nep-ent New Economics Papers
on Entrepreneurship
Issue of 2021‒09‒13
twenty papers chosen by
Marcus Dejardin
Université de Namur

  1. Immigration and Entrepreneurship in the United States By Pierre Azoulay; Benjamin Jones; J. Daniel Kim; Javier Miranda
  2. Venture Capitalists’ Access to Finance and Its Impact on Startups By Jun Chen; Michael Ewens
  3. Kill Zones? Effects of Big Tech Start-up Acquisitions on Innovation By Prado, Tiago S.
  4. Bank as a Venture Capitalist By Rishabh, Kumar
  5. Factors facilitating the inventing academics' transition from nascent entrepreneurs to business owners By Faria, João Ricardo; Goel, Rajeev K.; Göktepe-Hultén, Devrim
  6. Does the Community Reinvestment Act Increase Small Business Lending in Lower Income Neighborhoods? By Kim, Mee Jung; Lee, Kyung Min; Earle, John S.
  7. The Gender Gap Among Top Business Executives By Wolfgang Keller; Teresa Molina; William W. Olney
  8. Financial Frictions, Equity Constraints, and Average Firm Size Across Countries By Bento, Pedro; Ranasinghe, Ashantha
  11. Global value chains and innovation networks in the fourth industrial era By MÜLLER Julian M.; POTTERS Lesley; RENTOCCHINI Francesco; TUEBKE Alexander
  12. Why Did Small Business Fintech Lending Dry Up During March 2020? By Itzhak Ben-David; Mark J. Johnson; René M. Stulz
  13. Digital Source Adoption and Information-Seeking Behaviours of Entrepreneurs: A Systematic Literature Review By Orrensalo, Thao; Nikou, Shahrokh
  14. Scaling up SME's credit scoring scope with LightGBM By Bastien Lextrait
  15. Local Concentration in the Small Business Lending Market and Its Relationship to the Deposit Market By Ken Onishi
  16. Technical Inefficiency and Firm Behavior: A Panel Study of Japanese Small and Medium Manufacturing Firms By OGAWA Kazuo
  17. Employment effects of R&D and innovation: Evidence from small and medium-sized firms in emerging markets By Goel, Rajeev K.; Nelson, Michael A.
  18. Business Innovation in the Spanish Companies (2003-2016): The Human Factors Definitively Count By Fernández-Bonilla, Fernando; Navío-Marco, Julio; Gijón, Covadonga
  19. Building local ecosystems for social innovation: A methodological framework By OECD
  20. Die Wahlprogramme der Parteien für Mittelstand und Unternehmensgründungen: Nicht immer wird die Bedeutung des Mittelstands anerkannt By Röhl, Klaus-Heiner

  1. By: Pierre Azoulay (MIT Sloan School of Management, and NBER); Benjamin Jones (Northwestern University, and NBER); J. Daniel Kim (University of Pennsylvania); Javier Miranda (Friedrich-Schiller University Jena and Halle Institute for Economic Research (IWH))
    Abstract: Immigrants can expand labor supply and compete for jobs with native-born workers. But immigrants may also start new firms, expanding labor demand. This paper uses U.S. administrative data and other data sources to study the role of immigrants in entrepreneurship. We ask how often immigrants start companies, how many jobs these firms create, and how firms founded by native-born individuals compare. A simple model provides a measurement framework for addressing the dual roles of immigrants as founders and workers. The findings suggest that immigrants act more as "job creators" than "job takers" and play outsized roles in U.S. high-growth entrepreneurship.
    Keywords: Entrepreneurship, immigration, innovation, administrative data, Survey of Business Owners, Fortune 500, job creation, earnings, growth
    JEL: J15 L26 M13 O3
    Date: 2021–09–06
  2. By: Jun Chen; Michael Ewens
    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 indirectly 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 experience increases in bargaining power. Last, we show that the rule change increased the likelihood startups move out of impacted states, thus exacerbating the geographic disparity in high-growth entrepreneurship.
    JEL: G21 G23 G24 K22 L26
    Date: 2021–09
  3. By: Prado, Tiago S.
    Abstract: This paper investigates short-term effects of big tech start-up acquisitions on innovation empirically. Innovation research has found a strong positive, causal relationship between VC investment and innovation. Using this insight, we can explore the repercussions of big tech start-up acquisitions on innovation by examining their effects on venture capital (VC) activity. We analyze a very large set of observations of more than 32,000 venture capital deals in more than 170 different segments of the tech industry and almost 400 tech start-up acquisitions made worldwide between 2010 and 2020 by Google, Facebook, Amazon, Apple, and Microsoft. Our results suggest a positive, causal impact of big tech start-up acquisitions on venture capital activity, challenging claims about the creation of "kill zones" for start-ups after acquisitions are made by the big techs. For example, after controlling for other factors that may impact VC activity, like initial public offerings (IPOs) and other mergers and acquisitions (M&As), we found an average increase of 30.7% in the total amount of VC funding towards U.S. based start-ups of the same industry segment in the four quarters following a big tech start-up acquisition. For deals targeting European start-ups, we found an increase of 32.1% in the VC funding in in the first quarter after a big tech start-up acquisition. Finally, our findings show that such positive effects, when existent, persist for a few months only, and so do not seem to have lasting impacts on the innovation incentives in the the start-up ecossystem. Our empirical findings should inform current competition policy discussions on imposing restrictions to acquistions of start-ups by the big techs.
    Keywords: kill zone,platform,big tech,venture capital,innovation
    JEL: G11 G24 G32 G34 L41 L44
    Date: 2021
  4. By: Rishabh, Kumar (University of Basel)
    Abstract: Banks all over the world show interest in acting as venture capitalists. In this paper, I argue that banks offer venture capital (VC) financing along with traditional (collateralized) loans in response to the natural constraints of the hidden information that they face. Innovative entrepreneurs pursue new technology that promises high return but runs a high risk of failure. The more innovative entrepreneurs also have higher reservation utility. This interaction between type-dependent returns and reservation utility creates a situation where collateral alone is not sufficient to screen entrepreneurs, and the uninformed bank needs an additional screening device. VC fulfils that role.
    Keywords: Bank, Venture Capital, Collateral, Debt, Screening
    JEL: G21 G24 D86
    Date: 2021–08–31
  5. By: Faria, João Ricardo; Goel, Rajeev K.; Göktepe-Hultén, Devrim
    Abstract: Considering the sequential nature of nascent entrepreneurship and business ownership, this paper examines the propensities of academic entrepreneurs to be business owners. A theoretical model sets up the empirical analysis based on survey data from a large German public research institute. Traditionally, scientists and entrepreneurs have been seen to occupy opposite ends of a spectrum in terms of their role in innovation. In academic entrepreneurship the two combine on a number of activities. In order to understand the ways in which academic inventors move from pure patenting to nascent entrepreneurship to business ownership and connect seemingly divergent activities. We model their behavior by looking at various factors among German scientists. Academic inventors present a critical case since science and entrepreneurship are often seen as radically different, not the least in terms of knowledge production. By bringing the analysis from the level of social behavior and roles to the level of knowledge production, we can better address questions such as: How is knowledge in the interfaces of epistemic communities produced? How can such knowledge be organized and sustained? and How can relations between individuals on 'opposing sides' be constructively managed? The empirical results show that scientists' positive attitudes towards commercialization of results consistently contribute to tendencies towards academic entrepreneurship; however, the academic discipline and risk aversion did not have a statistically significant impact. Having a doctoral degree lowered the propensities toward nascent entrepreneurship, but had the opposite effect on business ownership. Finally, age and experience made business ownership more likely. The results of this study would contribute to a more general theory of how scientists can combine their commercial and scientific activities in spite of an alleged divergence.
    Keywords: academic entrepreneurship,invention,spinoffs,business entrepreneurs,nascent entrepreneurs,commercialization costs,Germany
    JEL: O33 O52 L26
    Date: 2021
  6. By: Kim, Mee Jung (Sejong University); Lee, Kyung Min (George Mason University); Earle, John S. (George Mason University)
    Abstract: We estimate the impact of the Community Reinvestment Act (CRA) on small business lending in lower-income neighborhoods. Using 2004-2016 panel data on census tracts, we apply a combined regression discontinuity and fixed effect method. We find that the number of small business loans increases by about 3 to 4 percent and the total dollar amount of small business loans by about 6 to 10 percent in tracts becoming treated by the CRA. The results are robust along many dimensions and suggest that the CRA has a positive impact on access to finance for small businesses in lower income areas.
    Keywords: financial constraints, small business lending, community reinvestment act, lower income neighborhood
    JEL: G28 G21 R58
    Date: 2021–08
  7. By: Wolfgang Keller (University of Colorado); Teresa Molina (University of Hawaii); William W. Olney (University of Hawaii)
    Abstract: This paper examines gender differences among top business executives using a large executive-employer matched data set spanning the last quarter century. Female executives make up 6.2% of the sample and we find they exhibit more labor market churning – both higher entry and higher exit rates. Unconditionally, women earn 26% less than men, which decreases to 7.9% once executive characteristics, firm characteristics, and in particular job title are accounted for. The paper explores the extent to which firm-level temporal flexibility and corporate culture can explain these gender differences. Although we find that women tend to select into firms with temporal flexibility and a female-friendly corporate culture, there is no evidence that this sorting drives the gender pay gap. However, we do find evidence that corporate culture affects pay gaps within firms: the within-firm gender pay gap disappears entirely at female-friendly firms. Overall, while both corporate culture and flexibility affect the female share of employment, only corporate culture influences the gender pay gap.
    Keywords: Women; Executive Compensation; Gender Pay Gap; Corporate Culture
    JEL: J16 J24 J33 J82 F16
    Date: 2020–12
  8. By: Bento, Pedro (Texas A&M University); Ranasinghe, Ashantha (University of Alberta, Department of Economics)
    Abstract: We document new evidence that low equity in financially under-developed economies is associated with lower productivity investment, a smaller employment share of large firms, and smaller average firm size within sectors. We present a tractable model with heterogeneous entrepreneurs that face equity constraints that limit investment at entry. The model can be solved analytically, making clear predictions for the impact of equity constraints on outcomes of interest consistent with the evidence we document. The model can account for one-fifth to one-third of the variance in observed average firm size and TFP across countries, all substantial relative to the literature.
    Keywords: financial development; equity; firm size; investment; aggregate productivity
    JEL: O10 O14 O41 O43
    Date: 2021–08–31
  9. By: Krammer, Sorin
    Abstract: The COVID-19 pandemic has significantly impacted businesses worldwide by lowering demand, impeding operations, stressing supply chains, and limiting access to finance. Yet we still lack an understanding of how firms can successfully adapt to this disruption. We examine this issue theoretically by combining arguments around dynamic capabilities and managerial cognition and developing several hypotheses concerning firm innovation, knowledge sources, management practices, and gender issues in relation to firms’ adaptation to this crisis. We test these assertions using data from two rounds of surveys involving more than 11,000 firms from 28 countries both before and after COVID-19 was officially declared a global crisis. Our results provide prima facie evidence that innovators, in particular those who are younger (i.e. start-ups) and those who rely on internal sources of knowledge, are more likely to adapt to COVID-19 than non-innovators. Our results suggest that firms with better management practices have also greater ability to adapt. We did not find systematic gender differences upon examining firms managed by women versus men. Following these findings, we set out several implications for research and policy.
    Keywords: COVID-19; Crisis; Innovation; Adaptation; Knowledge Sources; Management practices; Start-ups; Gender inequality
    JEL: F61 F62 M21 O3
    Date: 2021–07–30
  10. By: Krammer, Sorin
    Abstract: This paper examines the effects of human resource (HR) policies on firm innovation. Specifically, we argue that firms who implement policies to stimulate job autonomy and performance-based pay will be more likely to innovate, as proxied by investments in R&D. In addition, we contend that the institutional (i.e., labour regulations) and competitive (i.e., pressure from imports) contexts in which a firm operates will affect the relationship between HR policies and innovation, albeit in different ways. We test these hypotheses using a dataset of more than 900 firms across a heterogenous set of 12 countries, majority of which are emerging markets. We find strong empirical backing for the role of both job autonomy and performance-based pay policies in stimulating firm innovation, and partial support for the moderating effects of institutional and competitive contexts of this relationship.
    Keywords: Human Resource Management; Job autonomy; Performance-based pay; Firm innovation; Labour regulations; Import competition
    JEL: D4 J33 J8 O17 O3 O32
    Date: 2021–07–28
  11. By: MÜLLER Julian M.; POTTERS Lesley (European Commission - JRC); RENTOCCHINI Francesco (European Commission - JRC); TUEBKE Alexander (European Commission - JRC)
    Abstract: The successful implementation of Industry 4.0 (I4.0) within the European Union (EU) should build upon existing global innovation networks (GINs) and global value chains (GVCs) and the ecosystem of EU firms, especially in the manufacturing industry where I4.0 could play an important role.For the EU, which has a large share of small and medium-sized enterprises (SMEs) that are key to competitiveness in its main sectors, it is vital to integrate SMEs into I4.0 by ensuring they benefit from their efforts in implementing it, in order to capture, create and offer value. It is important to address training, requalification and workers’ concerns about I4.0 in order to support its implementation while maintaining the EU social model.Harnessing the EU’s strength in industrial application, while bearing in mind its lag in traditional ICT industries, could make I4.0 a viable policy option ensuring future leadership of the European economy, if certain factors discussed in this policy brief are included in future industrial policies.
    Keywords: Global value chains, innovation
    Date: 2021–08
  12. By: Itzhak Ben-David; Mark J. Johnson; René M. Stulz
    Abstract: With the onset of the COVID-19 crisis in March 2020, small business lending through fintech lenders collapsed. We explore the reasons for the market shutdown using detailed data about loan applications, offers, and take-up from a major small business fintech credit platform. We document that while the number of loan applications increased sharply early in March 2020, the supply of credit collapsed as online lenders dropped from the platform and the likelihood of applicants receiving loan offers fell precipitously. Our analysis shows that the drying up of the loan supply is most consistent with fintech lenders becoming financially constrained and losing their ability to fund new loans.
    JEL: G11 G21 G33
    Date: 2021–09
  13. By: Orrensalo, Thao; Nikou, Shahrokh
    Abstract: Digitalisation and its impact on businesses - including access to information through digital sources - have been rapidly recognised from different research disciplines. Digitalisation helps entrepreneurs to gather and manage information, to create intensive resources, to reduce transaction costs, and to gain rapid access to the flow of information. A growing demand and use of digital information sources, especially in the midst of the COVID-19 pandemic. indicate a need for further investigation of the effect of digitalisation on changing and transforming entrepreneurs' information-seeking behaviours (ISBs), opportunities, and challenges. Furthermore, the concept of critical -21st-century skills has been found to be crucial to the effectiveness of digital transformation in the entrepreneurship field. From this perspective, this paper carries out a systematic literature review on the research conducted on digitalisation and entrepreneurs' information-seeking behaviours. Through this systematic literature review, this paper seeks answers to two objectives: (i) to review previous studies on digitalisation and ISBs within the entrepreneurship literature and on understanding the relation between these two concepts, and (ii) to assess the role of critical -21st-century skills on entrepreneurs' decision regarding information source selection. The review was conducted in three main phases: planning the review, conducting the review, and reporting the review. In the first step, we defined the inclusion and exclusion criteria. With the specific search terms, the selection included academic English publications for the period 1990-2020. Based on the criteria, three main databases - Web of Science, Scopus, and Ebsco - were searched, and in total 745 publications were retrieved. After removing duplicate and irrelevant articles, the final dataset included 39 articles. We then reviewed the articles and classified them into five main themes for further analysis. The themes were (i) entrepreneurs' information sources/services, (ii) entrepreneurs' -21st-century skills, (iii) entrepreneurs' access to information, (iv) entrepreneurs' environmental scanning, and (v) the ICT adoption behaviours of entrepreneurs. A future research agenda is also provided.
    Keywords: 21st-century skills,digitalisation,Entrepreneurship,Information source selection,Information-seeking behaviour,Systematic literature review
    Date: 2021
  14. By: Bastien Lextrait
    Abstract: Small and Medium Size Enterprises (SMEs) are critical actors in the fabric of the economy. Their growth is often limited by the difficulty in obtaining fi nancing. Basel II accords enforced the obligation for banks to estimate the probability of default of their obligors. Currently used models are limited by the simplicity of their architecture and the available data. State of the art machine learning models are not widely used because they are often considered as black boxes that cannot be easily explained or interpreted. We propose a methodology to combine high predictive power and powerful explainability using various Gradient Boosting Decision Trees (GBDT) implementations such as the LightGBM algorithm and SHapley Additive exPlanation (SHAP) values as post-prediction explanation model. SHAP values are among the most recent methods quantifying with consistency the impact of each input feature over the credit score. This model is developed and tested using a nation-wide sample of French companies, with a highly unbalanced positive event ratio. The performances of GBDT models are compared with traditional credit scoring algorithms such as Support Vector Machine (SVM) and Logistic Regression. LightGBM provides the best performances over the test sample, while being fast to train and economically sound. Results obtained from SHAP values analysis are consistent with previous socio-economic studies, in that they can pinpoint known influent economical factors among hundreds of other features. Providing such a level of explainability to complex models may convince regulators to accept their use in automated credit scoring, which could ultimately benefi t both borrowers and lenders.
    Keywords: Credit scoring, SMEs, Machine Learning, Gradient Boosting, Interpretability
    JEL: C53 C63 M21
    Date: 2021
  15. By: Ken Onishi
    Abstract: This note analyzes competition and concentration in the small business lending market using data obtained from Community Reinvestment Act (CRA) disclosures and data on local branches from the Federal Deposit Insurance Corporation's (FDIC) Summary of Deposits (SOD). In 1963, the Supreme Court defined the product market for commercial banking.
    Date: 2021–08–24
  16. By: OGAWA Kazuo
    Abstract: This study examines the technical inefficiency of Japanese small and medium manufacturing firms by using the panel data of the Basic Survey on Small and Medium Enterprises (2009-2018). We estimate the stochastic frontier production function with four production factors (regular workers, non-regular workers, capital stock, and materials) and calculate the technical inefficiency of individual firm by applying a true random effects model which can distinguish technical inefficiency from firm heterogeneity. Our evidence is summarized as follows. First, technical inefficiency is overestimated when the number of total workers is used as production input for the conventional stochastic frontier model which forces firm heterogeneity into the same term as technical inefficiency. Second, the inefficient firms are smaller, rely more on non-regular workers, exhibit poorer firm performance, have higher debt-asset ratios, pay lower interest rates and are inactive in capital investment as well as R&D investment. Third, inactive capital investment and high debt-asset ratios are mainly responsible for causing the technical inefficiency.
    Date: 2021–08
  17. By: Goel, Rajeev K.; Nelson, Michael A.
    Abstract: This paper studies the impact of research and development (R&D) and innovation on employment growth, focusing on small and medium-sized firms. Employment effects of R&D and innovation are unclear a priori as process innovation may be labor-saving or labor might have complementarities with other inputs. Employing firm-level data from 125 nations, results show that both R&D and innovation increased employment growth, suggesting that innovation was either capital-saving or labor had strong complementarities with other inputs. Upon splitting the sample into growing and contracting firms showed that contracting firms benefit from innovation but not from R&D. In other findings, sole proprietorships, larger firms, firms with relatively more experienced managers, firms with females as top managers, and firms facing the threat of informal competition had lower employment growth, while foreign-owned and government-owned enterprises have positive influences on employment growth. Finally, employment growth in shrinking firms was boosted in nations with greater economic freedom, but this growth is undermined by informal sector competition.
    Keywords: R&D,innovation,employment growth,managerial experience,foreign ownership,government ownership,economic freedom,emerging markets
    JEL: L2 O3 O5
    Date: 2021
  18. By: Fernández-Bonilla, Fernando; Navío-Marco, Julio; Gijón, Covadonga
    Abstract: This research analyses determining factors of business innovation in Spain during a long period of study. A panel is carried out with data from 2003 to 2016 obtained from the Spanish Technological Innovation Panel (PITEC) survey to determine their influence, and in particular variables related to human factors are included to observe their impact on innovation. Along with other general factors such as firm size, ownership of the company, turnover and financing of the company, it is found that training in R & D & I has a relevant influence on business innovation. The article put special emphasis on human factors and is an invitation to continue their study.
    Keywords: business innovation,panel data,RDI
    Date: 2021
  19. By: OECD
    Abstract: Social innovations have proven to be valuable in identifying, designing and implementing new solutions to social and environmental problems. The recent COVID-19 outbreak has put a spotlight on the potential of social innovation as a resilience mechanism, including for local development. This paper presents a preliminary framework for analysing social innovation ecosystems at the local level. It can help policy makers to better understand the different concepts around social innovation, and to develop policies to support social innovation and its implementation. The first section considers the features of social innovation and the benefits it can bring. The second section provides an analytical framework for social innovation at the local level. The final section sets a number of guidelines that support the implementation of social innovation ecosystems at local level, including examples of specific policy instruments.
    Keywords: local ecosystem, measurement of social innovation, social economy, social entrepreneurship, social innovation
    JEL: O35 L30 L31 D04 I3
    Date: 2021–09–10
  20. By: Röhl, Klaus-Heiner
    Abstract: Der Mittelstand bildet mit nahezu 3,5 Millionen Unternehmen die Basis der deutschen Wirt-schaftsstärke. Unternehmensgründungen sind für die ständige Erneuerung der mittelständi-schen Unternehmenslandschaft unerlässlich; innovative Start-ups bringen wichtige Innovatio-nen auf den Markt, die etablierten Unternehmen zu riskant erscheinen. Die Pläne der Parteien zur Bundestagswahl für den Mittelstand sowie die Förderung und Erleichterung von Gründun-gen sind daher hoch relevant. In diesem Policy Paper werden die Wahlprogramme der Parteien, die potenziell vor einer Regierungsbeteiligung stehen könnten, auf ihre Relevanz für die mittel-ständische Wirtschaft hin untersucht. Da mittelständische Unternehmen durch Bürokratie und Regulierung kapazitätsbedingt besonders belastet sind, werden auch neue Regulierungsvorha-ben beziehungsweise Pläne zum Bürokratieabbau berücksichtigt. Eine besondere Rolle für die weitere Wirtschaftsentwicklung spielt die Digitalisierung, wie die Corona-Pandemie schlaglicht-artig verdeutlicht hat. Viele mittelständische Unternehmen sind in der Digitalisierung eher Nachzügler, was für die deutsche Verwaltung in der Einführung des E-Governments allerdings ebenfalls gilt. Da die digitale Infrastruktur und die Digitalisierung der Verwaltung auch für den Mittelstand immer wichtiger werden, werden die Pläne der Parteien im Digitalbereich ebenfalls in die Untersuchung einbezogen.
    JEL: E61 H11 L53
    Date: 2021

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