nep-ent New Economics Papers
on Entrepreneurship
Issue of 2019‒09‒30
eleven papers chosen by
Marcus Dejardin
Université de Namur

  1. Data Science in Strategy: Machine learning and text analysis in the study of firm growth By Daan Kolkman; Arjen van Witteloostuijn
  2. Funding Emerging Ecosystems By Paige Clayton; Maryann Feldman; Benjamin Montmartin
  3. Career or flexible work arrangements? Gender differences in self-employment in a young market economy By Buttler, Dominik; Sierminska, Eva
  4. Entrepreneurial Persistence beyond Survival: Measurement and Determinants By Caliendo, Marco; Goethner, Maximilian; Weißenberger, Martin
  5. Experimentation and Startup Performance: Evidence from A/B testing By Rembrand Koning; Sharique Hasan; Aaron Chatterji
  6. The Decline in Entrepreneurship in the West: Is Complexity Ossifying the Economy? By Naudé, Wim
  7. Synergizing Ventures By Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
  8. Digitization and knowledge spillover effectiveness: Evidence from the "German Mittelstand" By Proeger, Till; Runst, Petrik
  9. Efficient wealth inequality and differential asset taxation with dynamic agency By Thomas Phelan
  10. Implications of Default Recovery Rates for Aggregate Fluctuations By Giacomo Candian; Mikhail Dmitriev
  11. Firm-level credit ratings and default in the Great Recession: Theory and evidence By Fernando Leibovici; David Wiczer

  1. By: Daan Kolkman (Technical University Eindhoven); Arjen van Witteloostuijn (Vrije Universiteit Amsterdam)
    Abstract: This study examines the applicability of modern Data Science techniques in the domain of Strategy. We apply novel techniques from the field of machine learning and text analysis. WE proceed in two steps. First, we compare different machine learning techniques to traditional regression methods in terms of their goodness-of-fit, using a dataset with 168,055 firms, only including basic demographic and financial information. The novel methods fare to three to four times better, with the random forest technique achieving the best goodness-of-fit. Second, based on 8,163 informative websites of Dutch SMEs, we construct four additional proxies for personality and strategy variables. Including our four text-analyzed variables adds about 2.5 per cent to the R2. Together, our pair of contributions provide evidence for the large potential of applying modern Data Science techniques in Strategy research. We reflect on the potential contribution of modern Data Science techniques from the perspective of the common critique that machine learning offers increased predictive accuracy at the expense of explanatory insight. Particularly, we will argue and illustrate why and how machine learning can be a productive element in the abductive theory-building cycle.
    JEL: L1
    Date: 2019–09–20
  2. By: Paige Clayton (University of North Carolina at Chapel Hill); Maryann Feldman (University of North Carolina at Chapel Hill); Benjamin Montmartin (SKEMA Business School; Université Côte d'Azur, France)
    Abstract: Although prior research argues that location is important for firm performance, we lack an understanding of how resources accumulate in regions and how innovative ecosystems emerge and evolve over time. This paper focuses on the temporal development of an industry in a region and provides a framework for characterizing phase changes in a geographically defined entrepreneurial ecosystem. We add to the literature on entrepreneurial ecosystems by considering emergence as a temporal process and explicating finance as a mechanism that transitions between phases. Emergence is captured by the accumulation of individual entry by entrepreneurs, and punctuated by phase changes as the region accumulates resources and evolves. We use threshold regression to identify inflection points in stages of industry emergence. We then focus on the role of finance, from both public and private sources. Using a dynamic random effects probit model with regime analysis, we demonstrate interrelationships between public and private funding sources that differ over time. Finally, we estimate the relationship between the funding from various sources and firm survival within different phases using a discrete event history analysis. Our results demonstrate that public and private funding sources are complementary but with different impacts on firm survival during different phases. The results have implications for startup firms seeking funding and for policy making trying to encourage industry emergence.
    Date: 2019–09
  3. By: Buttler, Dominik; Sierminska, Eva
    Abstract: We examine supply-side determinants of transition from the wage and salary sector to selfemployment of women and men living Poland. The empirical analysis is made possible due to a unique and under explored longitudinal survey -- Social Diagnosis – that contains rare indicators such as job preferences and work events. The empirical results in the 2007-2015 period indicate that women and men transitioning into self-employment are differently motivated. In terms of job attributes, women find independence at work and for those in professional occupations a job matching their competences as a desirable job attribute, while for men the lack of stress, a good salary and independence is key. The analysis of work events and its influence on selfemployment weakly confirms the glass-ceiling hypothesis. In line with other research, our analysis indicates that financial constraints strongly determine the entry into self-employment. A key human capital determinant is past entrepreneurial experience indicating a slow, cautious transition process into self-employment.
    Keywords: Risk,Self-Employment,Work conditions,Gender,Poland
    JEL: D31 G11 J61
    Date: 2019
  4. By: Caliendo, Marco (University of Potsdam); Goethner, Maximilian (Friedrich Schiller University); Weißenberger, Martin (University of Potsdam)
    Abstract: Entrepreneurial persistence is demonstrated by an entrepreneur's continued positive maintenance of entrepreneurial motivation and constantly-renewed active engagement in a new business venture despite counter forces or enticing alternatives. It is thus a crucial factor for entrepreneurs when pursuing and exploiting their business opportunities and to realize potential economic gains and benefits. Using rich data on a representative sample of German business founders, we investigate the determinants of entrepreneurial persistence. Next to observed survival we also construct a hybrid persistence measure capturing also the motivational dimension of persistence. We analyze the influence of individual-level (human capital and personality) and business-related characteristics on both measures as well as their relative importance. We find that the two indicators emphasize different aspects of persistence. For the survival indicator, the predictive power is concentrated in business characteristics and human capital, while for hybrid persistence, the dominant factors are business characteristics and personality. Finally, we show that results are heterogeneous across subgroups. In particular, formerly-unemployed founders do not differ in survival chances, but they are more likely to lack a high psychological commitment to their business ventures.
    Keywords: entrepreneurship, start-ups, persistence, survival
    JEL: L26 M13
    Date: 2019–09
  5. By: Rembrand Koning; Sharique Hasan; Aaron Chatterji
    Abstract: Recent work argues that experimentation is the appropriate framework for entrepreneurial strategy. We investigate this proposition by exploiting the time-varying adoption of A/B testing technology, which has drastically reduced the cost of experimentally testing business ideas. This paper provides the first evidence of how digital experimentation affects the performance of a large sample of high-technology startups using data that tracks their growth, technology use, and product launches. We find that, despite its prominence in the business press, relatively few firms have adopted A/B testing. However, among those that do, we find increased performance on several critical dimensions, including page views and new product features. Furthermore, A/B testing is positively related to tail outcomes, with younger ventures failing faster and older firms being more likely to scale. Firms with experienced managers also derive more benefits from A/B testing. Our results inform the emerging literature on entrepreneurial strategy and how digitization and data-driven decision-making are shaping strategy.
    JEL: M13 M2
    Date: 2019–09
  6. By: Naudé, Wim (Maastricht University)
    Abstract: Entrepreneurship in most advanced economies is in decline. This comes as a surprise: many scholars have expected an upsurge in entrepreneurship. What are the reasons for the decline? In this paper I first document the extent of the decline in terms of entrepreneurial entry rates; the share of young and small firms; and in terms of labor market mobility and in innovativeness. I then critically discuss the explanations that have been offered in the literature, which variously ascribes the decline to either the slowing of population growth, and/or growing market concentration, zombie-firm congestion, slower diffusion of knowledge, and burdensome business regulations. While having merit, these explanations tend to take a supply-side view and moreover fail to explain why the decline in entrepreneurship is largely confined to economies with high levels of economic complexity. I argue that we need to consider the potential of negative scale effects and evolutionary pressures from rising complexity, as well as long-run changes in aggregate demand and energy costs. Whether the decline in entrepreneurship and the ossification of the economy is undesirable, is a point for debate, calling for more research and more attention to entrepreneurship in growth theories.
    Keywords: development, start-ups, entrepreneurship, economic complexity, growth theory
    JEL: O47 O33 J24 E21 E25
    Date: 2019–09
  7. By: Ufuk Akcigit (University of Chicago); Emin Dinlersoz (U.S. Census Bureau); Jeremy Greenwood (University of Pennsylvania); Veronika Penciakova (University of Maryland)
    Abstract: Venture capital and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and patenting levels than non-VC-backed ones. Venture capitalists increase a startup's likelihood of reaching the right tails of firm size and innovation distributions. Furthermore, there is positive assortative matching: better venture capitalists match with better startups, creating a synergistic effect. An endogenous growth model, where venture capitalists provide both expertise and financing to business startups, is constructed to match these facts. The degree of assortative matching and the taxation of VC-backed startups are important for growth.
    Date: 2019
  8. By: Proeger, Till; Runst, Petrik
    Abstract: The Knowledge Spillover Theory of Entrepreneurship (KSTE) considers determinants of knowledge diffusion as well as their impact on entrepreneurial activities and growth. Extending the KSTE, the role of incumbent firms for the broad diffusion of new knowledge has been emphasized. For those firms, the barriers to an effective flow of information are considered using the concepts of knowledge filters and absorptive capacities. Both concepts enable the derivation of institutional measures to penetrate knowledge filters and systematically increase absorptive capacities. We interpret the process of digitization as a central process of knowledge spillover in recent years and determine digitization-related knowledge filters for particular domains of firm decision-making. Using a consultant-based in-depth evaluation of 200 SMEs conducted in the context of a federal innovation program, structural drivers, firm clusters and domain-specific knowledge filters for digitization are determined. We find little evidence for structural drivers of knowledge spillover effectiveness. However, as firms are clustered according to their digitization pattern, we show that firms realize high degrees of digitization in most domains or in none, leading us to argue that domain-specific knowledge filters are weak. Rather, knowledge spillover in digitization can be considered a process with initially strong general knowledge filter and - once this filter has been penetrated - weaker subsequent domain-specific knowledge filters. Policy and managerial implications for increasing digitization-related knowledge spillovers in SMEs are discussed.
    Keywords: Digitization,Knowledge Filter,Knowledge Spillover Theory of Entrepreneurship,Small and Medium Enterprises
    JEL: D21 D82 H41 K23 L14
    Date: 2019
  9. By: Thomas Phelan (Federal Reserve Bank of Cleveland)
    Abstract: This paper characterizes a class of stationary constrained-efficient allocations and optimal taxes in an economy with endogenous firm formation and dynamic moral hazard. I consider an environment in which entrepreneurs hire workers and rent capital to produce output subject to privately-observed shocks and have the ability to both divert capital to private consumption and abscond with a fraction of assets. To provide incentives to invest, high realizations of output must be accompanied by high future consumption, leading to ex-post inequality in the efficient allocation. I show that the distributions of consumption and wealth associated with the stationary efficient allocation exhibit thick right (Pareto) tails, with the degree of inequality monotonically increasing in the number of workers per entrepreneur. This constrained-efficient allocation is then implemented in a general equilibrium model using linear taxes on labour income, risk-free savings and business profits. The tax on entrepreneurs’ savings may be positive or negative, while the tax on business profits depends solely upon the degree of private information and is independent of all technological and demographic parameters.
    Date: 2019
  10. By: Giacomo Candian (HEC Montréal); Mikhail Dmitriev (Florida State University)
    Abstract: We document that default recovery rates in the United States are highly volatile and strongly pro-cyclical. These facts are hard to reconcile with the existing financial friction literature. Indeed, models with limited enforceability a la Kiyotaki and Moore (1997) do not have defaults and recovery rates, while agency costs models following Bernanke, Gertler, and Gilchrist (1999) underestimate the volatility of recovery rates by one order of magnitude. We extend the standard agency costs model allowing liquidation costs for creditors to depend on the tightness of the market for physical capital. Creditors do not have expertise in selling entrepreneurial assets, but when buyers are plentiful, this disadvantage is minimal. Instead when sellers are abundant, the disadvantage of being an outsider is higher. Following a negative shock, entrepreneurs sell capital and liquidation costs for creditors increase. Creditors cut lending and cause entrepreneurs to sell more capital. This liquidity channel works independently from standard balance sheet effects and amplifies the impact of financial shocks on output by up to 50 percent.
    Date: 2019
  11. By: Fernando Leibovici (Federal Reserve Bank of St. Louis); David Wiczer (Stony Brook University)
    Abstract: This paper studies the role of credit constraints in accounting for the dynamics of firm-level default during the Great Recession. We present novel firm-level evidence on the role of credit ratings in exit behavior during the Great Recession. Firms with low credit rating are more likely to default than firms with high credit ratings and the difference widened substantially in the Great Recession while, in contrast, default rates did not vary much by size, age, or productivity. Because credit ratings may capture the long-term solvency of firms and their access to short-term liquidity, we interpret this evidence using a model of heterogeneous firms with endogenous default and delinquency choices, where intertemporal loans are taken to pay for working capital expenditures and loan prices depend on the firms' payment history. Our findings suggest that credit constraints played an important role in accounting for the dynamics of firm-level default during the Great Recession. We investigate the extent to which credit ratings reflect imperfect information about firms, and examine their implications for the dynamics of default as well as for the design of policies during episodes of financial distress.
    Date: 2019

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