nep-ent New Economics Papers
on Entrepreneurship
Issue of 2020‒02‒03
sixteen papers chosen by
Marcus Dejardin
Université de Namur

  1. How Individual Income Tax Policy Affects Entrepreneurship By Clingingsmith, David; Shane, Scott
  2. Product Innovation, Product Diversification, and Firm Growth: Evidence from Japan's Early Industrialization By Serguey Braguinsky; Atsushi Ohyama; Tetsuji Okazaki; Chad Syverson
  3. The Labor Market Value of Experience from Temporary Self-employment By Lougui, Monia; Broström, Anders
  4. Compositional nature of firm growth and aggregate fluctuations By Smirnyagin, Vladimir
  5. Trade Costs in Services: Firm Survival, Firm Growth and Implied Changes in Employment By Elisabeth Christen; Michael Pfaffermayr; Yvonne Wolfmayr
  6. Let Others Go First: How Pitch Order Affects Investor Interest in Elevator Pitches By Clingingsmith, David; Shane, Scott
  7. Skewed Business Cycles By Sergio Salgado; Fatih Guvenen; Nicholas Bloom
  8. "Fine...I'll do it myself": Lessons from self-employment grants in a long recession period By Stjepan Srhoj; Ivan Zilic
  9. Financial constraints and intangible investments. Do innovative and non-innovative firms differ? By Sandro Montresor; Antonio Vezzani
  10. Business Performance and Heterogeneity among Islamic Microfinance Clients: Evidence from Pakistan By Joana Silva Afonso; Joe Cox; Andy Thorpe
  11. Effects of subsidizing the firstemployee - Empirical evidencefrom Finland By Annika Nivala
  13. National and international R&D support programmes and technology scouting in European small and medium enterprises (SMEs) By Radicic, Dragana
  14. Technology & Knowledge Transfer For Entrepreneurship At Informatics & Business Institute Darmajaya Bandar Lampung By Sanusi, Anuar; , yulmaini; Yusendra, Aria Eka
  15. Herausforderungen für den Mittelstand - Update der Unternehmersicht 2019 By Kranzusch, Peter; Icks, Annette; Levering, Britta; Pasing, Philipp
  16. Unternehmerische Zielsysteme: Unterscheiden sich mittelständische Unternehmen tatsächlich von anderen? By Pahnke, André; Holz, Michael; Welter, Friederike

  1. By: Clingingsmith, David (Case Western Reserve University); Shane, Scott
    Abstract: We review the empirical literature on the effects of individual income tax policy on entrepreneurship. We find no evidence of consensus, even on relatively narrow questions such as whether individual income tax rates deter or encourage entrepreneurial entry. We believe the absence of consensus reflects both the complexity of mechanisms connecting tax policy to entrepreneurial decision making and the infeasibility of employing the most reliable empirical methods, such as experiments, in this domain.
    Date: 2017–12–13
  2. By: Serguey Braguinsky (University of Maryland - Department of Management & Organization; National Bureau of Economic Research (NBER); Osaka University - Institute of Social and Economic Research); Atsushi Ohyama (Hitotsubashi University); Tetsuji Okazaki (University of Tokyo); Chad Syverson (University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER))
    Abstract: We explore how firms grow by adding products. In contrast to most earlier work on the topic, our conceptual and empirical framework allows for separate treatment of product innovation (vertical differentiation) and diversification (horizontal differentiation). The market context is Japan’s cotton spinning industry at the turn of the last century. We find that introducing innovative products outside of the previously feasible set involves removing the “supply-side constraint” by investing in new types of machines and technologies. This process involves a high degree of uncertainty, however, so firms that take steps in this direction tend to first introduce innovative products on experimental basis. We show that conducting such experiments is a key to firm growth. It not only provides opportunities to capture the market in high-end vertically differentiated products when successful, but also facilitates horizontal differentiation of the firm’s products within its previous technical capabilities. In long-term outcomes over 20 years, the right tail of the firm size distribution becomes dominated by firms that were able to expand in both directions: moving first into technologically challenging vertically differentiated products, and then later applying their newly acquired high-end technical competence to horizontal expansion of their product portfolios.
    Keywords: Innovation, Growth
    JEL: D2 L1 N6 N8 O3
    Date: 2020
  3. By: Lougui, Monia (Ratio & Centre of Excellence for Science and Innovation Studies (CESIS)); Broström, Anders (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper explores the evaluation of experience from self-employment on the Swedish labor market. Specifically, we analyze the wage remuneration of individuals moving from a spell in self-employment to regular employment as compared to a control group of individuals without such experience. To tackle the challenge of estimating the average effect of treatment, we seek to reduce unobserved heterogeneity across groups by only considering individuals moving into self-employment after being displaced in the context of employer exit, and setting up the control group to consist of individuals moving from the same exiting firms into new employment. To further ensure similarity on key observables with the treated group, we select the control group through coarsened exact matching. Our results demonstrate that the average treatment effect is positive. In further exploration, we find evidence suggesting that this effect is at least partially driven by self-employment experiences being positively evaluated for jobs requiring general and managerial skills rather than industry-specific expertise.
    Keywords: Entrepreneurship valuation; Labor market mobility; Entry wage; Firm closure; Necessity entrepreneurship
    JEL: E24 J30 J60 L26 M13
    Date: 2020–01–28
  4. By: Smirnyagin, Vladimir (University of Minnesota)
    Abstract: This paper studies firm dynamics over the business cycle. I present evidence from the United Kingdom that more rapidly growing firms are born in expansions than in recessions. Using administrative records from Census data, I find that this observation also holds for the last four recessions in the United States. I also present suggestive evidence that financial frictions play an important role in determining the types of firms that are born at different stages of the business cycle. I then develop a general equilibrium model in which firms choose their managers’ span of control at birth. Firms that choose larger spans of control grow faster and eventually get to be larger, and in this sense have a larger target size. Financial frictions in the form of collateral constraints slow the rate at which firms reach their target size. It takes firms longer to get up to scale when collateral constraints tighten; therefore, businesses with the largest target size are affected disproportionately more. Thus, fewer entrepreneurs find it profitable to choose larger projects when financial conditions deteriorate. Using Bayesian methods, I estimate the model using micro and aggregate data from the United Kingdom. I find that financial shocks account for over 80% of fluctuations in the formation of businesses with a large target size, and TFP and labour wedge shocks account for the remaining 20%. An independently estimated version of the model with no choice over the span of control needs larger aggregate shocks in order to account for the same data series, suggesting that the intensive margin of business formation is important at business cycle frequencies. The model with the choice over the span of control generates an empirically relevant and non-targeted collapse in the right tail of the cumulative growth distribution among firms started in recessions, while the model without such a choice does not. The paper also discusses implications for micro-targeted government stimulus policies.
    Keywords: Business cycles; firm dynamics
    JEL: E23 E32 H25
    Date: 2020–01–03
  5. By: Elisabeth Christen; Michael Pfaffermayr; Yvonne Wolfmayr
    Abstract: This paper provides new insight into the firm-level employment impacts of trade cost changes at the industry level in the Austrian services sector. We apply a two-part model of firm survival (exit) and firm growth. Separate regressions for firm entry rates at the industry-region level complete the picture of total trade-induced net job creation. We implement the trade cost measure introduced by Chen and Novy (2011) and base it on own estimates of industry specific substitution elasticities. Falling trade costs in the Austrian services sector over the period 2000 to 2014 resulted in net job creation of about 19,000 jobs accounting for 9.5 percent of overall job flows in the sector. The smallest and least productive firms contract while large and productive firms expand as predicted by theory. Most adjustments occur at the extensive margin due to changes in the probability of firm survival.
    Keywords: services trade, trade costs, elasticity of substitution, firm-level evidence, heterogenous firms, gravity model, job flows, trade and employment
    JEL: C15 C21 C25 C23 C26 F14 F16 F66 J21 D21 L20 L80
    Date: 2019
  6. By: Clingingsmith, David (Case Western Reserve University); Shane, Scott
    Abstract: The start-ups with the most potential to innovate and generate employment are the ones most likely to rely on capital provided by outside investors. Several institutional developments including the rise of business accelerators, angel groups, and startup competitions, have meant that founders seeking this type of capital increasingly pitch their business ideas to investors in group settings, raising the question of whether the order in which ideas are pitched affects outcomes. Research on order effects in other competitive environments indicates that judges often have high expectations and calibrate their evaluations to the lower average performance of competitors at the beginning of competition, making it difficult for those going early to do as well as those performing later. We test empirically whether this calibration effect is also present for efforts by founders to pitch investors by conducting a field experiment. Entrepreneurs participating in elevator pitch competitions were randomly assigned the position in which they pitched. We find evidence of this calibration effect: investor-judges expressed substantially lesser interest in pursuing investment in the first and second ventures pitched to them.
    Date: 2017–12–13
  7. By: Sergio Salgado; Fatih Guvenen; Nicholas Bloom
    Abstract: Using firm-level panel data from the US Census Bureau and almost fifty other countries, we show that the skewness of the growth rates of employment, sales, and productivity is procyclical. In particular, during recessions, they display a large left tail of negative growth rates (and during booms, a large right tail of positive growth rates). We find similar results at the industry level: industries with falling growth rates see more left-skewed growth rates of firm sales, employment, and productivity. We then build a heterogeneous-agent model in which entrepreneurs face shocks with time-varying skewness that matches the firm-level distributions we document for the United States. Our quantitative results show that a negative shock to the skewness of firms’ productivity growth (keeping the mean and variance constant) generates a persistent drop in output, investment, hiring, and consumption. This suggests the rising risk of large negative firm-level shocks could be an important factor driving recessions.
    JEL: E3
    Date: 2019–12
  8. By: Stjepan Srhoj (University of Dubrovnik); Ivan Zilic (The Institute of Economics, Zagreb)
    Abstract: This paper evaluates the effect of a self-employment grant scheme for unemployed individuals-designed to ease the first 12 months of business operation-on firm growth, survival, and labor market re-integration in Croatia in the 2010-2017 period. Grants offered a moderate amount of finances (up to 50% of average annual gross salary) and absorbed only 5% of funds allocated to active labor market policies, but accounted for 10% of new firms opened throughout the years. We use the universe of unemployment episodes and the universe of unlimited and limited liability firms to document the effect of self-employment grants both causally and descriptively. Exploiting longitudinal structure of unemployment episodes dataset, we find that individuals who finish their spell with a grant have a significantly lower probability of returning to unemployment. Also, we find that limited liability firms opened via a grant have lower growth potential and worse survival profile, while unlimited liability firms-even though a sizable portion of them closes after a required 12-month grant period-have a more favorable survival profile. While these results are in line with the rest of the empirical literature on the self-employment grants, we also find that the effectiveness of these grants has increased throughout the years, indicating towards the direction of institutional learning.
    Keywords: self-employment grant, evaluation, unemployment, firm performance
    JEL: J68 M13 H25 H43
    Date: 2020–01
  9. By: Sandro Montresor (School of Advanced Studies, Gran Sasso Science Institute); Antonio Vezzani (Roma Tre University)
    Abstract: We investigate the extent to which financial constraints hamper the firms’ investment in intangibles. Drawing on the extant literature, we maintain that a distinction should be kept between innovators and non-innovators. Moreover, we argue that such a distinction should be investigated along the whole spectrum of intangibles firms invest and by addressing the risks of reverse causality and simultaneity bias in the relationship. Through an original quasi-panel extension of a recent European Innobarometer survey, we estimate two sets of recursive bivariate probit models – for innovative and non-innovative firms’ investments – from which interesting results emerge. Financial barriers hamper the investment of both kinds of firms only for R&D, design, and organisation and business processes. With respect to other intangibles, instead, financial barriers act only on innovators (or non-innovators) or are even absent. Furthermore, the hampering role of financial barriers distributes differently across different intangibles between innovators and non-innovators.
    Keywords: &D, intangibles, innovation, financial barriers.
    JEL: O30 O32 O33
    Date: 2019–12
  10. By: Joana Silva Afonso (Portsmouth Business School); Joe Cox (Portsmouth Business School); Andy Thorpe (Portsmouth Business School)
    Abstract: This paper explores the features and consequences of heterogeneity among clients of the largest Islamic microfinance institution in Pakistan, identifying differences in business and household outcomes between sub-groups of borrowers. The research is based on a longitudinal survey conducted between 2015 and 2017 of 500 new clients of the institution, providing a unique dataset of low-income entrepreneurs applying for interest-free microcredit loans. The data was analysed using t-tests to establish baseline differences between borrowers, and regression analysis to explore variations in business and household outcomes over the period. Evidence of significant heterogeneity was found among entrepreneurs at the time of the baseline survey. The longitudinal analysis shows that management experience was positively associated with business growth, but no significant association was found for gender, poverty level and credit experience and these variables were not found to associate with significant variation in employment creation. Nevertheless, the analysis does demonstrate a greater reduction in household poverty levels among those entrepreneurs that were poorer at the time of the baseline survey. Additionally, there was a general decrease of savings frequency over the sample period, particularly among female entrepreneurs.
    Keywords: Islamic Microfinance, Entrepreneurship, Client Heterogeneity, Impact, Pakistan
    Date: 2020–01–24
  11. By: Annika Nivala (University of Turku)
    Abstract: This paper studies the effects of a first employee wage subsidy imple-mented in parts of Finland in 2007–2011 using the universe of Finnishfirms. The subsidy, amounting to 30% of the wage costs of the firstemployee in the first year and 15% in the second, was targeted to en-trepreneurs without hired employees. The target group accounts forover half of the firm population. Comparing the firms in the eligiblearea to firms in the neighboring ineligible area, I find precisely esti-mated zero effect on the probability of becoming an employer and otherfirm outcomes. The zero average effect seems to be due to low take-upof the subsidy highlighting the role of take-up in effectiveness of busi-ness subsidies. Sole proprietor, large and new firms were more likelyto use the subsidy and the subsidized firms seemed to grow more incomparison to eligible firms that did not use the subsidy.
    Keywords: Business subsidies, Wage subsidies, Firm behavior, Labor demand, Entrepreneurship, Small Business
    JEL: H25 H32 J23 J38 M51
    Date: 2019–12
  12. By: Muhammad Meki (Post-doctoral research fellow in development economics at Pembroke College, University of Oxford)
    Abstract: Access to finance is often listed as one of the most important constraints on the expansion of small firms in low-income countries. However, several recent studies reveal that most microcredit-funded businesses rarely grow beyond subsistence-level entrepreneurship. Other evidence shows that cash and capital grants have delivered high returns to some microenterprises, and that small changes to contract structure can have a long-term effect on investment and profits. In this paper, I investigate the potential of ‘microequity’ contracts, which can be viewed as lying at some point on a spectrum between credit and grants, and provide a more flexible form of capital with performance-contingent repayments and a greater sharing of risk and reward. I present results from work with two of the largest microfinance institutions in Pakistan to investigate the effects of microequity contracts on microenterprises. In the first part of the paper, I describe an artefactual field experiment, designed using a simple model of investment choice under different financial contracts. This is tested with microenterprise owners who are part of a related field experiment that provides them with shared-ownership financing to expand their business. Results reveal that equity-financed microenterprise owners chose investment options with a greater expected profit than those under debt financing, with heterogeneity analysis suggesting a larger effect for the most riskaverse individuals, who also exhibit a stronger preference for equity contracts when offered a choice. In the final part of the paper, I describe qualitative insights for why most microfinance institutions do not implement microequity products, using a field survey and manager interviews, which reveal the practical implementation challenges due to costly state verification, adverse selection into profit-sharing contracts and moral hazard caused by inappropriately-tailored sharing ratios
    Date: 2019–09–20
  13. By: Radicic, Dragana
    Abstract: This paper evaluates the effectiveness of national and international R&D support programmes on firms' technology scouting, defined as firms' use of external knowledge sources. Drawing on a unique dataset on R&D support programmes for small and medium-sized enterprises (SMEs) operating in both manufacturing and service sectors across 28 European countries, this study reports treatment effects estimated by the copula-based endogenous switching model, which takes into account unobserved firm heterogeneity. Empirical results indicate that R&D support programmes have heterogenous effects on technology scouting, whereby a crowding out effect arises in the case of a short-run scouting, while additional effect are mostly reported for strategic external knowledge sourcing. Moreover, our results suggest that unfavourable, crowding out, effects could be reduced, if not eliminated, by a random distribution of public funding.
    Keywords: Technology scouting,External knowledge search,European SMEs,copula-based endogenous switching model
    Date: 2019
  14. By: Sanusi, Anuar; , yulmaini; Yusendra, Aria Eka
    Abstract: One important role of universities nowadays, is to develop the entrepreneurial culture. This article discusses on knowledge and technology transfer to society especially in developing entrepreneurship initiative and strategies (IPTEKS bagi Kewirausahaan/IbK), and also strengthening technology and business incubator (INKUBITEK) in IBI Darmajaya, one of leading university from Bandar Lampung, Indonesia to develop young entrepreneurs from among universities students and alumni. The program objectives are to improve entrepreneurship motivation of students and alumni, develop skills and proficiency for students and alumni in mastering management, business strategies, and manage the business environment, and also mentoring effective entrepreneurial business as the new business owner. The activities from the program consist of good corporate governance in business, entrepreneur training, training in an effective business plan, marketing apprentice and volunteer, field visit on developing business on Lampung, business execution and management consultancy, provision of capital for the business owner, and business mentoring from the well-established business player on Lampung.
    Date: 2017–12–10
  15. By: Kranzusch, Peter; Icks, Annette; Levering, Britta; Pasing, Philipp
    Abstract: Mit welchen Themen befasst sich der deutsche Mittelstand in absehbarer Zu-kunft? Zum dritten Mal untersucht das IfM Bonn die Herausforderungen aus Un-ternehmersicht und stützt sich dabei auf eine repräsentative Unternehmensbe-fragung zur Bürokratiewahrnehmung zum Jahreswechsel 2018/2019. Mittel-ständische Unternehmen sehen insbesondere die Notwendigkeit, sich mit recht-lichen Rahmenbedingungen auseinanderzusetzen. Darüber hinaus wird die Di-gitalisierung stärker als vor zwei Jahren als Chance wahrgenommen und in der Unternehmensstrategie aufgegriffen. Weitere Herausforderungen sieht der Mit-telstand vor allem in der Fachkräftesicherung, in Innovations- und Wachstums-vorhaben sowie einem erhöhten Wettbewerbsdruck.
    Keywords: Mittelstand,Herausforderungen des Mittelstands,Mittelstandspolitik,German Mittelstand,challenges for the Mittelstand,Mittelstand policy,SME policy
    JEL: L20 L26
    Date: 2019
  16. By: Pahnke, André; Holz, Michael; Welter, Friederike
    Abstract: Der deutsche Mittelstand wird - national wie international - als eine besondere Gruppe von Unternehmen charakterisiert, die sich durch spezifische Eigenschaften, Verhaltensweisen und Werte abheben. Wie sich aus der Vielzahl einzelwirtschaftlicher Entscheidungen durch-aus heterogener mittelständischer Unternehmen insgesamt ein besonderer volkswirtschaftli-cher und gesellschaftlicher Beitrag des Mittelstandes ergibt, kann die Forschung allerdings bisher nur bedingt erklären. In diesem Zusammenhang greift die vorliegende Studie die Fra-ge auf, inwiefern sich die unternehmerischen Ziele mittelständischer Unternehmen von ande-ren unterscheiden. Auf Grundlage einer Unternehmensbefragung werden die Zielsysteme mittelständischer Unternehmen analysiert, Besonderheiten im Vergleich zu anderen Unter-nehmen herausgearbeitet und theoretisch fundiert.
    Keywords: Unternehmerische Zielsysteme,Mittelstand,firm goal systems,family businesses
    JEL: L2 D21 M14
    Date: 2019

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