nep-ent New Economics Papers
on Entrepreneurship
Issue of 2021‒07‒12
ten papers chosen by
Marcus Dejardin
Université de Namur

  1. Schumpeterian Entrepreneurship: Coveted by Policymakers but Impervious to Top-Down Policymaking By Henrekson, Magnus; Kärnä, Anders; Sanandaji, Tino
  2. Calling Baumol: What Telephones Can Tell Us about the Allocation of Entrepreneurial Talent in the Face of Radical Institutional Changes By Sorgner, Alina; Wyrwich, Michael
  3. Give it Another Shot: Startup Experience and the Mobilization of Human Resources in New Ventures By Rocha, Vera; Pozzoli, Dario
  4. Back in Business? WA Small Businesses and the Impact of COVID-19 By Rebecca Cassells; Alan S Duncan; Daniel Kiely
  5. The drivers of SME innovation in the regions of the EU By Jose Luis Hervas-Oliver; Mario Davide Parrilli; Andres Rodriguez-Pose; Francisca Sempere-Ripoll
  6. Explaining the gender gap in profits among entrepreneurs in Malawi By Duval-Diop, Dominique; Heckert, Jessica; Lee, Jean; Seymour, Greg; Vaughn, Katherine
  7. "Firm Growth, Financial Constraints, andPolicy-Based Finance" By Timothy E. Dore; Tetsuji Okazaki; Ken Onishi; Naoki Wakamori
  8. Small and smaller: How the economic outlook of small firms relates to size By Chris D'Souza; James Fudurich; Farrukh Suvankulov
  9. Falling interest rates and credit misallocation: Lessons from general equilibrium By Vladimir Asriyan; Luc Laeven; Alberto Martin; Alejandro Van der Ghote; Victoria Vanasco
  10. Mitopeia do empreendedor: narrativa de um mito capitalista By Rafael Galvão de Almeida

  1. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Kärnä, Anders (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research)
    Abstract: Differentiating various types of entrepreneurs provides clues to the puzzle of why top-down policies often fail to create Schumpeterian entrepreneurship and the ecosystems where it thrives. Schumpeterian entrepreneurship is intrinsically contrarian, whereas public policy has a bias toward incremental innovation and replication of past success. If central planners knew what the next radical innovation would be, there would be no need for Schumpeterian entrepreneurs. Schumpeterian entrepreneurs create not only companies but also institutions in the entrepreneurial support system. These ever-evolving structures are too complex to design, and central planning instead reduces the space for organic institutional innovation.
    Keywords: Entrepreneurship policy; High-impact entrepreneurship; Innovation; Institutions; Schumpeterian entrepreneurship
    JEL: M13 O31 P14
    Date: 2021–06–24
  2. By: Sorgner, Alina (John Cabot University); Wyrwich, Michael (University of Jena)
    Abstract: The aim of this paper is to test a key aspect of Baumol's theory that the allocation of entrepreneurial efforts toward its productive (e.g., start-up activity) or unproductive (e.g., rent-seeking) use depends on institutional conditions. In contrast to previous research, we study a context where a radical and exogenous institutional change took place that dramatically changed the rewards and opportunities of running a firm. We analyze at the individual level who decides to start a venture in East Germany after the fall of the Berlin Wall. We find that a significant number of people that demonstrated a strong commitment to the anti-entrepreneurial socialist regime were active in launching new ventures soon after the fall of the Berlin Wall. This pattern cannot be explained by having elite status during the socialist regime. We argue that this commitment to socialism reflects rent-seeking, a type of unproductive entrepreneurship. Once institutions change radically, their entrepreneurial efforts are redirected towards productive entrepreneurship (start-up activity). Regime commitment is captured by information from the 1990 wave of the German Socioeconomic Panel (GSOEP) that includes information on whether East German respondents had a telephone during the socialist era, a typical reward for pronounced efforts for the socialist regime. We find that this group of people were more likely to have an entrepreneurship- prone personality profile, had a higher propensity of becoming selfemployed, and were more successful entrepreneurs. Our results confirm Baumol's theory in a setting that resembles the historical examples Baumol used to make his general argument.
    Keywords: entrepreneurship, transition, institutional conditions
    JEL: L26 P20 P31
    Date: 2021–06
  3. By: Rocha, Vera (Department of Strategy and Innovation, Copenhagen Business School); Pozzoli, Dario (Department of Economics, Copenhagen Business School)
    Abstract: Human resources can provide a competitive advantage to firms, but we still know little about how newly-founded ventures start mobilizing these resources. Given the central role of entrepreneurs’ background in designing the strategy of new firms, we investigate whether and how startup experience, namely past performance as entrepreneurs, influences employee mobilization strategies in new ventures. Integrating behavioral theories of the firm with regulatory focus theory, we postulate that serial entrepreneurs who failed in the past are more likely to be prevention oriented and change their employee mobilization strategies towards a more targeted hiring approach in subsequent ventures. Using Danish register data, we compare the employee sourcing practices of serial entrepreneurs with their former practices as novice entrepreneurs, as well as with a control group of first-time entrepreneurs who engage in serial venturing later on. We find that entrepreneurs who have already failed (i.e. discontinued a former business) select their employees from fewer sources in the labor market. Our tests lend support for learning as a key mechanism driving these differences. Alternative mechanisms such as selection effects, stigma of failure, and demand-side constraints are not empirically supported.
    Keywords: Failure; Hiring; New Ventures; Startup Experience; Human Capital
    JEL: J24 L21 L26 M13
    Date: 2021–06–18
  4. By: Rebecca Cassells (Bankwest Curtin Economics Centre (BCEC), Curtin University); Alan S Duncan (Bankwest Curtin Economics Centre (BCEC), Curtin University); Daniel Kiely (Bankwest Curtin Economics Centre, Curtin Business School)
    Abstract: The impact of COVID-19 has been felt across the economy and business sector, but for small businesses these shocks can be more challenging to deal with, with fewer resources to draw from. The latest lockdown is a set-back for WA’s small businesses, with business closures and restrictions putting a hopefully temporary halt to the small business sector’s recovery. But we now know what supports can help small businesses the most. The Bankwest Curtin Economics Centre has captured new data to understand the impact COVID-19 has had on small businesses, whether they have the supports needed to succeed and how they see the future outlook. This new report, the fourteenth in the Focus on WA series, covers findings from the 2020 BCEC Small Business Survey including the significant costs, workforce and other pressures businesses have experienced and their expectations for the year ahead.
    Keywords: Western Australia, WA economy, small business, small and medium enterprises, productivity and innovation, economic growth, health of small business owners
    JEL: M1 M13 L25 L26 M21
    Date: 2021–02
  5. By: Jose Luis Hervas-Oliver; Mario Davide Parrilli; Andres Rodriguez-Pose; Francisca Sempere-Ripoll
    Abstract: European Union (EU) innovation policies have for long remained mostly research driven. The fundamental goal has been to achieve a rate of R&D investment of 3% of GDP. Small and medium-sized enterprise (SME) innovation, however, relies on a variety of internal sources —both R&D and non-R&D based— and external drivers, such as collaboration with other firms and research centres, and is profoundly influence by location and context. Given this multiplicity of innovation activities, this study argues that innovation policies fundamentally based on a place-blind increase of R&D investment may not deliver the best outcomes in regions where the capacity of SMEs is to benefit from R&D is limited. We posit that collaboration and regional specificities can play a greater role in determining SME innovation, beyond just R&D activities. Using data from the Regional Innovation Scoreboard (RIS), covering 220 regions across 22 European countries, we find that regions in Europe differ significantly in terms of SME innovation depending on their location. SMEs in more innovative regions benefit to a far greater extent from a combination of internal R&D, external collaboration of all sorts, and non-R&D inputs. SMEs in less innovative regions rely fundamentally on external sources and, particularly, on collaboration with other firms. Greater investment in public R&D does not always lead to improvements in regional SME innovation, regardless of context. Collaboration is a central innovation activity that can complement R&D, showing an even stronger effect on SME innovation than R&D. Hence, a more collaboration-based and place-sensitive policy is required to maximise SME innovation across the variety of European regional contexts.
    Keywords: regional innovation; SMEs; R&D; place-based; collaboration; EU regions
    JEL: O31 O32 L11
    Date: 2021–06
  6. By: Duval-Diop, Dominique; Heckert, Jessica; Lee, Jean; Seymour, Greg; Vaughn, Katherine
    Abstract: In this paper, we utilize decomposition methods to document the extent and drivers of the performance gap in Malawi between firms with a female owner and firms with a male owner. We find that, on average, male-owned businesses in Malawi earn profits more than double (120%) those of female-owned businesses. We use Kitagawa-Oaxaca-Blinder (KOB) mean-decomposition techniques and recentered influence function (RIF) regressions applied along the earnings distribution, coupled with data from a novel multi-topic household survey rich in details about entrepreneurship, to identify what proportion of the gender gap in business profits can be attributed to: (i) differences in average characteristics of profit-generating factors (composition effect) and (ii) gender differences in the returns to these factors (structure effect). We find that 59.8% of the mean gender gap is explained by gender differences in the levels of observable attributes, with the remaining 40.2% attributable to the lower returns to observable attributes obtained by female owners, i.e., female structural disadvantage. The composition effect is primarily driven by female owners’ role as the primary caregiver in most households and a lack of capital. The female structural disadvantage can largely be attributed to female owners’ heightened perception of sexual hostility in the work environment and non-cognitive skills related to entrepreneurship (perseverance in challenging tasks and environments, optimism, and passion for work). When looking along the distribution, capital stock appears to be a primary driver of the composition effect except in the bottom quintile of firms. In contrast, caregiving responsibilities are a driver of the composition effect in the bottom three quintiles only. Differences in the returns to capital appear to be a very significant driver of the female structural disadvantage in the bottom quintile.
    Keywords: MALAWI; SOUTHERN AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; gender; women; businesses; enterprises; performance; entrepreneurs; business productivity; gender gap; female-owned businesses
    Date: 2021
  7. By: Timothy E. Dore (Federal Reserve Board); Tetsuji Okazaki (Faculty of Economics, The University of Tokyo); Ken Onishi (Federal Reserve Board); Naoki Wakamori (Faculty of Economics, The University of Tokyo)
    Abstract: We study how government loan programs affect the growth of small businesses by examin-ing a unique policy-based small business lending program in Japan. Combining the loan-level program data with a financial statement database, we find that small business bor-rowers increase employment and asset levels after receiving the loan and that these effectspersist for several years. Differences in debt levels are persistent over time, cash holdings ofloan recipients fall in the long run, and the effects on asset levels are larger in magnitudethan those on employment. In addition, the effects are larger in magnitude for firms iden-tified as financially constrained. These results suggest that the government loan programis successful in relaxing binding financial constraints for small businesses that participatein the program.
    Date: 2021–05
  8. By: Chris D'Souza; James Fudurich; Farrukh Suvankulov
    Abstract: Firms with fewer than 100 workers employ about 65 percent of the total labour force in Canada. An online survey experiment was conducted with firms of this size in Canada in 2018–19. We compare the responses of small and micro firms to explore how their characteristics and economic outlooks relate to their size.
    Keywords: Business fluctuations and cycles; Firm dynamics
    JEL: C8 C83 D2 D22 E3 E32
    Date: 2021–07
  9. By: Vladimir Asriyan; Luc Laeven; Alberto Martin; Alejandro Van der Ghote; Victoria Vanasco
    Abstract: What is the e ect of declining interest rates on the eciency of resource allocation and overall economic activity? We study this question in a setting in which entrepreneurs with di erent productivities invest in capital, subject to financial frictions. We show that a fall in the interest rate has an ambiguous e ect on aggregate output. In partial equilibrium, a lower interest rate raises aggregate investment both by relaxing financial constraints and by prompting relatively less productive entrepreneurs to invest. In general equilibrium, this higher demand for capital raises its price and crowds out investment by the more productive entrepreneurs. When this crowding-out e ect is strong enough, a fall in the interest rate becomes contractionary. Moreover, in a dynamic setup, such reallocation e ects among entrepreneurs can interact with the classic balance-sheet channel, giving rise to a boom-bust impulse response of output to a fall in the interest rate. We provide evidence in support of our mechanism using data from the US and Spain.
    Date: 2021–05
  10. By: Rafael Galvão de Almeida (CEDEPLAR/UFMG)
    Abstract: Literature on the rhetoric of economics and narrative economics has emphasized the roles of stories and narratives in the development of economic theory. One of the most known narratives in economic folklore is of the “hero entrepreneur”, as an individual who triumphs after a journey of adversity, bringing new products and economic development to a community. The individual focus of entrepreneurs is present in the writings of scholars of entrepreneurship and public intellectuals, such as Joseph Schumpeter, Israel Kirzner, Fritz Redlich, Milton Friedman, Ayn Rand, among others. Whether they wanted or not, they ended up building a mythology of the entrepreneur that manifested in the popular consciousness. Using literature from comparative mythology and on the popular views of the hero, this article applies the Joseph Campbell’s monomyth model to understand how popular views of the hero penetrated the entrepreneurship discourse, the mythopoeia (confection of a mythology) of the entrepreneur. The article also analyzes the potential problems of this narratives, especially on its legitimation of the status quo, how it does not represent the actual entrepreneurial process, and has potential harmful consequences for both entrepreneurs and the rest of society, using authors such as Roland Barthes, Milton Santos, among others. However, the article concludes that myth, independent of critique or not, will remain ubiquitous and the narrative of the entrepreneur as a hero will remain relevant, therefore future studies should work to humanize the entrepreneur so that cooperation between theory and practice be improved.
    Keywords: entrepreneurship, mythology, history of entrepreneurship, heroes, cultural economics, critical theory of entrepreneurship
    JEL: B20 B29 Y9 Z10
    Date: 2021–06

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