nep-ent New Economics Papers
on Entrepreneurship
Issue of 2021‒03‒22
eighteen papers chosen by
Marcus Dejardin
Université de Namur

  1. On Immigration and Native Entrepreneurship By Duleep, Harriet; Jaeger, David A.; McHenry, Peter
  2. Design and Effectiveness of Start-Up Subsidies: Evidence from a Policy Reform in Germany By Marco Caliendo; Stefan Tübbicke
  3. Do tax loss restrictions distort venture capital funding of start-ups? By Bührle, Anna Theresa
  4. Home Ownership and Home Equity Promote Entrepreneurial Activity By Hassink, Wolter; Millone, Matteo; Mocking, Remco; Vogt, Benedikt
  5. Job Training, Remote Working, and Self-Employment: Displaced Workers Beyond Employment Hysteresis By Focacci, Chiara Natalie; Santarelli, Enrico
  6. The Rise and Fall of German Innovation By Naudé, Wim; Nagler, Paula
  7. Doing Business in China: Parental Background and Government Intervention Determine Who Owns Businesses By Ruixue Jia; Xiaohuan Lan; Gerard Padró I Miquel
  8. Reparations and Persistent Racial Wealth Gaps By Job Boerma; Loukas Karabarbounis
  9. Venture Capital and Startup Innovation --Big Data Analysis of Patent Data-- By WASHIMI Kazuaki
  10. Whose Job Is It Anyway? Co-Ethnic Hiring in New U.S. Ventures By Sari Pekkala Kerr; William R. Kerr
  11. Asian Discrimination in the Coronavirus Era: Implications for Business Formation and Survival By Amuedo-Dorantes, Catalina; Borra, Cristina; Wang, Chunbei
  12. The Fetters of the Sib: An Experimental Study in Burkina Faso By Vollan, Björn; Hadnes, Myriam; Nilgen, Marco; Kosfeld, Michael
  13. Employee characteristics, absorptive capacity and innovation By Rho, Yeirae; Fabrizi, Simona; Lippert, Steffen
  14. COVID-19 Impact on Micro, Small, and Medium-Sized Enterprises under the Lockdown: Evidence from a Rapid Survey in the Philippines By Shinozaki, Shigehiro; Rao, Lakshman N.
  15. Knowledge dynamics in employee entrepreneurship : Implications for parents and offspring By Chila, Vilma
  16. Competitiveness of Entrepreneurs and Salaried Workers By Balafoutas, Loukas; Batsaikhan, Mongoljin; Sutter, Matthias
  17. Forecasting corporate capital accumulation in Italy: the role of survey-based information By Claire Giordano; Marco Marinucci; Andrea Silvestrini
  18. Artificial Intelligence and Big Data in Sustainable Entrepreneurship By Steve J. Bickley; Alison Macintyre; Benno Torgler

  1. By: Duleep, Harriet (College of William and Mary); Jaeger, David A. (University of St. Andrews); McHenry, Peter (College of William and Mary)
    Abstract: We present a novel theory that immigrants facilitate innovation and entrepreneurship by being willing and able to invest in new skills. Immigrants whose human capital is not immediately transferable to the host country face lower opportunity costs of investing in new skills or methods and will be more exible in their human capital investments than observationally equivalent natives. Areas with large numbers of immigrants may therefore lead to more entrepreneurship and innovation, even among natives. We provide empirical evidence from the United States that is consistent with the theory's predictions.
    Keywords: immigration, innovation, entrepreneurship, human capital
    JEL: J15 J24 J39 J61 L26
    Date: 2021–03
  2. By: Marco Caliendo (University of Potsdam, IZA Bonn, DIW Berlin, IAB Nuremberg); Stefan Tübbicke (IAB Nuremberg)
    Abstract: While a growing body of literature finds positive impacts of Start-Up Subsidies (SUS) on labor market outcomes of participants, little is known about how the design of these programs shapes their effectiveness and hence how to improve policy. As experimental variation in program design is unavailable, we exploit the 2011 reform of the current German SUS program for the unemployed which strengthened case-workers’ discretionary power, increased entry requirements and reduced monetary support. We estimate the impact of the reform on the program’s effectiveness using samples of participants and non-participants from before and after the reform. To control for time-constant unobserved heterogeneity as well as differential selection patterns based on observable characteristics over time, we combine Difference-in-Differences with inverse probability weighting using covariate balancing propensity scores. Holding participants’ observed characteristics as well as macroeconomic conditions constant, the results suggest that the reform was successful in raising employment effects on average. As these findings may be contaminated by changes in selection patterns based on unobserved characteristics, we assess our results using simulation-based sensitivity analyses and find that our estimates are highly robust to changes in unobserved characteristics. Hence, the reform most likely had a positive impact on the effectiveness of the program, suggesting that increasing entry requirements and reducing support in-creased the program’s impacts while reducing the cost per participant.
    Keywords: Start-Up Subsidies, Institutions, Policy Reform, Difference-in-Differences
    JEL: J68 H43 L26
    Date: 2021–03
  3. By: Bührle, Anna Theresa
    Abstract: Anti-tax loss trafficking rules disallow the use of loss carryforwards after a change in ownership or activity (such as significant changes in turnover, employment, or the product portfolio). This restriction could threaten accumulated loss carryforwards of start-ups. Accounting for the increased risk and reduced return on their investment, VC investors could reduce their funding. I analyze whether the venture capital (VC) funding of start-ups in Europe is affected by these regulations. I base my empirical analysis on several case studies and a panel analysis covering VC- funded companies in the EU28 Member States from 1999 to 2014. My findings suggest that strict anti-tax loss trafficking rules indeed impair VC funding. Especially more mature companies and companies in high-tech industries are affected.
    Keywords: Venture capital,taxes,loss carryforward,start-ups,anti-tax loss trafficking
    JEL: M13 G24 H25
    Date: 2021
  4. By: Hassink, Wolter (Utrecht University); Millone, Matteo (De Nederlandsche Bank); Mocking, Remco (Dutch Ministry of Finance); Vogt, Benedikt (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This paper studies the effects of private real estate collateral on entrepreneurial lending and entrepreneurial activity in the Netherlands. The residential collateral channel is especially relevant for sole-proprietors who own a business with unlimited liability. We used administrative data on outstanding bank credit based on all Dutch sole-proprietorships in the 2007-2013 period. Our results indicate that, during a severe economic crisis, home-owning entrepreneurs are affected less severely than renting entrepreneurs. Home ownership improved access to credit at the extensive and intensive margin, and it reduced the probability of exit. Positive home equity is the driving force behind this effect, as entrepreneurs with negative home equity are not treated significantly differently from renters.
    Keywords: collateral lending channel, house price shocks, negative home equity, entrepreneurial lending
    JEL: G23 L26 R2 R31
    Date: 2021–03
  5. By: Focacci, Chiara Natalie; Santarelli, Enrico
    Abstract: The recent SARS-Cov-2 pandemic has contributed to several corporate crises. As a result, many Small- and Medium-Sized Enterprises (SMEs) in Italy have filed for bankruptcy in the first quarter of 2020. In addition to a gigantic macroeconomic effect, the lockdown has impacted individuals to a large ex- tent. In this article, we investigate the behavioural response of employees who are under a dual condition of stress; namely, the pandemic and the risk of job loss. The hypothesis of employment hysteresis is challenged by looking at the tendency of individuals who are employed in firms facing a crisis, or in diffi- culty, to participate in training measures for: a similar job, remote working, and self-employment. Findings from a seemingly unrelated regressions (SUR) model show a significant increase in the likelihood to participate in standard or high-commitment training measures for similar jobs and remote working for employees who: i) positively value their professional social capital, i.e. their membership in a trade union (+24.4 and +25.2 percentage points, respectively); ii) have some displaced colleagues (+29.6 and +40.7 percentage points, respec- tively). Finally, we find that employees with a lower educational background are less likely to consider the possibility of switching between occupations.
    Keywords: Corporate Crisis,Displaced Workers,Employment Hysteresis,Job Training,Self-Employment,SARS-Cov-2,Remote Working
    JEL: J24 J51 J62 L26 M14 M53
    Date: 2021
  6. By: Naudé, Wim (University College Cork); Nagler, Paula (Erasmus University Rotterdam)
    Abstract: In this paper, we describe the historical co-evolution of innovation and economic growth in Germany since 1871. The country's rise as an industrial power in the late 19th century, through its innovation and entrepreneurial performance, is contrasted with the post-World War II period. This latter period, although it contained the German economic miracle, was nevertheless a period during which innovation went into relative decline. We document this decline and offer four broad, interrelated explanations: (i) an innovation system locked into incremental innovation, (ii) a slowdown in the diffusion of technology, (iii) weaknesses in the education system, and (iv) entrepreneurial stagnation. Implications for policy are noted. Our paper contributes to the growing literature attempting to understand the decline in business dynamism that characterises many advanced economies.
    Keywords: entrepreneurship, inequality, innovation, productivity, technology
    JEL: D31 L26 O33 O38 O52
    Date: 2021–03
  7. By: Ruixue Jia; Xiaohuan Lan; Gerard Padró I Miquel
    Abstract: While intergenerational transmission of entrepreneurship is a well-known regularity, we hypothesize that in a transition economy where the state retains an important role, those whose parents are government workers may also be more likely to become business owners. We test the hypothesis in China and show that (1) on average, both entrepreneurs and government workers have a higher likelihood of having children who own incorporated businesses and (2) In provinces where government involvement is higher, the likelihood that children of government workers (entrepreneurs) own incorporated businesses is significantly higher (lower). Our study demonstrates that the local economic business environment shapes the influence of parental background on business ownership.
    JEL: D02 D72 O12 O38 O53
    Date: 2021–03
  8. By: Job Boerma; Loukas Karabarbounis
    Abstract: Reparations is a policy proposal aiming to address the wealth gap between Black and White households. We provide a first formal analysis of the economics of reparations using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous dispersion of beliefs about risky returns, reflecting differences in dynasties' experiences with entrepreneurship over time. Feeding the exclusion of Black dynasties from labor and capital markets as driving force, the model quantitatively reproduces current and historical racial gaps in wealth, income, entrepreneurship, mobility, and beliefs about risky returns. We use the model to evaluate reparations and find that transfers eliminating the racial gap in average wealth today do not lead to wealth convergence in the long run. The logic is that century-long exclusions lead Black dynasties to enter into reparations with pessimistic beliefs about risky returns and to forego investment opportunities. We conclude by showing that entrepreneurial subsidies are more effective than wealth transfers in achieving racial wealth convergence in the long run.
    Keywords: Reparations; Race gaps; Wealth; Entrepreneurship; Beliefs
    JEL: E21 D31 J15
    Date: 2021–02–19
  9. By: WASHIMI Kazuaki (Bank of Japan)
    Abstract: With the declining birthrate and ageing population and a decline in the working age population in Japan, Japanese firms face the need to strengthen innovation including the digital domain. Expectations are particularly high for startups as they play a vital role in creating innovative technology. In recent years, there have been a number of initiatives such as expediting patent examinations and introducing an open innovation tax incentive in Japan. It is expected that venture capital (VC) funds will play a pivotal role in providing financing for growth so that startups can continue research and development. On the other hand, due in part to data constraints, there has been limited research on startup innovation on a comprehensive scale and virtually no earlier literature on the impact of VC investments on innovation by portfolio companies in Japan. This paper summarizes those two issues with a focus on the number of patent applications as a proxy for innovation, and it also discusses challenges that lie ahead. First, taking a look at patent applications by startups, around 40 percent of startups have applied for a patent—albeit with significant variation across firms—which appears a much higher proportion than existing firms. An estimate of the impact of VC investments on innovation suggests that in about 60 percent of cases, the number of patent applications by portfolio companies significantly increased compared to a control group. While care should be taken in interpreting those studies as the results vary from firm to firm, these successful cases reflect the possibility that financing and management support including intellectual property management from VC funds could have contributed to an increase in patent applications. Challenges ahead include: (1) expanding investments in VC funds by institutional investors; (2) increasing opportunities for startups to go public in a way that encourages sustainable growth; and (3) establishing intellectual property strategies while maintaining and developing professional human resources in relevant areas.
    Keywords: Venture Capital; Innovation; Synthetic Control; Bayesian Structural Time Series
    JEL: G24 M13 O3
    Date: 2021–03–12
  10. By: Sari Pekkala Kerr; William R. Kerr
    Abstract: We explore co-ethnic hiring among new ventures using U.S. administrative data. Co-ethnic hiring is ubiquitous among immigrant groups, averaging about 22.5% and ranging from 2% to 40%. Co-ethnic hiring grows with the size of the local ethnic workforce, greater linguistic distance to English, lower cultural/genetic similarity to U.S. natives, and in harsher policy environments for immigrants. Co ethnic hiring is remarkably persistent for ventures and for individuals. Co-ethnic hiring is associated with greater venture survival and growth when thick local ethnic employment surrounds the business. Our results are consistent with a blend of hiring due to information advantages within ethnic groups with some taste-based hiring.
    Keywords: Hiring, immigration, entrepreneurship, job creation, E-Verify
    JEL: F22 J15 J44 J61 J62 J71 L26 M13 M51
    Date: 2021–03
  11. By: Amuedo-Dorantes, Catalina (University of California, Merced); Borra, Cristina (University of Seville); Wang, Chunbei (University of Oklahoma)
    Abstract: With the onset of the Covid-19 pandemic, Asians became the victims of a sudden increase in racial discrimination as public officials repeatedly referred to the virus as the "Chinese virus." We document that Asian entrepreneurship has been disproportionally hurt after January 2020, particularly among Asian immigrants, declining by 17 percent when compared to non-Hispanic whites. Examining the dynamics of transitions into and out of self-employment, we find a substantial increase in Asian immigrants' self-employment exits, increased necessity entries, and reductions in opportunity entries – patterns suggestive of customer and employer 'taste discrimination'. The pandemic has also proven particularly harmful on businesses owned by recently arrived immigrants and by East Asian immigrants. While Asian enclaves help palliate the pandemic's damaging impact, the latter has reached a broad spectrum of businesses. Gaining a better understanding of how the pandemic has impacted Asian businesses is crucial to inform about the emergence of discriminatory behaviors that widen inequities and endanger a fast recovery.
    Keywords: asian, discrimination, COVID-19, business ownership, business dynamics
    JEL: J15 J61 J71 J78
    Date: 2021–03
  12. By: Vollan, Björn (University of Marburg); Hadnes, Myriam (workshops work); Nilgen, Marco (University of Marburg); Kosfeld, Michael (Goethe University Frankfurt)
    Abstract: We conducted a field experiment in Burkina Faso to investigate the impact of sharing obligations within kin networks on entrepreneurial effort. The overall treatment effect we find is insignificant and goes in the opposite direction than previous literature suggests. Ex-post explorative analysis reveals that entrepreneurs in the two experimental groups reacted differently in their production process, with some entrepreneurs in the treatment group being able to utilize their kin network to their joint advantage.
    Keywords: field experiment, redristributive pressure, social norms, sharing norms, business development, Burkina Faso
    JEL: C93 D13 H24 H26 O12
    Date: 2021–02
  13. By: Rho, Yeirae; Fabrizi, Simona; Lippert, Steffen
    Abstract: We investigate the determinants of firm absorptive capacity, with a particular focus on the effect of employee characteristics, and study how it affects a firm’s ability to generate new knowledge. Using administrative and national survey data on individuals and businesses, we first estimate absorptive capacity measures for New Zealand firms. We then show that the share of employees with international experience and the average skill level of employees have a positive impact on a firm’s learning capabilities, and that the positive effect of employees with international experience is greater if the firm also has a highly skilled workforce overall. We finally find that a firm's absorptive capacity is highly positively correlated to the likelihood of the firm innovating.
    Keywords: Absorptive capacity, knowledge spillover, innovation, linked employer-employee data
    JEL: D20 D22 D24 O31
    Date: 2021–01–02
  14. By: Shinozaki, Shigehiro (Asian Development Bank Institute); Rao, Lakshman N. (Asian Development Bank Institute)
    Abstract: The novel coronavirus disease, COVID-19, has brought significant change to people’s lives and business activities nationally, regionally, and globally. The Philippines took swift action—including enhanced community quarantine (ECQ)—to contain the pandemic and launched an emergency subsidy program with massive public spending to support disrupted households and businesses. The strict lockdown ran from mid-March to the end of May 2020 in the national capital region and high-risk provinces, causing huge economic losses. Six months after the March lockdown, the Philippine economy has moved to the recovery stage, but micro, small, and medium-sized enterprises (MSMEs) are continuing to confront a sharp drop in demand and revenue. We examine the initial impact on MSMEs of the ECQ and lockdown measures using evidence obtained from a rapid nationwide survey conducted from the end of March to mid-April 2020 and derive policy implications.
    Keywords: COVID-19; economic crisis; economic impact; MSMEs; SME development; access to finance; SME policy; Philippines
    JEL: D22 G20 L20 L50
    Date: 2021–02–08
  15. By: Chila, Vilma (Tilburg University, School of Economics and Management)
    Date: 2021
  16. By: Balafoutas, Loukas (University of Innsbruck); Batsaikhan, Mongoljin (Georgetown University); Sutter, Matthias (Max Planck Institute for Research on Collective Goods)
    Abstract: We measure the willingness to compete of entrepreneurs and salaried workers in an experiment. We let participants choose between a piece-rate and a tournament scheme either in private or in public. We find that in the private condition entrepreneurs are less competitive than salaried workers, but that in the public condition this ordering is reversed. Data from a follow-up survey suggest that social image concerns of entrepreneurs and perceived norms can explain why entrepreneurs are more competitive when decisions are publicly observable. Our survey also reveals that more competitive entrepreneurs earn higher profits in their businesses.
    Keywords: competitiveness, entrepreneurs, salaried workers, profits, field behavior, experiment
    JEL: C91 C93 D01 L26
    Date: 2021–03
  17. By: Claire Giordano (Bank of Italy); Marco Marinucci (Bank of Italy); Andrea Silvestrini (Bank of Italy)
    Abstract: While there is a vast macroeconomic literature that singles out the main drivers of capital accumulation in advanced economies during and after the global financial and sovereign debt crises' recessionary phase, there is much less research seeking to identify both models and variables that possess out-of-sample forecasting ability for gross fixed capital formation. Moreover, micro-founded variables are scarcely employed in macroeconomic forecasting of real investment. We fill this gap by considering a battery of univariate and multivariate time-series models to forecast investment of non-financial corporations in Italy, an interesting case-study due to its steep downturn during the two afore-mentioned crises. We find that a vector error correction model augmented with firm survey-based variables accounting for business confidence, demand uncertainty and financing constraints generally outperforms the autoregressive benchmark and a series of competing multivariate time-series models in various, alternative, evaluation samples that take into account the impact of both the global financial crisis and the sovereign debt crisis on forecast accuracy.
    Keywords: Real investment, forecasting evaluation, firm survey data, vector error correction model
    JEL: C32 C52 E22 E27
    Date: 2021–02
  18. By: Steve J. Bickley; Alison Macintyre; Benno Torgler
    Abstract: The recent acceleration and ongoing development in Artificial Intelligence (AI) and its related (and/or enabling) digital technologies presents new challenges and considerable opportunity on which businesses and individuals may capitalise. In the era of BD – and with increasing societal value being placed on sustainable business to minimise or mitigate the impacts of climate change – customers and regulators alike are turning to organizations to tackle large and complex sustainable development goals. AI and BD can help interpret and monitor the environment, identify which problems need attention, design strategies, generate decisions, and action the tactics. A key challenge in sustainable entrepreneurship is a failure to integrate ‘systems thinking’ beyond a limited number of issues, rather than taking the time to understand the relationship between business processes, macro ecological processes, boundary conditions, and tipping points. The recent and substantial increase in data availability simultaneously advances the potential for AI and BD to enhance ecological sustainability through validation and testing of beliefs and hunches, offering empirical guidance to every stage involved in decision making, and comparing inputs against the outcomes – particularly in fast-changing and highly uncertain environments. To prepare, we must strategize by looking to and engaging with the market, our clients, and our customers for guidance. Only then can we then proceed to develop viable and sustainable business models and plans. To reap the rewards of progress in AI, BD, and related technologies, we need to find ways to race with the emerging technologies while also identifying ways to act in symbiosis with them. The demands of adapting to AI and BD are no different from the situation with past disruptive technologies such as the automobile, radio, and the Internet.
    Keywords: Artificial Intelligence; Big Data; Entrepreneurship; Sustainability; Expert Systems
    Date: 2021–03

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