nep-ent New Economics Papers
on Entrepreneurship
Issue of 2021‒06‒14
nineteen papers chosen by
Marcus Dejardin
Université de Namur

  1. The birth of new high growth enterprises: Internationalisation through new digital technologies By Teruel Carrizosa, Mercedes; Coad, Alexander; Domnick, Clemens; Flachenecker, Florian; Harasztosi, Péter; Janiri, Mario Lorenzo; Pál, Rozália
  2. Financing Constraints, Home Equity and Selection into Entrepreneurship By Thais Laerkholm Jensen; Søren Leth-Petersen; Ramana Nanda
  3. Small Changes with Big Impact: Experimental Evidence of a Scientific Approach to the Decision-Making of Entrepreneurial Firms By Camuffo, Arnaldo; Gambardella, Alfonso; Spina, Chiara
  4. WP 05-21 - Business dynamism and productivity growth in Belgium By Michel Dumont
  5. Venture Capital Booms and Startup Financing By Janeway, W.; Nanda, R.; Rhodes-Kropf, M.
  6. Black Entrepreneurs, Job Creation, and Financial Constraints By Kim, Mee Jung; Lee, Kyung Min; Brown, J. David; Earle, John S.
  7. Disclosure, Firm Growth, and the JOBS Act By Divakaruni, Anantha; Jones, Howard
  8. Macroeconomic Contractions during Impressionable Years and Entrepreneurship in Later Adulthood By Sotirakopoulos, Panagiotis; Guven, Cahit; Ulker, Aydogan; Graham, Carol
  9. Boosting social entrepreneurship and social enterprise development in Brandenburg, Germany: In-depth policy review By OECD
  10. Colonization, Early Settlers and Development: The Case of Latin America By Montalvo, Jose G; Reynal-Querol, Marta
  11. Female and male entrepreneurs in Germany: How did the coronavirus pandemic affect their businesses? By Kay, Rosemarie; Welter, Friederike
  12. New Survey Evidence on COVID-19 and Irish SMEs: Measuring the Impact and Policy Response By Kren, Janez; Lawless, Martina; McCann, Fergal; McQuinn, John; O'Toole, Conor
  13. Barriers to Entry and Regional Economic Growth in China By Brandt, Loren; Kambourov, Gueorgui; Storesletten, Kjetil
  14. Simulating business failures through the liquidity and solvency channels: a framework with applications to COVID-19 By McCann, Fergal; Yao, Fang
  15. With a Little Help from Friends: Strategic Financing and the Crowd By Dasgupta, Sudipto; Fan, Tingting; Li, Yiwei; Xiao, Yizhou
  16. EIF Venture Capital Survey Autumn 2020: Regional analysis By Botsari, Antonia; Lang, Frank; Marrazza, Federica
  17. Patenting in 4IR Technologies and Firm Performance By BENASSI Mario; GRINZA Elena; RENTOCCHINI Francesco; RONDI Laura
  18. Measuring Small and Medium-Size Enterprises Contribution to Trade in Value Added: The case of Chile 2013-2016 By Mario Marcel; Diego Vivanco
  19. WP 02-21 - Analyse des effets de la mesure "premiers engagements" sur la survie des jeunes entreprises qui emploient des salariés By Maritza López-Novella

  1. By: Teruel Carrizosa, Mercedes; Coad, Alexander; Domnick, Clemens; Flachenecker, Florian; Harasztosi, Péter; Janiri, Mario Lorenzo; Pál, Rozália
    Abstract: This paper explores the relationship between new digital technologies, internationalisation activity and its impact on High Growth Enterprises (HGEs), using the EIB Group Survey of Investment and Investment Finance and ORBIS data for 27 EU Member States and the United Kingdom. After controlling for sample selection bias, our results suggest that being a HGE is positively associated with the probability that a firm conducts international activities, particularly FDI. Conversely, the internationalisation process seems to trigger strong subsequent firm-growth for FDI. Furthermore, we show evidence on the positive association between firms that are internationalised and those adopting new digital technologies. The adoption of new digital technologies is indirectly related to the status of being a HGE via internationalisation activity in the current period. Our results highlight the complex influence of exporting and FDI on the capacity to become a HGE and the role of new digital technologies in this process.
    Keywords: Digital technologies,export,FDI,HGE,internationalisation
    JEL: F14 L21 O31
    Date: 2021
  2. By: Thais Laerkholm Jensen (Danmarks Nationalbank); Søren Leth-Petersen (CEBI, Department of Economics, University of Copenhagen, CEPR); Ramana Nanda (Harvard Business School, NBER)
    Abstract: We exploit a mortgage reform that differentially unlocked home equity across the Danish population and study how this impacted selection into entrepreneurship. We find that increased entry was concentrated among entrepreneurs whose firms were founded in industries where they had no prior work experience. In addition, we find that marginal entrants benefiting from the reform had higher pre-entry earnings and that a significant share of entrants started longer-lasting firms. Our results are most consistent with the view that housing collateral enabled high ability individuals with less-well-established track records to overcome credit rationing and start new firms, rather than just leading to `frivolous entry' by those without prior industry experience.
    Keywords: credit constraints, entrepreneurship, household wealth, mortgage finance
    JEL: D14 D31 G21 L25 L26
    Date: 2021–06–03
  3. By: Camuffo, Arnaldo; Gambardella, Alfonso; Spina, Chiara
    Abstract: Identifying the most promising business ideas is key to the introduction of novel firms, but predicting their success can be difficult. We argue that if entrepreneurs adopt a scientific approach by formulating problems clearly, developing theories about the implications of their actions, and testing these theories, they make better decisions. In particular, this approach helps entrepreneurs make more precise predictions of the value of their idea and to spot new ideas with higher expected returns. We also examine the mechanisms with which the scientific approach works. Specifically, we posit that scientific entrepreneurs are more precise initially, and less precise later on because they envision new version of their business idea that are worth assessing. Using a field experiment with 250 nascent entrepreneurs attending a pre-acceleration program, we provide evidence consistent with these mechanisms. We teach the treated group to formulate the problem scientifically and to develop and test theories about their actions, while the control group follows a standard training approach. We collect 18 data points on the decision-making and performance of all entrepreneurs for 14 months. Results show that increased precision in the assessment of the value of the business idea of treated entrepreneurs raises the probability that they close their start-ups. Scientific entrepreneurs are also more likely to see new opportunities with higher positive outcomes which prompt them to pivot to these new ideas and perform better.
    Keywords: entrepreneurship; field experiment; RCT; scientific approach
    JEL: L21 L26 M13 M21
    Date: 2020–06
  4. By: Michel Dumont
    Abstract: This paper considers the evolution in business dynamism and its potential link with productivity growth in Belgium. Statistics on business creation, the exit of enterprises and within-industry reallocation are presented. Data on Belgian firms, covering the period 2003-2017, are used for a decomposition of productivity growth. The paper provides robust indications of the substantial contribution of productivity growth of startups in the early years after entry.
    Keywords: Start-ups, Young firms, Reallocation, Efficiency, Productivity growth
    JEL: D22 D24 L25 L26 M13
    Date: 2021–05–28
  5. By: Janeway, W.; Nanda, R.; Rhodes-Kropf, M.
    Abstract: We review the growing literature on the relationship between venture capital booms and startup financing, focusing on three broad areas: First, we discuss the drivers of large inflows into the venture capital asset class, particularly in recent years -- which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of venture capital financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VCs choose to fund and terms at which they are funded, independent of investment opportunities -- thereby shaping the trajectory of innovation being conducted by startups. Third, an important insight from recent research is that booms in venture capital financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the US over the past forty years in just two broad areas – information and communication technologies (ICT) and biotechnology. We conclude by highlighting promising areas of further research.
    Keywords: Venture capital, start-ups, innovation
    JEL: G24 L26 M13 O30
    Date: 2021–06–03
  6. By: Kim, Mee Jung (Sejong University); Lee, Kyung Min (George Mason University); Brown, J. David (U.S. Census Bureau); Earle, John S. (George Mason University)
    Abstract: Black-owned businesses tend to operate with less finance and employ fewer workers than those owned by Whites. Motivated by a simple conceptual framework, we document these facts and show they are causally connected using large firm-level surveys linked to universal employer data from the Census Bureau. We find that the racial financing gap is most pronounced at start-up and tends to narrow with firm age. At any age, Black-owned firms are less likely to receive bank loans, more likely to refrain from applying because they expect denial, and more likely to report that lack of finance reduces their profitability. Yet the observable characteristics of Black entrepreneurs are similar in most respects to Whites, and in some ways - higher education, growth-oriented motivations, and involvement in the business - would seem to imply higher, not lower, demand for finance. Concerning employment, we find that Black-owned firms have on average about 12 percent fewer employees than those owned by Whites, but the difference drops when controlling for firm age and other characteristics. However, when the analysis holds financial variables constant, the results imply that equally well-financed Black-owned firms would be larger than White-owned by about seven percent. Exploiting the credit supply shock of changing assignment to Community Reinvestment Act treatment through a Regression Discontinuity Design in a firm-level panel regression framework, we find that expanded credit access raises employment 5-7 percentage points more at Black-owned businesses than White-owned firms in treated neighborhoods.
    Keywords: business ownership, racial inequality, firm employment, Community Reinvestment Act
    JEL: J15 G20 H81
    Date: 2021–05
  7. By: Divakaruni, Anantha; Jones, Howard
    Abstract: We study the effects of regulatory disclosure on investment and growth by comparing newly public firms before and after they lose disclosure exemptions under the Jumpstart Our Business Startups (JOBS) Act. Exempt firms invest more in physical assets, innovation, and acquisitions than firms that lose exemptions, but experience steeper declines in growth opportunities over time. Firms that lose exemptions exhibit better allocation of equity to investments and utilization of existing assets, which improves their Tobin’s q. Relaxing disclosure requirements seems to induce inefficiencies in managerial investment decisions and hence inhibits firms from exploiting or replenishing their growth opportunities.
    Date: 2021–05–23
  8. By: Sotirakopoulos, Panagiotis; Guven, Cahit; Ulker, Aydogan; Graham, Carol
    Abstract: We argue that past events experienced during the critical ages of 18-25 can influence an individual's future entrepreneurship based on the "impressionable years hypothesis". Accordingly, we empirically investigate the relationship between bad economic conditions during youth and later-life entrepreneurship using Gallup from 2009 to 2014. The identification is achieved through variations across 77 countries and age cohorts born between 1954 and 1989. Our findings indicate that bad economic conditions when young can significantly predict higher entrepreneurship in later life. For example, experiencing at least one economic contraction during youth increases future self-employment/business ownership propensities by about 6/10% at the outcome means. Graduating from college and entering the job market in a bad economy cannot explain our results. Findings are robust to numerous methods of measuring economic contractions and controlling for behavioural measures as well as economic shocks experienced before and after the impressionable years.
    Keywords: Impressionable Years Hypothesis,Entrepreneurship,Self-employment,Business Ownership,Economic Contractions,Gallup Data
    JEL: L26 E32 E60
    Date: 2021
  9. By: OECD
    Abstract: This report provides an in-depth analysis of the policy ecosystem in place for social entrepreneurship and social enterprises in the state of Brandenburg, Germany. It identifies the state’s key strengths and challenges and provides policy recommendations to support the development of a stronger policy ecosystem.It includes a conceptual framework for social entrepreneurship and social innovation (Chapter 2); with recommendations and analyses to build institutional and legal frameworks for social enterprises (Chapter 3), improve access to finance for social entrepreneurship development (Chapter 4), promote access to private and public markets for social entrepreneurship development (Chapter 5), and strengthen social impact measurement and reporting for social enterprise development (Chapter 6).
    Keywords: local development, policy ecosystem, social economy, social enterprises, social entrepreneurship, social impact, social innovation
    JEL: L31 L33
    Date: 2021–06–04
  10. By: Montalvo, Jose G; Reynal-Querol, Marta
    Abstract: In this paper, we document the long-run impact of the geographical heterogeneity in skills among the first settlers to Latin America. To this end, we compile administrative data on the early settlers in the Americas between 1492 and 1540 including, among others, name, city of origin, destination, and occupation. From a methodological perspective, a focus on the initial period of colonization in Latin America offers several advantages. First, differences in the geographical distribution of occupations among the first settlers are likely to be accidental. Second, a set-up that analyzes an area with a single colonizer (Spain) allows to hold constant formal institutions and legal origin. Our results show a relevant effect of the skills of first colonizers on long-run levels of development of the areas located around the original settlements. We find evidence of persistence in the form of market orientation and entrepreneurial spirit.
    Keywords: Development; Early Settlers; entrepreneurship; Persistence; skills
    JEL: O10
    Date: 2020–07
  11. By: Kay, Rosemarie; Welter, Friederike
    Abstract: Restrictions in the wake of the coronavirus pandemic have affected and continue to affect the operations of entrepreneurs. A wide range of support measures were designed to mitigate their consequences. This paper traces the economic development in the various sectors and provides an overview of the support measures. Based on the specifics of women's businesses, first answers will be given to the question whether women entrepreneurs and the businesses they run are particularly affected by the coronavirus crisis and whether they are supported in an appropriate way in overcoming the crisis.
    Keywords: entrepreneurs,gender,coronavirus pandemic,turnover development,support measures
    JEL: E60 J16 O10
    Date: 2021
  12. By: Kren, Janez (Central Bank of Ireland); Lawless, Martina (Central Bank of Ireland); McCann, Fergal (Central Bank of Ireland); McQuinn, John (Central Bank of Ireland); O'Toole, Conor (Central Bank of Ireland)
    Abstract: In this paper, we use new survey data on the Irish SME population to trace out the impact of the pandemic on revenues, firms’ capacity to adjust their cost base and their usage of policy supports. Over 70 per cent of firms experienced some fall in turnover with a median fall of 25 per cent. The impact of the shock appears uncorrelated with past firm performance which highlights its exogenous nature. Expenditure fell by 8.5 per cent on average with 40 per cent of firms cutting spending. Losses were incurred in over 30 per cent of enterprises with a further 30 per cent just breaking even. We find that about 61 per cent of SMEs received wage subsidies, 20 per cent of firms used tax warehousing while fewer than 6 per cent of firms used lending initiatives. Policy support take-up is more likely among those more affected by the downturn, while the smallest firms appear less likely to use support than larger firms.
    Keywords: Small and Medium-sized Enterprises, COVID-19, Survey Evidence, Policy Supports
    JEL: D22 L25 D04 H25
    Date: 2021–04
  13. By: Brandt, Loren; Kambourov, Gueorgui; Storesletten, Kjetil
    Abstract: Labor productivity in manufacturing differs starkly across regions in China. We document that productivity, wages, and start-up rates of non-state firms have nevertheless experienced rapid regional convergence after 1995. To analyze these patterns, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and entry barriers. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance and growth across prefectures. Entry barriers explain most of the differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector.
    Keywords: capital distortions; China; convergence; Entry Barriers; Firm entry; growth; output distortions; SOE reform; transition
    JEL: D22 D24 E24 O11 O14 O16 O40 O53 P25 R13
    Date: 2020–06
  14. By: McCann, Fergal (Central Bank of Ireland); Yao, Fang (Central Bank of Ireland)
    Abstract: We develop a microsimulation model that can identify Small and Medium Enterprises (SMEs) as financially distressed due to their inability to meet short term losses with cash (liquidity distress) or to meet their debt repayments (solvency distress). We estimate that – on these metrics – around one-in-six Irish SMEs may have been financially distressed at the end of 2020, or 14 per cent when weighted by debt balances. The model can be used for policy assessment: we calibrate the model to fiscal support implemented in Ireland during the first three quarters of 2020 and estimate that it reduced the share of distressed SME debt by two-fifths. On targeting, we show that a hypothetical scheme selecting firms with the smallest losses first could reduce distress rates from 19 to 7 per cent – albeit we do not suggest this is the welfare-optimising approach. On policy design, we show that debt-based support schemes reduce distress rates by less than grants, and this is driven by the greater role played by solvency over liquidity concerns in a debt-based support regime.
    Date: 2021–04
  15. By: Dasgupta, Sudipto; Fan, Tingting; Li, Yiwei; Xiao, Yizhou
    Abstract: Based on a crowdfunding platform and social media account login data, we study the information role of financing from connected individuals (e.g., family and friends) of entrepreneurs. While financing from connected individuals is generally considered as a signal of high-quality projects, our results suggest that this might be a signal of funding performance manipulation. Entrepreneurs with moderate early funding performance strategically solicit investments from friends to encourage naïve investors to herd. Sophisticated investors discern manipulation and are less likely to invest. Manipulation exists even when sophisticated investors have significant market power and projects with manipulation deliver poorer funding performance.
    Date: 2020–07
  16. By: Botsari, Antonia; Lang, Frank; Marrazza, Federica
    Abstract: In the present publication, you will find the results of a regional analysis of the latest EIF Venture Capital Survey. Taking into account the main elements of the survey, the key differences between different country clusters in Europe are explored. This interregional comparison provides a valuable picture of both common and specific developments in each country group. It highlights the current views, needs and expectations of VC fund managers in a given country cluster, and how they differ from the average ones in the sample, thereby orienting the discussion towards existing regional gaps and how to address them. In order to facilitate the reading, we offer a hybrid slide document instead of a traditional Working Paper style. The EIF Working Papers are designed to make available to a wider readership selected topics and studies in relation to EIF's business. The Working Papers are edited by EIF's Research & Market Analysis and are typically authored or co-authored by EIF staff or are written in cooperation with EIF.
    Date: 2021
  17. By: BENASSI Mario; GRINZA Elena; RENTOCCHINI Francesco (European Commission - JRC); RONDI Laura
    Abstract: We investigate whether firm performance is related to the accumulated stock of technological knowledge associated with the Fourth Industrial Revolution (4IR) and, if so, whether the firm’s history in 4IR technology development affects such a relationship. We exploit a rich longitudinal matched patent-firm data set on the population of large firms that filed 4IR patents at the European Patent Office (EPO) between 2009 and 2014, while reconstructing their patent stocks from 1985 onwards. To identify 4IR patents, we use a novel two-step procedure proposed by EPO (2020), based on Cooperative Patent Classification (CPC) codes and on a full-text patent search. Our results show a positive and significant relationship between firms’ stocks of 4IR patents and labour and total factor productivity. We also find that firms with a long history in 4IR patent filings benefit more from the development of 4IR technological capabilities than later applicants. Conversely, we find that firm profitability is not significantly related to the stock of 4IR patents, which suggests that the returns from 4IR technological developments may be slow to be cashed in. Finally, we find that the positive relationship with productivity is stronger for 4IR-related wireless technology and for AI, cognitive computing and big data analytics.
    Keywords: Fourth Industrial Revolution (4IR); patent applications; technology development; firm performance; longitudinal matched patent-firm data; Industry 4.0
    Date: 2021–05
  18. By: Mario Marcel; Diego Vivanco
    Abstract: For many years, policymakers in Chile and elsewhere have been struggling to develop exporting-SMEs, aiming at broadening benefits of trade openness and globalization. Progress in this area, however, has been elusive due to the large entry costs to international trade networks. Still, involvement in international trade is not limited to being the direct exporter. Many firms may contribute and benefit from foreign trade as suppliers or contractors of other exporting firms. This can be measured as a firm´s contribution to Trade in Value Added using an Extended Supply and Use Table framework. Following recent empirical work led by the OECD, we show for Chile, using the 2013-2016 sample span, that (a) the total contribution of SMEs to exported value added is 33%, considerably larger than their share as final exporters (21%); (b) the indirect contribution of SMEs more than doubles the direct one; (c) most of the indirect contribution of SMEs to exported value added takes place through large exporting firms, and (d) even after considering the total SMEs contribution, such share is smaller than in most OECD countries and has remained relatively stagnant over time. Yet, since improving on the latter may happen through increasing the SMEs value contribution to other exporters as much as exporting themselves, policymakers should broaden the scope of public policies aimed at this end.
    Date: 2021–04
  19. By: Maritza López-Novella
    Abstract: The "first recruitments"measure aims to promote employment while supporting small businesses and start-ups. The analysis shows that the measure has a positive but modest impact on the probability of survival of young businesses. Furthermore, the reinforcement in 2016 does not appear to have generated any additional benefit. On the one hand, these results imply that the strengthening of the measure does not address a genuine need on the part of the recipients. On the other hand, the reinforcement may have encouraged more employers to undertake a risky business activity.
    JEL: J23 J38 D04 C41 H32
    Date: 2021–03–05

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