nep-ent New Economics Papers
on Entrepreneurship
Issue of 2021‒04‒26
seven papers chosen by
Marcus Dejardin
Université de Namur

  1. Diversity and Performance in Entrepreneurial Teams By Sophie Calder-Wang; Paul A. Gompers; Kevin Huang
  2. The importance of capital in losing the entrepreneurial gender gap: a longitudinal study of lottery wins By Sarah Flèche; Anthony Lepinteur; Nattavudh Powdthavee
  3. Venture Capitalists' Access to Finance and Its Impact on Startups By Chen, Jun; Ewens, Michael
  4. Opening up military innovation: causal effects of 'bottom-up' reforms to U.S. defense research By Sabrina T. Howell; Jason Rathje; John Van Reenen; Jun Wong
  5. May AI revolution be labour-friendly? Some micro evidence from the supply side By Damioli, G.; Van Roy, V.; Vertesy, D.; Vivarelli, M.
  6. Optimal taxation and market power By Jan Eeckhout; Chunyang Fu; Wenjian Li; Xi Weng
  7. The Role of SMEs in extra-EU Exports: Key performance indicators By Cernat, Lucian; Jakubiak, Malgorzata; Preillon, Nicolas

  1. By: Sophie Calder-Wang; Paul A. Gompers; Kevin Huang
    Abstract: We study the role of diversity and performance in the entrepreneurial teams. We exploit a unique dataset of MBA students who participated in a required course to propose and start a real micro-business that allows us to examine horizontal diversity (i.e., within the team) as well as vertical diversity (i.e., team to faculty advisor) and their effect on performance. The design of the course allows for identification of the causal implications of horizontal and vertical diversity. The course was run in multiple cohorts in otherwise identical formats except for the team formation mechanism used. In several cohorts, students were allowed to choose their teams from among students in their section (roughly 90 students). In other cohorts, students were randomly assigned to teams based upon a computer algorithm. In the cohorts that were allowed to choose, we find strong selection based upon shared attributes. Among the randomly-assigned teams, greater diversity along the intersection of gender and race/ethnicity significantly reduced performance. However, the negative effect of this diversity is alleviated in cohorts in which teams are endogenously formed. Finally, we find that teams with more female members perform substantially better when their faculty section leader was also female. Because the gender of the faculty section leader is exogenous to the gender make-up of the entrepreneurial team, the positive performance effects can be interpreted as causal. These findings suggest that diversity policies should take adequate consideration of the multiple dimensions of diversity.
    JEL: J1 J15 J16
    Date: 2021–04
  2. By: Sarah Flèche; Anthony Lepinteur; Nattavudh Powdthavee
    Abstract: Can capital constraints explain why there are more male than female entrepreneurs in most societies? We study this issue by exploiting longitudinal data on lottery winners. Comparing between large to small winners, we find that an increase in lottery win in period t-1 significantly increases the likelihood of becoming self-employed in period t. This windfall effect is statistically the same in magnitude for men and women; a one percent increase in exogenous income increases the probability of female self-employment by 0.6 percentage points, which is approximately 10% of the gender entrepreneurial gap. These results suggest that we can causally reduce the gender entrepreneurial gap by improving women's access to capital that might not be as readily available to the aspiring female entrepreneurs as it is to male entrepreneurs.
    Keywords: gender inequality, self-employment, lottery wins, BHPS
    JEL: J16 J21 J24
    Date: 2021–04
  3. By: Chen, Jun; Ewens, Michael (California Institute of Technology)
    Abstract: Although an extensive literature shows that startups are financially constrained and that constraints vary by geography, the source of these constraints is still relatively unknown. We explore intermediary financing constraints, a channel studied in the banking literature, but only implicitly addressed in the venture capital (VC) literature. Our empirical setting is the VC fundraising and startup financing environment around the passage of the Volcker Rule, which restricted banks' ability to invest in venture capital funds as limited partners (LPs). The rule change disproportionately impacted regions of the U.S. historically lacking in VC financing. We find that a one standard deviation increase in VCs' exposure to the loss of banks as LPs led to an 18% decline in fund size and about a 10% decrease in the likelihood of raising a follow-on fund. Startups were not completely cushioned from the additional constraints on their VCs: capital raised fell and pre-money valuations declined. Overall, VC financing constraints manifest as fewer, smaller funds that change investment strategy and ex- perience increases in bargaining power. Last, we show that the rule change increased the likelihood startups moved out of impacted states, thus exacerbating the geographic disparity in high-growth entrepreneurship.
    Date: 2021–04–11
  4. By: Sabrina T. Howell; Jason Rathje; John Van Reenen; Jun Wong
    Abstract: When investing in research and development (R&D), institutions must decide whether to take a top-down approach - soliciting a particular technology - or a bottom-up approach in which innovators suggest ideas. This paper examines a reform to the U.S. Air Force Small Business Innovation Research (SBIR) program that transitioned from "Conventional topics," which solicit specific technologies, to "Open topics," which invite firms to suggest any new technology that may be useful to the Air Force. The reform seeks to address challenges facing military R&D, in particular a less innovative defense industrial base. We show that the Open program attracts new entrants, defined as younger firms and those without previous defense SBIR awards. In a regression discontinuity design that offers the first causal evaluation of a defense R&D program, we show that winning an Open award increases future venture capital investment, non-SBIR defense contracting, and patenting. Conventional awards have no effect on these outcomes but do increase the chances of future defense SBIR contracts, fostering incumbency. The bottom-up approach appears to be a mechanism behind Open's success. For example, winning has a positive effect on innovation even in less specific Conventional topics. The results suggest that government (and perhaps private sector) innovation could benefit from more bottom-up, decentralized approaches that reduce barriers to entry, minimize lock-in advantages for incumbents, and attract a wider range of new entrants.
    Keywords: innovation, defense, R&D, procurement
    JEL: O31 O32 O38 H56 H57
    Date: 2021–04
  5. By: Damioli, G.; Van Roy, V.; Vertesy, D.; Vivarelli, M.
    Abstract: This study investigates the possible job-creation impact of AI technologies, focusing on the supply side, namely the providers of the new knowledge base. The empirical analysis is based on a worldwide longitudinal dataset of 3,500 front-runner companies that patented the relevant technologies over the period 2000-2016. Obtained from GMM-SYS estimates, our results show a positive and significant impact of AI patent families on employment, supporting the labourfriendly nature of product innovation in the AI supply industries. However, this effect is small in magnitude and limited to service sectors and younger firms, which are the leading actors of the AI revolution. Finally, some evidence of increasing returns seems to emerge; indeed, the innovative companies which are more focused on AI technologies are those obtaining the larger impacts in terms of job creation.
    Keywords: Innovation,technological change,patents,employment,job-creation
    JEL: O33
    Date: 2021
  6. By: Jan Eeckhout; Chunyang Fu; Wenjian Li; Xi Weng
    Abstract: Should optimal income taxation change when firms have market power? The recent rise of market power has led to an increase in income inequality and a deterioration in efficiency and welfare. We analyze how the planner can optimally set taxes on labor income of workers and on the profits of entrepreneurs to induce a constrained efficient allocation. Our results show that optimal taxation in the presence of market power can substantially increase welfare, but it also highlights the severe constraints that the Planner faces to correct the negative externality from market power, using the income tax as a Pigouvian taxes. Pigouvian taxes compete with Mirrleesian incentive concerns, which generally leads to opposing forces. Overall, we find that due to incentive concerns, market power tends to lower marginal tax rates on workers, whereas it increases the marginal tax rate on entrepreneurs.
    Keywords: Optimal taxation, optimal profit tax, market power, market structure, markups
    JEL: D3 D4 J41
    Date: 2021–04
  7. By: Cernat, Lucian (DG Trade); Jakubiak, Malgorzata (DG Trade); Preillon, Nicolas (DG Trade)
    Abstract: This paper examines the growing importance of EU exporting small and medium enterprises (SMEs) for EU exports in recent years in terms of standard metrics (the number of exporting SMEs, their share in total EU exports) but also in respect to several key performance indicators, such as export competitiveness, digital intensity of their exports, greenhouse gas (GHG) emissions and jobs supported by EU exporting SMEs. The empirical evidence suggests that the number of EU exporting SMEs has grown steadily over time. EU exporting SMEs seem to perform better than the OECD average in sectors of medium digital intensity. In particular, SMEs are competitive in digitally intensive goods, where EU large firms do not seem to be equally successful. SME exports have also lower GHG emissions than average levels, with 70% of SME exports belonging to low and medium-low emission intensity. Finally, yet importantly, EU SME exports are a major driver for export-led job creation: over 13 million jobs in Europe depend on EU SME exports.
    Keywords: SMEs; international trade; performance indicators
    JEL: F13
    Date: 2020–04–09

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