nep-ent New Economics Papers
on Entrepreneurship
Issue of 2020‒10‒19
fifteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Impediments to the Schumpeterian Process in the Replacement of Large Firms By Mara Faccio; John J. McConnell
  2. Flight to Safety: How Economic Downturns Affect Talent Flows to Startups By Shai Bernstein; Richard R. Townsend; Ting Xu
  3. Access to Finance among Small and Medium-Sized Enterprises and Job Creation in Africa By Brixiova, Zuzana; Kangoye, Thierry; Yogo, Urbain Thierry
  4. The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions By Fairlie, Robert W.
  5. Cooperation of start-ups and SMEs in Germany: Chances, challenges and recommendations By Röhl, Klaus-Heiner; Engels, Barbara
  6. Experience-based know-how, learning and innovation in German SMEs: An explorative analysis of the role of know-how in different modes of innovation By Alhusen, Harm
  7. Entry under placement uncertainty By Roy, Sunanda; Singh, Rajesh; Weninger, Quinn
  8. Deployment of Risk Capital in Agriculture By Kimle, Kevin; Harris, Joel
  9. COVID-19 and SME Failures By Pierre-Olivier Gourinchas; Ṣebnem Kalemli-Özcan; Veronika Penciakova; Nick Sander
  10. Crisis Innovation By Tania Babina; Asaf Bernstein; Filippo Mezzanotti
  11. Syndication networks and company survival: Evidence from European venture-capital deals By Christopoulos, Dimitris; Köppl, Stefan; Köppl-Turyna, Monika
  12. Extension Demonstration: Grameen Microfinance Methods and Capital Access for Low-Income Female Entrepreneurs By Edelman, Mark A.
  13. Women’s Participation in the Offshore and Inshore Fisheries Entrepreneurship: the Role of CSR in Nigeria’s Oil Coastal Communities By Uduji, Joseph; Okolo-Obasi, Elda; Asongu, Simplice
  14. European Small Business Finance Outlook 2020: The impact of COVID-19 on SME financing markets By Kraemer-Eis, Helmut; Botsari, Antonia; Gvetadze, Salome; Lang, Frank; Torfs, Wouter
  15. Der gesellschaftliche Beitrag des Mittelstands: Konzeptionelle Überlegungen By Welter, Friederike; Schlepphorst, Susanne; Schneck, Stefan; Holz, Michael

  1. By: Mara Faccio; John J. McConnell
    Abstract: Using newly-assembled data encompassing up to 75 countries and starting circa 1910, we find that the Schumpeterian process of creative destruction aptly describes the replacement of large firms by other firms, but exceptions to the norm of replacement are not rare and replacement is often not by new firms. Initial firm size and political connections represent the main obstacles to the Schumpeterian process while board interlocks and a corporate culture of innovation play modest roles. Consistent with a theory of political capture, when accompanied by regulations that restrict entry, political connections play a formidable role in abetting large firms remaining large.
    JEL: G3 G38 O16 P16
    Date: 2020–09
  2. By: Shai Bernstein; Richard R. Townsend; Ting Xu
    Abstract: This paper investigates how economic downturns affect the flow of human capital to startups. Using proprietary data from AngelList Talent, we study how individuals’ online job searches and applications changed during the emergence of the COVID-19 crisis. We find that job seekers shifted their searches toward larger firms and away from early-stage ventures, even within the same individual over time. Simultaneously, job seekers broadened their other search parameters, considering lower salaries and a wider variety of job types, roles, markets, and locations. Relative to larger firms, early-stage ventures experienced a decline in the number of applications per job posting, a decline driven by higher quality and more experienced job seekers. This led to a deterioration in the quality of the human capital pool available to early-stage ventures during the downturn. These declines hold within a firm as well as within a job posting over time. Our findings uncover a flight to safety channel in the labor market, which may amplify the pro-cyclical nature of entrepreneurial activities.
    JEL: E32 J22 J24 L26 M13
    Date: 2020–10
  3. By: Brixiova, Zuzana (University of Economics Prague); Kangoye, Thierry (African Development Bank); Yogo, Urbain Thierry (World Bank)
    Abstract: In the past decade inclusive growth, that is job-rich growth, has topped the policy agenda in developing countries. This paper investigates how the access to finance affects employment in small and medium-sized enterprises (SMEs) in Sub-Saharan Africa. It first presents a model where firm creation requires entrepreneurial search and paying the start-up costs, while the firm's size in terms of employment depends on the access to credit. Under the financial market imperfections, access to credit can be a binding constraint on firm entry and employment even when the banks have sufficient liquidity. Using an impact evaluation-based approach on firm-level data from 42 African countries, we show that SMEs with access to formal financing create more jobs than firms without access, with employment in firms having access to more affordable and larger loans growing the fastest. The impact of access to finance is stronger for firms in manufacturing than in services, pointing to sectoral targeting of finance as a possible policy supporting industrialization.
    Keywords: entrepreneurship, financial inclusion, employment, propensity score matching
    JEL: L2 G2 D22 C1
    Date: 2020–09
  4. By: Fairlie, Robert W. (University of California, Santa Cruz)
    Abstract: Social distancing restrictions and health- and economic-driven demand shifts from COVID-19 are expected to shutter many small businesses and entrepreneurial ventures, but there is very little early evidence on impacts. This paper provides the first analysis of impacts of the pandemic on the number of active small businesses in the United States using nationally representative data from the April 2020 CPS – the first month fully capturing early effects. The number of active business owners in the United States plummeted by 3.3 million or 22 percent over the crucial two-month window from February to April 2020. The drop in active business owners was the largest on record, and losses to business activity were felt across nearly all industries. African-American businesses were hit especially hard experiencing a 41 percent drop in business activity. Latinx business owner activity fell by 32 percent, and Asian business owner activity dropped by 26 percent. Simulations indicate that industry compositions partly placed these groups at a higher risk of business activity losses. Immigrant business owners experienced substantial losses in business activity of 36 percent. Female business owners were also disproportionately affected (25 percent drop in business activity). Continuing the analysis in May and June, the number of active business owners remained low – down by 15 percent and 8 percent, respectively. The continued losses in May and June, and partial rebounds from April were felt across all demographic groups and most industries. These findings of early-stage losses to small business activity have important implications for policy, income losses, and future economic inequality.
    Keywords: small business, entrepreneurship, business owners, self-employment, COVID-19, coronavirus, shelter in place restrictions, social distancing restrictions, minority business, female
    JEL: J15 J16 L26
    Date: 2020–09
  5. By: Röhl, Klaus-Heiner; Engels, Barbara
    Abstract: The cooperation between established SMEs and innovative start-ups offers considerable opportunities for the respective companies and the German economy. New business models can be adopted, and innovative products can be jointly developed. In particular, the digitalisation of the 'German Mittelstand' could receive a boost through collaboration with digital start-ups. This could lead to an increase in the demographically induced declining growth potential of the German economy. In order to exploit the full potential of cooperation, cultural differences between the two types of company must be overcome and in case of different regional focal points, the initiation of contacts must be facilitated. Based on expert interviews in start-ups, SMEs and associations, this policy paper identifies opportunities to strengthen cooperative relationships between established SMEs and the growing start-up scene. The paper concludes with ten policy recommendations.
    JEL: L14 L23 L26
    Date: 2020
  6. By: Alhusen, Harm
    Abstract: The 'doing-using-interacting mode' of innovation (DUI) is considered an important component of innovative activity. It describes informal innovative activities and complements the 'science-technology-innovation mode' (STI) which is based on research and development. A common demarcation criterion between both modes of innovation is the relevance of experiencebased knowledge, know-how and know-who for the DUI mode of innovation whereas the STI mode of innovation is said to rely on codified knowledge, know-what and know-why. Based upon 81 in-depth interviews with German SMEs and regional innovation consultants, this work focuses on the role of experience-based know-how for SMEs innovations within different modes of innovation. Experience-based know-how is found to be important for all modes of innovation, regardless of an SMEs mode of innovation. Results from qualitative interviews show that firms view experience-based know-how as important for at least one of the following domains: product innovation, business process innovation & organizational routines and customer knowledge. However, the acquisition, transfer and transformation of experience-based know-how can strongly differ, depending on the respective mode of innovation. As a recommendation, the idea that know-how is a suitable demarcation criterion for modes of innovation should be revised in future research.
    Keywords: DUI,STI,tacit knowledge,experience-based knowledge,learning processes,modes of innovation
    JEL: O3 O30 O31 R10
    Date: 2020
  7. By: Roy, Sunanda; Singh, Rajesh; Weninger, Quinn
    Abstract: We present a model of firm entry in an industry that is managed with a production cap-and- trade (CAT) regulation. Firms are heterogeneous in productivity; each knows its own productivity but is uncertain about where it ranks in the entrant population. Entry is modeled as a simultaneous move game with incomplete information. Under CAT, firms compete to secure shares of the fixed permit supply. Entry payoffs are determined by own and rival entrant pro- ductivity; if average productivity of rival entrants is low, permit prices are low and returns to vested capital are high. The opposite holds when average productivity of rival entrants is high. We derive Bayesian Nash equilibrium entry and show that under certain conditions placement uncertainty increases entry, relative to a full information benchmark. We also obtain conditions under which this result is reversed. We extend the model to consider placement bias, i.e., firms believe they attain better than average productivity. Bias exacerbates the excess-entry problem. Our main finding, that placement uncertainty alone can cause excess market entry and inefficiency, has been overlooked in the literature. The new mechanism offers an alternative explanation for competitive blind spots in entrepreneurs.
    Date: 2020–01–31
  8. By: Kimle, Kevin; Harris, Joel
    Abstract: The third annual Agricultural Entrepreneurship Unconference met on October 17, 2019 in Ames, Iowa. The event was co-sponsored by the Iowa State University Agricultural Entrepreneurship Initiative and the Ag Startup Engine.This white paper attempts to summarize presentations and discussions that took place at the Unconference, though surely falls short of the richness and insight of the dialogue that occurred. The aim is to provide, for those who did not attend, a glimpse into the Unconference discussions which centered on the deployment of risk capital in agriculture.
    Date: 2020–03–01
  9. By: Pierre-Olivier Gourinchas; Ṣebnem Kalemli-Özcan; Veronika Penciakova; Nick Sander
    Abstract: We estimate the impact of the COVID-19 crisis on business failures among small and medium size enterprises (SMEs) in seventeen countries using a large representative firm-level database. We use a simple model of firm cost-minimization and measure each firm’s liquidity shortfall during and after COVID-19. Our framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks. We estimate a large increase in the failure rate of SMEs under COVID-19 of nearly 9 percentage points, absent government support. Accommodation & Food Services, Arts, Entertainment & Recreation, Education, and Other Services are among the most affected sectors. The jobs at risk due to COVID-19 related SME business failures represent 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimate only moderate effects on the financial sector: the share of Non Performing Loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks’ assets and resulting in a 0.75 percentage point decline in the common equity Tier-1 capital ratio. We evaluate the cost and effectiveness of various policy interventions. The fiscal cost of an intervention that narrowly targets at risk firms can be modest (0.54% of GDP). However, at a similar level of effectiveness, non-targeted subsidies can be substantially more expensive (1.82% of GDP). Our results have important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery.
    JEL: D2 E65 G33
    Date: 2020–09
  10. By: Tania Babina; Asaf Bernstein; Filippo Mezzanotti
    Abstract: The effect of financial crises on innovation is an unsettled and important question for economic growth, but one difficult to answer with modern data. Using a differences-in-differences design surrounding the Great Depression, we document that local distress caused a sudden and persistent decline in patenting by the largest organizational form of innovation at this time—technological entrepreneurs. Parallel trends prior to the shock, evidence of a drop within every major technology class, and consistent results using distress driven by commodity shocks—all suggest a causal effect of distress. Despite this, we find that innovation during crises can be more resilient than it may appear at first glance. First, there is no observable change in the number of future citations, despite the decline in the number of patents filed. Second, the shock is in part absorbed through a reallocation of inventors into firms, who over the long-run produce patents with greater impact. Third, the results reveal no immediate brain drain of inventors from the affected areas. Overall, we demonstrate that crises can be both destructive and creative forces for innovation, and provide the first systematic evidence of the role played by the Great Depression in the long-run organization of innovative activity.
    JEL: G01 G21 N12 N22 N32 O3
    Date: 2020–09
  11. By: Christopoulos, Dimitris; Köppl, Stefan; Köppl-Turyna, Monika
    Abstract: We look at syndication in the venture capital industry. Investments conducted by syndicates are believed to have better chances of being successful, measured by the survival probability of portfolio companies or by successful exits. Using a novel and large dataset, covering several countries, our analysis shows that strong network ties of investors are associated with success of portfolio companies in Europe. We also show that there are differences in the association of network centrality with survival between different financing rounds, the former being more important in early-stage investments. Finally, we show a strong association of network ties of investors with sales growth of portfolio companies, before and after the deal.
    Keywords: Venture Capital,Networks,Europe,Investment Syndication
    JEL: G11 G24 M13
    Date: 2020
  12. By: Edelman, Mark A.
    Abstract: A nonprofit community development financial institution and Extension collaborated to conduct a demonstration project to evaluate efficacy of Grameen peer-group microfinance methodology in addressing barriers faced by lowincome women entrepreneurs in a small metro area. Program performance metrics achieved by 284 low-income, culturally diverse, primarily women entrepreneurs over five years included: a loan repayment rate of 99+ percent, increased average client income, savings accumulation at a local bank, and increased opportunities to improve average credit scores. Client surveys indicated peer-group methods, program structure, incentives for individual behaviors and group responsibilities provided opportunity to develop confidence, leadership skills, and teamwork.
    Date: 2020–07–10
  13. By: Uduji, Joseph; Okolo-Obasi, Elda; Asongu, Simplice
    Abstract: Purpose – The purpose of this paper is to critically examine the multinational oil companies’ (MOCs) corporate social responsibility (CSR) initiatives in Nigeria. Its special focus is to investigate the impact of the global memorandum of understanding (GMoU) on women involved in offshore and inshore fisheries entrepreneurship in the coastal communities of the Niger Delta region. Design/methodology/approach – This paper adopts a survey research technique, aimed at gathering information from a representative sample of the population, as it is essentially cross-sectional, describing and interpreting the current situation. A total 800 respondents were sampled across the coastal communities of the Niger Delta region. Findings – The results from the use of a combined propensity score matching (PSM) and logit model indicate that the GMoU model is gender insensitive as extensive inequality restrains fisherwomen’s participation in the offshore and inshore fisheries entrepreneurship, often due to societal norms and customs that greatly frustrate women’s development in fisheries. Practical implication – This implies that if fisherwomen continue in this unfavourable position, their reliance on menfolk would remain while trying to access financial support and decision making regarding fisheries entrepreneurship development. Social implications – The inshore and offshore fisheries entrepreneurship development can only succeed if cluster development boards (CDBs) of GMoUs are able to draw all the resources and talents and if fisherwomen are able to participate fully in the GMoUs intervention plans and programme. Originality/value – This research contributes to the gender debate in fisheries entrepreneurship development from a CSR perspective in developing countries and rationale for demands for social projects by host communities. It concludes that business has an obligation to help in solving problems of public concern, and that CSR priorities in sub-Saharan Africa should be aimed toward addressing the peculiarity of the socio-economic development challenges of the countries and be informed by socio-cultural influences.
    Keywords: Gender, fisheries entrepreneurship, corporate social responsibility, sub-Saharan Africa
    JEL: O1 O55
    Date: 2020–01
  14. By: Kraemer-Eis, Helmut; Botsari, Antonia; Gvetadze, Salome; Lang, Frank; Torfs, Wouter
    Abstract: This working paper provides an overview of the main markets relevant to the EIF, with a particular focus on the impact of COVID-19. It starts by discussing the general market environment, then looks at the main aspects of equity finance and the markets for SME debt products and, finally, it highlights important aspects of microfinance in Europe. A chapter on Fintech complements the analysis.
    Date: 2020
  15. By: Welter, Friederike; Schlepphorst, Susanne; Schneck, Stefan; Holz, Michael
    Abstract: Die vorliegende Studie setzt sich konzeptionell mit dem gesellschaftlichen Beitrag des Mittelstands auseinander. Ziel ist es, die gesellschaftliche Rolle des Mittelstands über betrieblich messbare Effekte (CSR, CC) hinaus zu betrachten und eine Grundlage für nachfolgende empirische Untersuchungen zu erarbeiten. Der gesellschaftliche Beitrag ist als Zusatznutzen der wirtschaftlichen Tätigkeit zu verstehen. Dabei bilden gesellschaftliche Erwartungen und politische Zielsetzungen den Rahmen für den gesellschaftlichen Mehrwert von Unternehmen. Dem Mittelstand kommt aufgrund seiner spezifischen Governance-Struktur, Zielsetzungen, der regionalen Einbettung und seines Verhaltens in Krisenzeiten eine besondere Rolle zu.
    Keywords: Mittelstand,KMU,Gesellschaft,gesellschaftlicher Beitrag,Corona,German Mittelstand,SME,society,societal impact
    JEL: L26 L53 M14
    Date: 2020

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