nep-ent New Economics Papers
on Entrepreneurship
Issue of 2020‒07‒13
nine papers chosen by
Marcus Dejardin
Université de Namur

  1. The causal effects of R&D grants: evidence from a regression discontinuity By Pietro Santoleri; Andrea Mina; Alberto Di Minin; Irene Martelli
  2. The Evolution of CEO Compensation in Venture Capital Backed Startups By Ewens, Michael; Nanda, Ramana; Stanton, Christopher
  3. Killers on the Road of Emerging Start-ups – Implications for Market Entry and Venture Capital Financing By Koski, Heli; Kässi, Otto; Braesemann, Fabian
  4. The Impact of Peer-to-Peer Lending on Small Business Loans By Jin-Hyuk Kim; Frank Stähler
  5. Corona shutdown and bankruptcy risk By Holtemöller, Oliver; Muradoglu, Yaz Gulnur
  6. Product and Process Innovation, Keynesian Unemployment, and Economic Growth By Sasaki, Hiroaki
  7. Geographic Clustering and Resource Reallocation Across Firms in Chinese Industries By Guo, Di; Jiang, Kun; Xu, Chenggang; Yang, Xiyi
  8. What’s Driving Entrepreneurship and Innovation in the Transport Sector? By Derrick Choe; Alexander Oettl; Robert Seamans
  9. Entrepreneurial innovations in Africa: agricultural challenges and food issues By Foued Cheriet

  1. By: Pietro Santoleri; Andrea Mina; Alberto Di Minin; Irene Martelli
    Abstract: Direct public support for business R&D is a well-established remedy to market failures, yet empirical evidence on its effectiveness yields conflicting results. The paper investigates the impact of the first European public R&D grant program targeting small and medium enterprises (i.e. the SME Instrument) on a wide range of firm outcomes. We leverage the assignment mechanisms of the policy and employ a sharp regression discontinuity design to provide the broadest quasi-experimental evidence on R&D grants over both geographical and sectoral scopes. Results show that grants trigger sizable impacts. They increase investment, notably in intangibles, and innovation outcomes as measured by cite-weighted patents; they trigger faster growth in assets, employment and revenues; they lead to higher likelihood of receiving follow-on equity financing and lower failure chances. These effects tend to be larger for firms that are smaller and younger, or operating in sectors characterized by higher financial frictions. Furthermore, responses are stronger in countries and regions with lower economic development. The paper provides extensive evidence that the beneficial effects of R&D grants materialize through funding rather than certification effects.
    Keywords: Regression discontinuity design; Research and development; Innovation Policy; SMEs.
    Date: 2020–06–29
  2. By: Ewens, Michael (California Institute of Technology); Nanda, Ramana; Stanton, Christopher
    Abstract: We use individual-level data to shed light on the evolution of founder-CEO compensation in venture capital-backed startups. We document that having a tangible, marketable product is a fundamental milestone in CEOs' compensation contracts, marking the point at which liquid cash compensation begins to increase significantly – well before a liquidity event. "Product market fit" also coincides with key human capital in the startup becoming more replaceable, marking an apparent transition in the firm’s lifecycle from differentiation to standardization. Although substantial increases in cash compensation for founder-CEOs in response to milestones improves the certainty equivalent of attempting entrepreneurship relative to flat pay, low cash compensation in the very early years can still deter entrepreneurship for potential entrants. We characterize the types of individuals most likely to be impacted by this constraint and hence those whose ideas are unlikely to be commercialized through VC-backed entrepreneurship.
    Date: 2020–05–20
  3. By: Koski, Heli; Kässi, Otto; Braesemann, Fabian
    Abstract: Abstract This paper empirically studies the effect of acquisitions made by the large US-based technology companies on the entry dynamics and venture capital financing in different product markets. We use data from 742 product markets globally, distinguishing the US and European markets, for the years 2003-2018. The estimation results based on the difference-in-differences estimation suggest that the technology giants’ buyouts subsequently reduced market entry rates and decreased available venture capital funding in the target product markets of tech giants’ acquisitions. In other words, the acquisitions of technology giants seem to generate the so-called kill zone effect. Our empirical analysis further suggests that this effect was strengthened during the 2010s when large technology companies gained increasing access to user data. Furthermore, we find that technology giants’ acquisitions of platform companies have decreased market entry in non-platform markets. In the US, unlike in the EU area, also available venture capital financing has declined in such non-platform markets from which technology giants have acquired companies.
    Keywords: Acquisitions, Venture capital funding, Competition, Technology giants
    JEL: G24 G34 L1 L41
    Date: 2020–07–01
  4. By: Jin-Hyuk Kim; Frank Stähler
    Abstract: We investigate the impact of peer-to-peer lending on the small business loans originated by US depository institutions that are subject to the Community Reinvestment Act. We present a model where a borrower can choose between a traditional bank and a crowdlending platform and show that the entry of crowdlending can induce a switching effect as well as a credit expansion effect. Using the staggered entry of LendingClub across states between 2009 and 2017, we find that the platform entry reduced the small business loans originated by banks, in particular, in the low- or moderate-income tracts as well as in the distressed middle-income tracts with a high poverty rate. A conservative estimate suggests that the crowdlending entry may have reduced the aggregate lending volume to small businesses.
    Keywords: crowdfunding, marketplace lending, fintech, Community Reinvestment Act
    JEL: G21 G28
    Date: 2020
  5. By: Holtemöller, Oliver; Muradoglu, Yaz Gulnur
    Abstract: This paper investigates the consequences of shutdowns during the Corona crisis on the risk of bankruptcy for firms in Germany and United Kingdom. We use financial statements from the period 2014 to 2018 to predict how pervasive risk of bankruptcy becomes for micro, small, medium, and large firms due to shutdown measures. We estimate distress for firms using their capacity to service their debt. Our results indicate that under three months of shutdown almost all firms in shutdown industries face high risk of bankruptcy. In Germany, about 99% of firms in shutdown industries and in the UK about 98% of firms in shutdown industries are predicted to be under distress. The furlough schemes reduce the risk of bankruptcy only marginally to 97% of firms in shutdown industries in Germany and 95% of firms in shutdown industries in the United Kingdom in case of a three-month shutdown. In sectors that are not shutdown under conservative estimates of contagion of sales losses, our results indicate considerable risk of widespread bankruptcies ranging from 76% of firms in Germany to 69% of firms in the United Kingdom. These early findings suggest that the impact of corona crisis on corporate sector via shutdowns can be severe and subsequent policy should be designed accordingly.
    Date: 2020
  6. By: Sasaki, Hiroaki
    Abstract: In economic growth theory, product innovation and process innovation are important factors behind technological progress. This study builds an economic growth model that considers product and process innovation and theoretically investigates how these two types of innovation affect the economic growth rate and unemployment rate. Our model, based on that developed by Zagler (2004), allows us to make the following three main findings. We find that (1) an increase in the efficiency of product innovation increases both the economic growth rate and the unemployment rate; (2) an increase in the efficiency of process innovation increases the economic growth rate and does not affect the unemployment rate; and (3) in the R\&D sector, a decrease in the labor allocation to product innovation and an increase in the labor allocation to process innovation increase the economic growth rate and decrease the unemployment rate depending on the conditions. These findings suggest that to both raise employment and increase economic growth, we need not only a policy for fostering product innovation but also another policy to improve employment.
    Keywords: effective demand; notional demand; unemployment; economic growth; product and process innovation; monopolistic competition
    JEL: E12 O31 O41
    Date: 2020–06–10
  7. By: Guo, Di; Jiang, Kun; Xu, Chenggang; Yang, Xiyi
    Abstract: We examine the effects of China's industrial clustering on resource reallocation efficiency across firms. Based on our county-industry level DBI index panel, we find that industrial clustering significantly increases local industries' productivity by lifting the average firm productivity and reallocating resources from less to more productive firms. Moreover, we find major mechanisms through which resource reallocation is improved within clusters: (i) clusters facilitate higher entry rates and exit rates; and (ii) within clusters' environment the dispersion of individual firm's markup is significantly reduced, indicating intensified local competition within clusters. The identification issues are carefully addressed by instrumental variable (IV) regressions.
    Keywords: Competition; Industrial Cluster; Productivity Growth; Resource reallocation
    JEL: D2 H7 L1 O1 R1 R3
    Date: 2020–03
  8. By: Derrick Choe; Alexander Oettl; Robert Seamans
    Abstract: In this chapter we draw from existing literature and a range of statistics to describe economic, entrepreneurial and innovative activities in the transportation and warehousing sector of the U.S. economy. We suggest multiple avenues for future work, and argue for more research on the role of warehousing in particular. Recent trends suggest that the warehousing and storage subsector is experiencing rapid economic and technological changes, likely reflecting shifts in how consumers purchase goods. We also review several other recent innovations, including ride-sharing and autonomous vehicles, that are starting to affect this sector of the economy.
    JEL: L26 L90 O18 O30 R40
    Date: 2020–05
  9. By: Foued Cheriet (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRA - Institut National de la Recherche Agronomique - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques, Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: Current academic research strongly suggests adapting models of analysis of entrepreneurial innovations to the specificity of African contexts. The purpose of this short note is to explore through an up-dated literature review of academic research and empirical applications, the question of entrepreneurial innovations in African. By extension, we will examine some possible links with agricultural challenges and future food issues.
    Abstract: Les recherches actuelles plaident pour une adaptation des modèles d'analyse des innovations entrepreneuriales à la spécificité des contextes africains. L'objet de cette note courte est d'explorer à travers une revue de littérature actualisée des recherches académiques et des applications empiriques, la question des innovations entrepreneuriales dans le contexte africain Nous examinerons par extension certains liens possibles avec les défis agricoles et les enjeux alimentaires futurs du continent.
    Date: 2020–06–05

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