calvino (OECD); Chiara Criscuolo (OECD)
    Abstract: This work analyses the role of the digital transformation for business dynamics across countries. The analysis combines unique harmonised data on business dynamics for 15 countries with a multi-dimensional measure of digital intensity that takes into account different facets of the digital transformation. Two key stylised facts emerge. First, digital intensive sectors – especially digital intensive services – are on average more dynamic than other sectors of the economy. Second, business dynamism has been declining in digital intensive sectors, and more so than in other sectors, especially after 2001. Despite an important role is played by technology, significant differences across countries still remain and are related to a number of institutional and policy factors.
    Keywords: business dynamics, digital transformation, entrepreneurship
    Date: 2019–03–01
  7. By: Chiara Eleonora De Marco (Haas School of Business, Garwood Centre for Corporate Innovation, UC Berkeley, CA-US; Institute of Management, Scuola Superiore Sant’Anna, Pisa); Alberto Di Minin (Institute of Management, Scuola Superiore Sant’Anna, Pisa); Cristina Marullo (Institute of Management, Scuola Superiore Sant’Anna, Pisa); Daniel Nepelski (European Commission - JRC)
    Abstract: The study explores how European SMEs applying to the SME Instrument (SMEi) funding scheme under Horizon 2020 innovate use the digital platform business model. The study demonstrates a widespread awareness of the digital platform concept as a tool to be applied to gain momentum and growth, taking advantage of the digital affordances. The main challenges to scale-up include how to manage external communities and orchestrate them in order to build innovation ecosystems; how to find a profitable business model; and secure funding for growth. Firms located in peripheral regions face additional difficulties in finding complementary resources.
    Keywords: digital platform, innovation, SME, H2020, SME Instrument, Europe
    Date: 2019–03
  8. By: Zsofia Barany (Département d'économie)
    Abstract: In this paper I study the relation between self-employment and the tax rates on wages and on self-employment income. Using variation in the statutory tax rates across countries, industries, and occupations, I find that while the share of self-employed is strongly positively correlated with the tax rate on wage income, it is weakly negatively correlated with the tax rate on self-employed income. The asymmetry between the effects of the tax rates suggests that those who choose self-employment partly do so in order to evade taxes. This extensive margin of adjustment – between employment and self-employment – should be taken into account when considering the effects of tax rates on labor income, on taxable income and on welfare.
    Keywords: Tax-rates; Self-employment; Tax evasion
    Date: 2018–05
  9. By: Mom, T.J.M.
    Abstract: To create wealth in a changing and competitive landscape, managers need to identify and develop opportunities for new strategic growth. They also need to have excellent implementation capabilities to reap the benefits of their new growth initiatives. Yet, most managers and companies struggle or even fail to do so. To address this struggle, management practice and research about strategic growth and about implementation need integration. In this inaugural address, I propose three avenues, which may contribute to this. First, for organizations to become really good at developing new strategies for growth and also at implementing them, they need ambidextrous managers, i.e., managers with the capacity to do two very different things equally well, like being entrepreneurial and strategic, conducting exploratory and exploitative learning, and putting in place top-down and bottom-up strategic processes. The second avenue is about creating close connections and systematic interactions between new growth and implementation activities within the organization and among the actors involved. This pertains to managers across different hierarchical levels and to the involvement of operational managers and employees. The third avenue points to scale-ups as an exciting context for practice and research on growth and implementation. Interest in scale-ups may benefit from going beyond typical macro questions of job creation as scaling-up a company rapidly is full of unique managerial and organizational challenges, and scale-ups have the potential to be impactful forces for positive change.
    Keywords: Strategic growth, Implementation, Execution, Strategic management, Entrepreneurship, Ambidexterity, Scale-up, High growth firm, Competitive advantage, Disruption
    JEL: M13 O32
    Date: 2019–02–22
  10. By: Kuwahara, Satoshi (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Sagara, Megumi (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: The credit risk database (CRD) makes it possible to mitigate the problem of information asymmetry between small and medium-sized enterprises (SMEs) and financial institutions and contributes to improving SMEs’ access to finance by collecting a large number of financial statements through the mechanism of SME finances and establishing a robust statistical model. We use the CRD in Japan, confirm the situation in Japan, and highlight the CRD’s contribution to evaluating the creditworthiness of SMEs. We also explain how to establish the CRD as a financial infrastructure, while indicating that the CRD and the scoring model based on it have maintained their quality owing to their operating system. We hope our experience contributes to the introduction of a statistical credit risk database composed of a large number of anonymous financial statement data in other countries and that the CRD helps to improve SMEs’ access to finance as a financial infrastructure.
    Keywords: credit risk database; CRD creditworthiness; SMEs in Japan
    JEL: G21 G28 G32
    Date: 2019–02–21
  11. By: Aboojafari, Roohollah (Asian Development Bank Institute); Daliri, Alireza (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Mokhtari, Mohammad (Asian Development Bank Institute); Ekhtiari, Mohsen (Asian Development Bank Institute)
    Abstract: Small and medium-sized enterprises (SMEs) in their growth stage reach the point where, on the one hand, personal resources do not meet their needs, and, on the other, they do not have enough collateral to attract external finance. Access to finance can be facilitated by obtaining loans from financial institutions backed by governmental credit guarantees. Therefore, the development of a sound credit guarantee scheme will be an important step in filling the financing gap of SMEs. We investigate the situation of the credit guarantee scheme for SMEs in Iran by using the available data and interviews with activists from this field with the grounded theory method. We show the weaknesses of the Iranian credit guarantee scheme, and based on the analysis, present solutions and policy recommendations in accordance with the social and economic environment of the Islamic Republic of Iran. The most important problem is the lack of a credit database for comprehensive assessment of SMEs, especially knowledge-based enterprises. The lack of a robust database makes it impossible to carry out a comprehensive evaluation because these models require a large amount of data. The lack of accurate models makes it difficult to rate credit status and thus to issue credit guarantees. In addition, the current level of the capital of the credit guarantee funds in Iran is not sufficient given the large number of SMEs in the country.
    Keywords: small and medium-sized enterprises (SMEs); knowledge-based enterprises; credit guarantee scheme (CGS); comprehensive credit evaluation
    JEL: C52 G32 H81 O10
    Date: 2019–03–13
  12. By: Ahelegbey, Daniel Felix; Giudici, Paolo; Hadji-Misheva, Branka
    Abstract: This paper investigates how to improve statistical-based credit scoring of SMEs involved in P2P lending. The methodology discussed in the paper is a factor network-based segmentation for credit score modeling. The approach first constructs a network of SMEs where links emerge from comovement of latent factors, which allows us to segment the heterogeneous population into clusters. We then build a credit score model for each cluster via lasso logistic regression. We compare our approach with the conventional logistic model by analyzing the credit score of over 15000 SMEs engaged in P2P lending services across Europe. The result reveals that credit risk modeling using our network-based segmentation achieves higher predictive performance than the conventional model.
    Keywords: Credit Risk, Factor models, Fintech, Peer-to-Peer lending, Credit Scoring, Lasso, Segmentation
    JEL: C38 G2
    Date: 2019–02–26
  13. By: Shankar, Savita (Asian Development Bank Institute)
    Abstract: We describe the common financing challenges faced by micro, small, and medium-sized enterprises (MSMEs) in India and some important measures taken to address them, with a focus on the credit rating scheme implemented in 2000. We examine the usefulness as well as the limitations of the scheme, drawing on interviews with rating agencies and MSMEs. With credit rating being an expensive exercise, the availability of government subsidies under the scheme has been an important factor in encouraging MSMEs to get themselves rated, thereby reducing information asymmetry with banks and enabling access to credit. Given the large number of unbanked MSMEs in the country, leveraging the data generated by MSME lending and credit rating in the country through the creation of a credit risk database is necessary. Lenders will then be able to tap into the collective data generated to make more informed credit decisions with regard to MSMEs without relying on subsidies. Over 63 million micro, small, and medium-sized enterprises in India generate lending and credit rating data. How can lenders leverage these to make informed credit decisions?
    Keywords: micro; small; and medium-sized enterprises; India; credit rating
    JEL: G21 G28 G38
    Date: 2019–03–14
  14. By: Sharon Belenzon; Victor Manuel Bennett; Andrea Patacconi
    Abstract: Academics, the media, and policymakers have all raised concerns about the implications of human workers being replaced by machines or software. Few have discussed the implications of the reverse: firms’ ability to replace capital with workers. We show that this flexibility can help new firms overcome uncertainty and increase entrepreneurial entry. We develop a simple real options model where permissive labor regulations allow firms to take advantage of capital-labor substitutability by replacing ‘rigid’ capital with ‘flexible’ labor. The model highlights institutional, technological, and organizational preconditions to using this flexibility. Using a large and comprehensive dataset on entry by standalone firms and group affiliates, we provide evidence in support of the model.
    JEL: K22 L22 L23
    Date: 2019–03
  15. By: Marcus Dejardin (UCL - Université Catholique de Louvain, Université de Namur [Namur])
    Abstract: The article reports on the salient results of a review of the scientific literature examining entrepreneurship awareness-raising devices and more precisely the evaluation of their impact. The implementation of the devices is examined to the extent that it can be an explanatory factor for their impact. In particular, awareness-raising and training schemes aimed at developing the entrepreneurial skills of students during their secondary education studies are the subject of attention. The article aims to provide some theoretical, methodological and empirical guidelines based on the scientific literature on entrepreneurship, in order to contribute to the evaluation of awareness-raising actions about entrepreneurship conducted in the secondary education system. It successively examines the theoretical foundations that are useful for analysing the entrepreneurial intention (and even the entrepreneurial event); entrepreneurial skills according to the EntreComp and E-Scan tools; the specific issues involved in the collection and processing of data; and an empirical study identified as being paradigmatic. It concludes with a few final remarks, opening up the perspective to some points of attention that have not been addressed before.
    Abstract: L'article rend compte des résultats saillants d'une revue de la littérature scientifique examinant les dispositifs de sensibilisation à l'esprit d'entreprendre et plus précisément leur évaluation en termes d'impact. La mise en oeuvre des dispositifs est examinée dans la mesure où celle-ci peut constituer un facteur explicatif de leur impact. Ce sont en particulier les dispositifs de sensibilisation et de formation visant à développer les compétences entrepreneuriales des personnes étudiantes durant leur parcours dans l'enseignement secondaire qui font l'objet d'attention. L'article ambitionne d'apporter quelques balises théoriques, méthodologiques et empiriques fondées sur la littérature scientifique en matière d'esprit d'entreprendre et ce, pour servir un travail d'évaluation portant sur les actions de sensibilisation à l'esprit d'entreprendre menées dans l'enseignement secondaire du système éducatif. Il examine successivement les fondements théoriques utiles à l'analyse de l'intention entrepreneuriale (voire du passage à l'acte entrepreneurial); les compétences entrepreneuriales selon les outils EntreComp et E-Scan; les questions spécifiques que posent le recueil et le traitement des données; une étude empirique identifiée comme étant paradigmatique. Il se conclut par quelques remarques finales permettant d'ouvrir la perspective vers certains points d'attention qui n'auront pas été abordés jusqu'alors.
    Keywords: evaluation,entrepreneurship,education system,système éducatif,entrepreneuriat
    Date: 2019–02–19

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