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on Entrepreneurship |
| By: | Congressional Budget Office |
| Abstract: | Entrepreneurship has declined significantly in the United States over the past four decades. That decline has implications for economic growth because new firms provide innovative products and services, improve the productivity of the workforce, and ensure competition in the marketplace. The decline in entrepreneurship has been associated with a decrease in annual productivity growth, in CBO’s assessment, and is frequently attributed to three types of factors. The effects of financial and demographic factors are supported by strong evidence. |
| JEL: | D24 M21 O00 |
| Date: | 2020–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:56906&r=all |
| By: | Gropp, Reint; McShane, William |
| Abstract: | Young entrepreneurial firms are of critical importance for innovation. But to bring their new ideas to the market, these startups depend on investors who understand and are willing to accept the risk associated with a new firm. Perhaps the key reason as to why the US has succeeded in producing nearly all the most successful new firms of the 21st century is the economy's ability to supply vast sums of capital to promising startups. The volume of venture capital (VC) invested in the US is more than 60 times that of Germany (OECD, 2017). In this policy note, we argue that differences in the regulatory and structural context of institutional investors, in particular life insurance companies, is a central driver of the relative lack of VC - and thereby successful startups - in Germany. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhonl:62020&r=all |
| By: | Christoph Albert (CEMFI); Andrea Caggese (UPF, CREI and Barcelona GSE); Beatriz González (Banco de España) |
| Abstract: | We use the latest available empirical evidence on the impact of the COVID-19 shock on the EU economy to predict its effect on firm entry, and in particular on high-growth startups, and on the related short- and long-run impact on employment growth. We find that the COVID-19 shock is expected to reduce firm entry and that its overall impact is very sensitive to financial conditions. A relatively small increase in financial frictions is likely to strongly reduce the entry of high-growth startups, with fewer jobs created in the short run but, more importantly, also slower employment growth in the long run. We then develop a model with heterogeneous startup types and simulate the effects of the COVID-19 shock on the entry and growth of a cohort of new firms to evaluate alternative policies. We find that a loan subsidy that reduces the excess cost of credit for new startups is the most efficient policy in promoting the entry of high-growth startups. The comparison of this subsidy with a wage subsidy that supports current employment shows that, for the same overall costs, the number of jobs created by the loan subsidy in the long term is significantly larger than that created by the wage subsidy in the short term. Our findings imply that, while policies aiming to stimulate current employment are important, in order to ensure also a faster recovery in the future they should be accompanied by measures directed at reducing the cost of credit for new businesses. |
| Keywords: | recessions, financial crisis, entrepreneurship, firm dynamics, coronavirus, COVID-19 |
| JEL: | E20 E32 D22 J23 M13 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2039&r=all |
| By: | Joern Block; Alexander S. Kritikos; Maximilian Priem; Caroline Stiel |
| Abstract: | The self-employed are among those facing the highest probability of strong income losses during the COVID-19 pandemic. Governments in many countries introduced support programs to support the self-employed, including the German federal government, which approved a €50bn emergency aid program at the end of March 2020 offering one-off lump-sum payments of up to €15,000 to those facing substantial revenue declines. In this contribution, we investigate the impact of this program using a real-time online-survey data with a total of more than 20,000 observations. We employ propensity score matching, making use of a rich set of variables that influence selection into the treatment and the outcome variable, the subjective survival probability. We observe that the emergency aid program had significant effects, with the subjective survival probability of self-employment being moderately increased. We further reveal important effect heterogeneities with respect to education, risk tolerance, and industries. We also observe positive effects only among those whose application was processed within a few days. Lastly, the positive effect on the survival probability is fading out already two weeks after the emergency aid was granted. Our findings have important policy implications for the design of such support programs in the course of this crisis. |
| Keywords: | Self-employment, emergency aid, treatment effects, COVID-19, entrepreneurship |
| JEL: | C14 H43 L25 L26 J68 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1924&r=all |
| By: | W. Andersson, Fredrik (Statistics Sweden); Lodefalk, Magnus (Örebro University School of Business) |
| Abstract: | Business angels dominate early-stage investment in firms, but research on their investment effects is scarce and is limited by sample selection. Therefore, we propose an algorithm for identifying business angel investments from total population data. We apply the algorithm to study business angels’ effects on firm performance, using detailed and longitudinal total population data for individuals and firms in Sweden. Employing these data and a quasi-experimental estimator, we find that business angels invest in firms that already perform above par. There is also a positive effect on subsequent growth compared with control firms. Firms with business angel investments perform better in terms of sales growth, employment growth and the likelihood of becoming a high-growth firm. However, contrary to previous research, we cannot find any impact on firm survival. Overall, our results underline the need to address sample selection issues both in identifying business angels and in evaluating their effects on firm performance. |
| Keywords: | business angels; firm performance; sample selection; population data |
| JEL: | C23 G24 G32 L25 |
| Date: | 2020–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2020_015&r=all |
| By: | Gregg, Amanda; Nafziger, Steven |
| Abstract: | Enterprise creation, destruction, and evolution support the transition to modern economic growth, yet these processes are poorly understood in industrializing contexts. We investigate Imperial Russia’s industrial development at the firm-level by examining entry, exit, and persistence of corporations. Relying on newly developed balance sheet panel data from every active Russian corporation (N > 2500) between 1899 and 1914, we examine the characteristics of entering and exiting corporations, how new entrants evolved, and the impact of founder identity on subsequent outcomes. Russian corporations operated flexibly and competitively, conditional on overcoming distortionary institutional barriers to entry that slowed the emergence of these leading firms in the Imperial economy. |
| JEL: | L11 N13 N63 O16 |
| Date: | 2020–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2020_026&r=all |
| By: | Kirill Shakhnov (University of Surrey) |
| Abstract: | The rapid growth of US financial services coupled with rapid increases in wealth inequality have been focusing policy debate as to the function of the financial sector and on its social desirability as a whole. I propose a heterogeneous agent model with asymmetric information and matching frictions that produces a tradeoff between finance and entrepreneurship. By becoming bankers, talented agents efficiently match investors with entrepreneurs, but extract excessive informational rents due to contract incompleteness. Thus the financial sector is inefficiently large in equilibrium, and this inefficiency increases with wealth inequality. The estimated model accounts for the simultaneous growth of wealth inequality and the financial sector in the US. The endogenous feedback between inequality and the size of the financial sector is quantitatively important. |
| JEL: | E44 E24 G14 L26 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0420&r=all |
| By: | Robert W. Fairlie; Alicia Robb; David T. Robinson |
| Abstract: | We use confidential and restricted-access data from the Kauffman Firm Survey and matched administrative data on credit scores to explore racial disparities in access to capital for new business ventures. The novel results on racial inequality in startup financing indicate that black-owned startups start smaller and stay smaller over the entire first eight years of their existence. Black startups face more difficulty in raising external capital, especially external debt. We find that disparities in credit-worthiness constrain black entreprenuers, but perceptions of treatment by banks also hold them back. Black entrepreneurs apply for loans less often than white entrepreneurs largely because they expect to be denied credit, even when they have a good credit history and in settings where strong local banks favor new business development. |
| JEL: | J15 J71 L26 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28154&r=all |
| By: | Dietsch Michel; Fraisse Henri; Lé Mathias; Lecarpentier Sandrine |
| Abstract: | Starting in 2014 with the implementation of the European Commission Capital Requirement Directive, banks operating in the Euro area were benefiting from a 25% reduction (the Supporting Factor or "SF" hereafter) in their own funds requirements against Small and Medium-sized enterprises ("SMEs" hereafter) loans. We investigate empirically whether this reduction has supported SME financing and to which extent it is consistent with SME credit risk. Economic capital computations based on multifactor models do confirm that capital requirements should be lower for SMEs. Taking into account the uncertainty surrounding their estimates and adopting a conservative approach, we show that the SF is consistent with the difference in economic capital between SMEs and large corporates. As for the impact on credit distribution, our difference-in-differences specification enables us to find a positive and significant impact of the SF on the credit supply. |
| Keywords: | SME finance, Credit supply, Basel III, Credit risk modelling, Capital requirement. |
| JEL: | C13 G21 G33 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:789&r=all |
| By: | Olena Havrylchyk (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Panthéon-Sorbonne); Aref Mahdavi-Ardekani (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper explores the short_term impact of borrowing via lending_based crowdfunding on performance and health of small and medium enterprises (SMEs) in France. We find that firms borrowing from lending-based crowdfunding platforms are more dynamic (higher asset growth and higher profitability) and innovative, but they have lower leverage, less cash, higher funding costs and less tangible assets that could be pledged as as collateral. To account for this selection bias, we construct three control groups by using Propensity Score Matching, Mahalanobis Distance Matching and Coarsened Exact Matching methods and then run difference-in-difference regressions. We find that borrowing via lending-based crowdfunding platforms increases SMEs' leverage and interest rate burden in the short-term, but these impacts disappear after two years. We observe asset growth during the year of borrowing, but no impact on sales growth, investment, employment or profitability. |
| Keywords: | lending-based crowdfunding,firm financing,firm performance,informational asymmetry |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-02994903&r=all |
| By: | Saul Lach; Zvika Neeman; Mark Schankerman |
| Abstract: | We study how to design an optimal government loan program for risky R&D projects with positive externalities. With adverse selection, the optimal government contract involves a high interest rate but nearly zero co-financing by the entrepreneur. This contrasts sharply with observed loan schemes. With adverse selection and moral hazard (two effort levels), the optimal policy consists of a menu of at most two contracts, one with high interest and zero self-financing, and a second with a lower interest plus co-financing. Calibrated simulations assess welfare gains from the optimal policy, observed loan programs, and a direct subsidy to private venture capital firms. The gains vary with the size of the externalities, cost of public funds, and effectiveness of the private VC industry. |
| Keywords: | mechanism design, innovation, R&D, entrepreneurship, additionality, government finance, venture capital |
| JEL: | D61 D82 O32 O38 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stieip:55&r=all |
| By: | Lessa Bastos, B.; Gómez, G.M. |
| Abstract: | Creating positive and transformational change by meeting social needs is a goal of development organisations. Social entrepreneurship, characterized by the blurring of boundaries between sectors, offers innovative solutions to meet social needs and has emerged as a new developmental actor that does not centre on the state or international aid. However, the limited scope of impact of these initiatives makes reaching scale a central concern but the pathways of scaling are still poorly understood. By analyzing the case of Associação Saúde Criança this study provides insights into the tensions created by market encroachment on the social sector and the feasibility of scaling complex developmental initiatives. Findings show that scaling is not a linear process, it involves adaptation and resilience. Furthermore, market encroachment pressures organizations towards finding a balance between staying financially sustainable and socially relevant. |
| Keywords: | social entrepreneurship, market-encroachment, scaling |
| Date: | 2020–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:ems:euriss:132629&r=all |
| By: | William D. Lastrapes; Ian M. Schmutte; Thor Watson |
| Abstract: | In this note, we use restricted-access data from the 1992 Characteristics of Business Owners (CBO) and the 2002 and 2007 Surveys of Business Owners (SBO) that are linked to the Longitudinal Business Database (LBD) and compare how firm age is reported across sources. Our analysis shows considerable agreement between administrative and survey measures. However, we also find meaningful discrepancies. The SBO measures generally suggest an earlier date of founding than is revealed in the LBD. For researchers, caution should be taken when using these sources in studies that rely on a particular interpretation of the firm age measure. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cen:tnotes:20-08&r=all |
| By: | Hanna Berkel; Finn Tarp |
| Abstract: | Using a novel panel survey of enterprises in Myanmar, we compare the performance of manufacturing firms by three different informality definitions. The first is binary, based on whether firms pay taxes. The second captures five categories of registration with the authorities, and the third definition relates to three groupings of the informality status of a firm's workers. Depending on the informality concept used, formalization has positive, insignificant, and negative performance outcomes. |
| Keywords: | firms, Informality, Myanmar, Business, business registration, Manufacturing |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2020-173&r=all |
| By: | Mounir Amdaoud (CEPN - Centre d'Economie de l'Université Paris Nord - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord - USPC - Université Sorbonne Paris Cité - LABEX ICCA - UP13 - Université Paris 13 - Université Sorbonne Nouvelle - Paris 3 - CNRS - Centre National de la Recherche Scientifique - UP - Université de Paris - Université Sorbonne Paris Nord); Christian Le Bas |
| Abstract: | This paper aims to account for the determinants of firm patenting behaviour in developing countries. The literature has accumulated numerous evidence and trends as far as developed countries' firm patenting is concerned. However, only a small amount of information concerning least developed countries' firm patenting is available. With the present study we wish to fill this gap creatively. The core assumption of this paper is that the occurrence of firm patenting is positively related with innovation strategies. As a result we place the emphasis on the diverse ways to innovate and account for the effects on a firm's probability to patent. Our findings indicate that despite the weaknesses of their patenting system in least developed countries (LDCs) there is no huge gap between the determinants of patenting behaviour from firms in these countries, and those the literature considers to be important for developed countries firms. |
| Keywords: | Patent,appropriation,innovation,developing economies. JEL Codes : O31,O32,O33,O34 |
| Date: | 2020–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cepnwp:hal-03059466&r=all |
| By: | Dalton, Patricio (Tilburg University, Center For Economic Research); Rüschenpöhler, Julius (Tilburg University, Center For Economic Research); Uras, Burak (Tilburg University, Center For Economic Research); Zia, Bilal |
| Keywords: | Business Growth; Efficiency Gains; Small-scale Enterprises; Peer Knowledge; Self- Learning; Social Learning |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:5c5fc2c6-7cfe-4fa9-b1d1-45512554a07c&r=all |