nep-ent New Economics Papers
on Entrepreneurship
Issue of 2020‒08‒10
nineteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Machine learning classification of entrepreneurs in British historical census data By Montebruno, Piero; Bennett, Robert; Smith, Harry; van Lieshout, Carry
  2. The Failure of Free Entry By Gutierrez, German; Philippon, Thomas
  3. Divide to Conquer? Latent Preference Types and Country-level Heterogeneity By Yannick V. Markhof
  4. New Insights on Self-Employment of Older Adults in the United States By Joelle Abramowitz
  5. The Optimal Turnover Threshold and Tax Rate for SMEs By Feng Wei; Jean-François Wen
  6. Unemployment benefit duration and startup success By Camarero Garcia, Sebastian; Murmann, Martin
  7. Tolerance of Informality and Occupational Choices in a Large Informal Sector Economy By Marcelo Arbex; Marcio V. Correa; Marcos R. V. Magalhaes
  8. Selling the circularity: Investigating the impact of circularity promotion on the performance of Italian manufacturing companies By Silvia Blasi; Benedetta Crisafulli; Silvia Rita Sedita
  9. The impact of offshoring on innovation and productivity: Evidence from Swedish manufacturing firms By Baum, Christopher F; Lööf, Hans; Stephan, Andreas; Viklund-Ros, Ingrid
  10. Training, Human Capital, and Gender Gaps in Entrepreneurial Performance By Zuzana Brixiová; Thierry Kangoye; Mona Said
  11. Networks, start-up capital and women's entrepreneurial performance in Africa: Evidence from Eswatini By Zuzana Brixiová; Thierry Kangoye
  12. Community Origins of Industrial Entrepreneurship in Pre-Independence India By Gupta, Bishnupriya; Mookherjee, Dilip; Munshi, Kaivan; Sanclemente, Mario
  13. Chinese Entrepreneurship in Indonesia: A Business Demography Approach By Pierre van der Eng
  14. Determinants and success factors of student entrepreneurship: Evidence from the University of Padova By Silvia Blasi; Silvia Rita Sedita
  15. Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics By Dean Corbae; Pablo D'Erasmo
  16. The Disappearing IPO Puzzle: New Insights from Proprietary U.S. Census Data on Private Firms By Thomas Chemmanur; Jie (Jack) He; Xiao (Shaun) Ren; Tao Shu
  17. The age distribution of business firms By Flavio Calvino; Daniele Giachini; Mattia Guerini
  18. Cash Transfers and Micro-Enterprise Performance: Theory and Quasi-Experimental Evidence from Kenya By Olivier Sterck; Antonia Delius
  19. Does the supply network shape the firm size distribution? The Japanese case By Corrado Di Guilmi; Yoshi Fujiwara

  1. By: Montebruno, Piero; Bennett, Robert; Smith, Harry; van Lieshout, Carry
    Abstract: This paper presents a binary classification of entrepreneurs in British historical data based on the recent availability of big data from the I-CeM dataset. The main task of the paper is to attribute an employment status to individuals that did not fully report entrepreneur status in earlier censuses (1851-1881). The paper assesses the accuracy of different classifiers and machine learning algorithms, including Deep Learning, for this classification problem. We first adopt a ground-truth dataset from the later censuses to train the computer with a Logistic Regression (which is standard in the literature for this kind of binary classification) to recognize entrepreneurs distinct from non-entrepreneurs (i.e. workers). Our initial accuracy for this base-line method is 0.74. We compare the Logistic Regression with ten optimized machine learning algorithms: Nearest Neighbors, Linear and Radial Support Vector Machine, Gaussian Process, Decision Tree, Random Forest, Neural Network, AdaBoost, Naive Bayes, and Quadratic Discriminant Analysis. The best results are boosting and ensemble methods. AdaBoost achieves an accuracy of 0.95. Deep-Learning, as a standalone category of algorithms, further improves accuracy to 0.96 without using the rich text-data that characterizes the OccString feature, a string of up to 500 characters with the full occupational statement of each individual collected in the earlier censuses. Finally, and now using this OccString feature, we implement both shallow (bag-of-words algorithm) learning and Deep Learning (Recurrent Neural Network with a Long Short-Term Memory layer) algorithms. These methods all achieve accuracies above 0.99 with Deep Learning Recurrent Neural Network as the best model with an accuracy of 0.9978. The results show that standard algorithms for classification can be outperformed by machine learning algorithms. This confirms the value of extending the techniques traditionally used in the literature for this type of classification problem.
    Keywords: machine learning; deep learning; logistic regression; classification; big data; census
    JEL: M13 N83
    Date: 2019–08–02
  2. By: Gutierrez, German; Philippon, Thomas
    Abstract: We study the entry and exit of firms across U.S. industries over the past 40 years. The elasticity of entry with respect to Tobin's Q was positive and significant until the late 1990s but declined to zero afterwards. Standard macroeconomic models suggest two potential explanations: rising entry costs or rising returns to scale. We find that neither returns to scale nor technological costs can explain the decline in the Q elasticity of entry, but lobbying and regulations can. We reconcile conflicting results in the literature and show that regulations drive down the entry and growth of small firms relative to large ones, particularly in industries with high lobbying expenditures. We conclude that lobbying and regulations have caused free entry to fail.
    Date: 2019–12
  3. By: Yannick V. Markhof
    Abstract: Do country-level outcomes relate to latent preference measures obtained from a global sample of 80,000 individuals to construct a set of unique preference types. It then asked whether the prevalence of these types correlates with outcomes in the domains of income, entrepreneurship, conflict, democratization, and gender inequality.
    Date: 2020
  4. By: Joelle Abramowitz
    Abstract: Many people engage in self-employment, yet there exists a dearth of data on these arrangements. This paper addresses this gap by creating a novel dataset of self-employment roles to examine heterogeneity in self-employment arrangements. The approach uses non-public 2016 Health and Retirement Study (HRS) data on employer names and locations and narrative descriptions of industry and occupation for older workers reporting self-employment to classify self-employment of older adults in the United States into entrepreneurial roles (own/run; manage; independent). Using this classification system along with the breadth of information collected in the HRS, this work finds substantial differences in demographic characteristics, work characteristics, income, and benefits, as well as substantial variation in quality of life and retirement expectations. The paper also links the classification to administrative records on self-employment and wage employment to identify discrepancies by role across data sources.
    Date: 2020–07
  5. By: Feng Wei; Jean-François Wen
    Abstract: Presumptive income taxes in the form of a tax on turnover for SMEs are pervasive as a way to reduce the costs of compliance and administration. We analyze a model where entrepreneurs allocate labor to the formal and informal sectors. Formal sector income is subjected either to a corporate income tax or a tax on turnover, depending on whether their turnover exceeds a threshold. We characterize the private sector equilibrium for any given configuration of tax policy parameters (corporate income tax rate, turnover tax rate, and threshold). Given private behavior, social welfare is optimized. We interpret the first-order conditions for welfare maximization to identify the key margins and then simulate a calibrated version of the model.
    Keywords: Tax reforms;Tax rates;Tax revenue;Alternative minimum taxes;Effective tax rate;Turnover Tax,Threshold,Corporate Income Tax,Tax Compliance,Informality,compliance cost,tax regime,tax rate
    Date: 2019–05–07
  6. By: Camarero Garcia, Sebastian; Murmann, Martin
    Abstract: Despite the importance of business creation for the economy and a relevant share of new firms being started out of unemployment, most research has focused on analyzing the effect of unemployment insurance (UI) policies on reemployment outcomes that ignore self-employment. In this paper, we assess how UI benefit duration affects the motivation for creating a startup while unemployed and the subsequent firms' success. To do so, we create a comprehensive dataset on founders in Germany that links administrative social insurance with survey data. Exploiting reform- and age-based exogenous variations in potential benefit duration (PBD) within the German UI system, we find that longer PBD leads to longer actual unemployment duration for those becoming self-employed. Furthermore, the UI duration elasticity for these individuals is higher than common estimates for those individuals becoming re-employed. With increasing unemployment benefit duration, the founders' outcomes in terms of self-assessed motivation, sales, and employment growth lessen. This overall causal effect of PBD can be rationalized with a mix of composition and individual-level duration effects. Therefore, our findings suggest that it is important to consider the fiscal externality of UI on startup success when it comes to the (optimal) design of UI systems.
    Keywords: entrepreneurship,unemployment insurance,fiscal externality
    JEL: D22 J21 J23 J44 J62 J64 J65 L11 L25 L26 M13
    Date: 2020
  7. By: Marcelo Arbex (Department of Economics, University of Windsor); Marcio V. Correa (CAEN - Graduate Studies in Economics, Federal University of Ceara); Marcos R. V. Magalhaes (CAEN - Graduate Studies in Economics, Federal University of Ceara)
    Abstract: We study an equilibrium occupational choice model where heterogeneous agents decide to become either workers or entrepreneurs in the formal or informal sector. Informal output is subjected to taxation determined by a combination of managers capital choice and the society's tolerance of informality. The model is consistent with empirical evidence for the Brazilian informal sector. The counterfactual analysis shows substantial heterogeneity of policy effects on occupational choices (entrepreneur-worker) and within the entrepreneurial choices (formal-informal). Changes in the society's tolerance of informality lead agents to shift between the two entrepreneurial choices rather than in the entrepreneur-worker dimension.
    Keywords: Informal Sector; Social Norms; Credit Constraints; Limited Enforcement
    JEL: E6 E26 O11 O17 H26 Z13
    Date: 2020–07
  8. By: Silvia Blasi (Department of Economics and Management, University of Padova); Benedetta Crisafulli (Department of Management, Birkbeck, University of London); Silvia Rita Sedita (Department of Economics and Management, University of Padova)
    Abstract: Promoting the circularity of business practices and of product offerings represents a pivotal process in increasing the value of circular products and encouraging the market to recognize such a value. This study investigates the communication abilities of companies manifesting an interest in adopting circular economy practices, with the aim to assess the extent to which promoting circularity increases economic performance. Employing a unique web-scraped dataset of Italian circular companies’ websites, we captured and analyzed the online promotional efforts of a unique sample of manufacturing companies. Underpinned by the signaling theory, our estimation results illustrate that the ability of small and medium-sized enterprises (SMEs) to signal the circularity of their business practices on the website generally increases performance and such impact is larger among low performing companies. Our study advances knowledge on: 1) the impact of promoting circularity on economic performance, 2) the efficacy of signaling in the context of circular practices’ adoption.
    Keywords: circular economy, big data, web scraping, signaling, communication, sustainability
    JEL: M10 M31
    Date: 2020–07
  9. By: Baum, Christopher F (Boston College, DIW Berlin & Centre of Excellence for Science and Innovation Studies); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Stephan, Andreas (Jönköping University, DIW Berlin & Centre of Excellence for Science and Innovation Studies); Viklund-Ros, Ingrid (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: We examine the impact of offshoring on patenting and total factor productivity using a panel of 7,000 mainly small Swedish manufacturing firms over the period 2001-2014. We apply the United Nations Broad Economic Categories (BEC)system to identify offshoring-related intermediate imports. The results show that the link between offshoring on the one hand and innovation and productivity on the other is largely explained by self-selection and reverse causality. We find a positive but statistically weak impact of offshoring on innovation, and no effect on productivity.
    Keywords: offshoring; patent; trademark; innovation; productivity; panel data
    JEL: C33 D24 F61 L23 O31
    Date: 2020–08–03
  10. By: Zuzana Brixiová (University of Economics in Prague and VSB – Technical University of Ostrava, SALDRU Research Affiliate, University of Cape Town); Thierry Kangoye (African Development Bank); Mona Said (American University in Cairo)
    Abstract: In the aftermath of the global financial crisis, policymakers have been increasingly striving to support female entrepreneurship as a possible growth driver. This paper contributes to reconciling mixed findings in the literature on the effectiveness of entrepreneurial training with an analysis that links training and human capital, including tertiary education and non-cognitive skills, with gender gaps in entrepreneurial performance in Africa. We have found that while financial literacy training directly benefits men, it does not raise the sales level of women entrepreneurs. Instead, tertiary education has a direct positive link with the performance of women. Consistent with our theoretical model where different skills are complements, tertiary education can act as a channel that makes training effective. Regarding non-cognitive skills, evidence shows that women entrepreneurs who are tenacious achieve stronger sales performance. Our results underscore the importance of incorporating tertiary education and entrepreneurial training programs focused on a balanced set of skills, including non-cognitive skills, among policies for women entrepreneurs.
    Keywords: Female entrepreneurship, training, non-cognitive skills, tertiary education
    Date: 2019
  11. By: Zuzana Brixiová (University of Economics in Prague and VSB – Technical University of Ostrava, SALDRU Research Affiliate, University of Cape Town); Thierry Kangoye (African Development Bank)
    Abstract: This paper analyzes the role of networks in the access of female entrepreneurs to start-up capital and firm performance in Eswatini, a country with one of the highest female unemployment rates in Africa. The paper first shows that higher initial capital is associated with better sales performance for both men and women entrepreneurs. Women entrepreneurs start their firms with smaller start-up capital than men and are more likely to fund it from their own sources, which reduces the size of their firm and sales level. However, women with higher education start their firms with more capital than their less educated counterparts. Moreover, women who receive support from professional networks have higher initial capital, while those trained in financial literacy more often access external funding sources, including through their networks.
    Keywords: Networks, start-up capital, women's entrepreneurship, multivariate analysis, Africa
    Date: 2019
  12. By: Gupta, Bishnupriya; Mookherjee, Dilip; Munshi, Kaivan; Sanclemente, Mario
    Abstract: We provide evidence of the role of community networks in emergence of Indian entrepreneurship in early stages of cotton and jute textile industries in the late 19th and early 20th century respectively, overcoming lack of market institutions and government support. From business registers, we construct a yearly panel dataset of entrepreneurs in these two industries. We fi nd no evidence that entry was related to prior upstream trading experience or price shocks. Firm directors exhibited a high degree of clustering of entrepreneurs by community. Entry flows were consistent with a model of network-based dynamics.
    Keywords: Industrialization; Social Networks
    Date: 2019–12
  13. By: Pierre van der Eng
    Abstract: This paper analyses the demography of 1,600 registered firms owned and/or operated by ethnic Chinese businessmen in Indonesia during 1890-1940 in search of generalizable indications of Schumpeterian entrepreneurship. The population of firms increased significantly since 1890, before many went out of business in the 1920s and a new generation of firms and entrepreneurs emerged. By 1910 most firms were active in trade, but this categorisation takes insufficient account of their diverse business activities. During 1910-1940 the share of firms in other industries increased. Several were active in finance, taking deposits and financing business ventures. In the 1930s, the average equity value of the enterprises more than doubled, reflecting diversification into more capital-intensive operations, particularly manufacturing. These changes in the population of firms refute the perception that ethnic Chinese businessmen were not Schumpeterian entrepreneurs.
    Keywords: Business demography, entrepreneurship, Chinese, Indonesia, Southeast Asia
    JEL: L10 L20 N85
    Date: 2020–07
  14. By: Silvia Blasi (Department of Economics and Management, University of Padova); Silvia Rita Sedita (Department of Economics and Management, University of Padova)
    Abstract: “Student entrepreneurship" is an innovative way of looking at the impact of universities on the territory, and represents an alternative (and numerically more relevant) model to that of academic spin-offs. The study of the entrepreneurial activities of the 119,347 graduates of the University of Padua between 2000 and 2010 offers useful food for thought on the profile of the student who is oriented towards business creation and on the determinants of the success of entrepreneurial action. Some implications on the orientation of the courses of study and possible actions to support the entrepreneurship of new graduates are illustrated.
    Date: 2020–07
  15. By: Dean Corbae; Pablo D'Erasmo
    Abstract: In this paper, we ask how bankruptcy law affects the financial decisions of corporations and its implications for firm dynamics. According to current U.S. law, firms have two bankruptcy options: Chapter 7 liquidation and Chapter 11 reorganization. Using Compustat data, we first document capital structure and investment decisions of non-bankrupt, Chapter 11, and Chapter 7 firms. Using those data moments, we then estimate parameters of a general equilibrium firm dynamics model with endogenous entry and exit to include both bankruptcy options. Finally, we evaluate a bankruptcy policy change similar to one recommended by the American Bankruptcy Institute that amounts to a "fresh start" for bankrupt firms. We find that changes to the law can have sizable consequences for borrowing costs and capital structure which via selection affects productivity, as well as long run welfare.
    Keywords: Corporate bankruptcy; Capital structure; Firm dynamics; Capital misallocation
    JEL: G30 G33 E22
    Date: 2020–07–28
  16. By: Thomas Chemmanur; Jie (Jack) He; Xiao (Shaun) Ren; Tao Shu
    Abstract: The U.S. equity markets have experienced a remarkable decline in IPOs since 2000, both in terms of smaller IPO volume and entrepreneurial firms’ greater tendency to exit through acquisitions rather than IPOs. Using proprietary U.S. Census data on private firms, we conduct a comprehensive analysis of the above two notable trends and provide several new insights. First, we find that the dramatic reduction in U.S. IPOs is not due to a weaker economy that is unable to produce enough “exit eligible” private firms: in fact, the average total factor productivity (TFP) of private firms is slightly higher post-2000 compared to pre-2000. Second, we do not find evidence supporting the conventional wisdom that the disappearing IPO puzzle is mainly driven by the decline in IPO propensity among small private firms. Third, we do not find a significant change in the characteristics of private firms exiting through acquisitions from pre- to post-2000. Fourth, the decline in IPO propensity persists even after we account for the changing characteristics of private firms over time. Fifth, we show that the difference in TFP between IPO firms and acquired firms (and between IPO firms and firms remaining private) went up considerably post-2000 compared to pre-2000. Finally, venture-capital-backed (VC-backed) IPO firms have significantly lower postexit long-term TFP than matched VC-backed private firms in the post-2000 era relative to the pre- 2000 era, while this pattern is absent among IPO and matched private firms without VC backing. Overall, our results strongly support the explanations based on standalone public firms’ greater sensitivity to product market competition and entrepreneurial firms’ access to more abundant private equity financing in the post-2000 era. We find mixed evidence regarding the explanations based on the smaller net financial benefits of being standalone public firms or the increased need for confidentiality after 2000.
    Keywords: IPOs, Exit Choices, Disappearing IPOs, Private Equity, Weak Economy, Product Market Competition
    JEL: G32 G34 G24
    Date: 2020–06
  17. By: Flavio Calvino; Daniele Giachini; Mattia Guerini
    Abstract: We investigate upon the shape and the determinants of the age distribution of business firms. By employing a novel dataset covering the population of French businesses, we highlight that a geometric law provides a reasonable approximation for the age distribution. However, relevant systematic deviations and sectoral heterogeneity appear. We develop a stochastic model of firm dynamics to explain the mechanisms behind this evidence and relate them to business dynamism. Results reveal a long-term decline in entry rates and lower survival probabilities of young firms. Our findings bear important implications for aggregate outcomes, notably employment growth.
    Keywords: Firm demographics; age distribution; business dynamism.
    Date: 2020–07–26
  18. By: Olivier Sterck; Antonia Delius
    Abstract: Theoretically, the effect of household cash transfers depends on how businesses respond to the demand shock and on the resulting effect on prices. Such market effects have been largely overlooked in the literature, which mostly focuses on direct impacts on households. We study the impact of a household cash transfer program on retail businesses operating in two refugee sites in Kenya. Refugees receive a monthly mobile money transfer that can only be spent at licensed businesses. We compare licensed and unlicensed businesses, using matching methods to control for all variables considered in the licensing process. We show that licensed businesses- have much higher revenues and profits and charge higher prices than unlicensed businesses. The cash transfer program created a parallel retail market in which a limited number of businesses enjoy high market power. We identify a series of market imperfections explaining the results.
    Keywords: Cash Transfers; Micro-Enterprises; Market imperfections; Salop circle
    JEL: L2 O2 O12
    Date: 2020
  19. By: Corrado Di Guilmi; Yoshi Fujiwara
    Abstract: The relationship between firms’ growth rates and firm size distribution has been extensively analyzed in the literature. In particular, the breakdown of Gibrat law for medium and small firms has been identified as the reason for the emergence of a power law only in right tail of the size distribution. However, the growth rates of firms are not mutually independent, since firms are connected in the supply network and idiosyncratic shocks are transmitted through the networks links. This paper presents a stylized empirical and theoretical investigation on the Japanese supply network to shed light on the effects of demand shock on the growth of firms in the different layers of the network. We find that the growth rates are more volatile for small firms, which tend to be located upstream in the supply network, leading to the breakdown of the Gibrat law. The difference in growth volatility depends on the fact that downstream shocks are amplified as they are transmitted upward in the supply chain. The extent of the amplification depends on the level of connectivity of the network and, more precisely, it is larger in more dense networks. Further, the level to which a firm is affected depends on its relative position within the network.
    Date: 2020–07

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