nep-ent New Economics Papers
on Entrepreneurship
Issue of 2023‒01‒16
fifteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Income Inequality and Entrepreneurship: Lessons from the 2020 COVID-19 Recession By Christoph Albert; Andrea Caggese; Beatriz González; Victor Martin-Sanchez
  2. Acquisition-induced kill zone By Christopher Teh; Dyuti Banerjee; Chengsi Wang
  3. Funding Female Entrepreneurs in MENA Countries (2019): Self-Selection and Discrimination By Imène Berguiga; Philippe Adair
  4. The relationship between firms that start operating as unregistered and firms’ innovation: the moderating effect of access to finance By Sam Njinyah; Simplice A. Asongu
  5. Firm Entry and Exit during Recessions By Ayres, JoaÞo; Raveendranathan, Gajendran
  6. Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications By Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
  7. Theories of crowdfunding and token issues: a review By Miglo, Anton
  8. Challenges and Resilience Strategies of Urban Refugee Entrepreneurs By Aysegul Kayaoglu; Zeynep Sahin Mencutek; Ching-An Chang
  9. Learning A Bayesian Structure to Model Entrepreneurial Intentions and Attitudes Toward Business Creation among Emirati Students By Linda Smail; Mouawiya Alawad; Wasseem Abaza; Firuz Kamalov; Hamdah Alawadhi
  10. Survival Strategies Under Sanctions: Firm-Level Evidence from Iran By Iman Cheratian; Saleh Goltabar; Mohammad Reza Farzanegan
  11. Impact of Covid-19 on Small- and Medium-Sized Enterprises in Iraq By Diego Martin; Erin Neale; Raffaele Bertini; Julia Smith Omomo; Olga Aymerich
  12. Firm Dynamics in Times of COVID: Evidence from Egyptian Firms By Amirah El-Haddad; Chahir Zaki
  13. More (Inclusive) Entrepreneurship in South Africa: The Role of Franchising By Bailey Klinger
  14. Human Capital and Self-Employment in India: An Empirical Analysis for Different Cohorts By Dutta, Nabamita; Kar, Saibal; Ray, Shaswata
  15. Firm Closures and Performance in A Time of Pandemic By Amirah El-Haddad; Chahir Zaki

  1. By: Christoph Albert; Andrea Caggese; Beatriz González; Victor Martin-Sanchez
    Abstract: We study entry into entrepreneurship during the COVID-19 recession of 2020 using new data from an extensive survey of more than 24,000 Spanish households, conducted between June and November 2020. We find that while the overall decline in the startup rate in 2020 was large, and of a similar magnitude as that during the Great Recession, the differential impact depending on ex ante income was starkly different. During 2020, the drop in firm entry was entirely concentrated among low -and medium- income households. We show that the entrepreneurship gap between these households and their high-income counterparts is not directly explained by social distancing, since it is mostly driven by the sectors not directly affected by lockdown measures, and it is larger among households that did not suffer a negative income shock during the pandemic. We instead find evidence indicating that high-income households performed relatively better during the COVID-19 recession because they had the means to exploit new business opportunities, thanks to their larger wealth and better access to external finance.
    Keywords: recessions, financial crisis, entrepreneurship, firm dynamics, coronavirus, COVID-19
    JEL: E20 E32 D22 J23 M13
    Date: 2022–11
  2. By: Christopher Teh (UNSW Sydney); Dyuti Banerjee (Department of Economics, Monash University); Chengsi Wang (Department of Economics, Monash University)
    Abstract: We study the impact of a dominant incumbent’s acquisition on entry and R&D incentives in a model with multiple start-ups. The incumbent’s acquisition directly suppresses entry and can distort the non-target start-up’s R&D incentives by creating a kill zone. The reduced threat of entry can also cause the incumbent to shelve the acquired technology. Despite these negative effects, acquisitions generally affect consumer welfare ambiguously due to synergy benefits. We study the design of merger policies aimed at minimizing acquisition-related harms. We also show that entry-for-buyout may not be a valid defense for start-up acquisitions when accounting for non-target start-ups.
    Keywords: Acquisitions, Innovation, Start-ups, Merger Policy, Remedies
    JEL: G34 L12 L41 O31
    Date: 2022–12
  3. By: Imène Berguiga (University of Sousse, Tunisia); Philippe Adair (University Paris-Est Créteil)
    Abstract: Do female entrepreneurs in MENA countries face obstacles, either exogenous (discrimination) or endogenous (self-selection), in funding their businesses? Literature reviews provide controversial evidence thereof and, so far, very few papers tackled this funding issue for female entrepreneurs in MENA countries. A pooled sample of 6, 253 enterprises from the 2019/2020 World Bank Enterprise Surveys (WBES) including six MENA countries (Egypt, Morocco, Tunisia, Jordan, Lebanon, and Palestine) documents the financial behavior of both owners and managers according to gender. Two probit regression models address loan supply and loan demand with respect to discrimination versus self-selection. There is self-selection and discrimination against female owners but not discrimination against female managers. We provide a robustness test by estimating the models on a sub-sample of micro, small, and medium-sized enterprises. Sampling biases in the WBES, together with the characteristics of female clients of microfinance institutions, suggest that micro-entrepreneurs would have faced bank discrimination and self-selection obstacles. Hence, public authorities should support pooling loan guarantees in favor of female entrepreneurs (i.e., positive discrimination).
    Date: 2022–11–20
  4. By: Sam Njinyah (Manchester Metropolitan University, UK); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: The purpose of this paper is to examine the relationship between a firm starting operation informally and its future innovation and whether this relation is moderated by institutional support (having access to finance from financial institutions to run their business). Data from the World Bank Enterprise Survey on 30 Eastern European and South-East Asian countries were analysed using probit regression analysis. The findings show that there is a positive significant relationship between firms that start operations informally and the firms’ innovation and that such effect persists over time. We found that this relationship is stronger if the firms can gain access to finance to expand their business activities. Finally, our result shows that such a relationship is based on the type of innovation being pursued by the firm. By examining the moderation effect of access to finance on starting a business informally, we provide an alternative explanation to policymakers on how to deal with informal firms to benefit from their contribution to growth.
    Keywords: Informality/unregistered firms, Innovation, Institutions, and Eastern European and South East Asia
    Date: 2022–01
  5. By: Ayres, JoaÞo; Raveendranathan, Gajendran
    Abstract: We analyze shocks to productivity, collateral constraint (credit shock), firm operation, and labor disutility in a model of firm dynamics with entry and exit. Shocks to firm operation and labor disutility capture COVID-19 lockdowns. Compared to the productivity shock, the credit and the lockdown shocks generate larger changes in firm entry and exit. The credit shock accounts for lower entry, higher exit, and concentration of exit among young firms during the Great Recession. The lockdown shocks predict a large fall in entry and rise in exit followed by a sharp rebound. In both recessions, changes in entry and exit account for 10-20 percent of the fall in output and hours. Finally, we discuss how the modeling of potential entrants matters for the quantitative results.
    Keywords: firm dynamics;general equilibrium model;COVID-19;recession;lockdown;COVID-19;COVID-19;COVID-19;COVID-19;Creditshock
    JEL: E24 E32 D22 D21
    Date: 2021–06
  6. By: Julian di Giovanni (Federal Reserve Bank of New York); Manuel García-Santana (Universitat Pompeu Fabra); Priit Jeenas (Universitat Pompeu Fabra); Enrique Moral-Benito (Bank of Spain); Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We provide a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long-run macroeconomic outcomes. We start by using a newly created panel dataset of administrative data that merges Spanish credit register loan data, quasicensus firm-level data, and public procurement projects to study firm selection into procurement and the effects of procurement on credit growth and firm growth. We show evidence consistent with the hypotheses that there is selection of large firms into procurement, that procurement contracts provide useful collateral for firms -more so than sales to the private sector- and that procurement contracts facilitate firm growth beyond the contract duration. We next build a model of firm dynamics with both asset-based and earnings-based borrowing constraints and a government that buys goods and services from private sector firms. We use the calibrated model to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. We find that granting procurement contracts to small firms, either by directly targeting them or by slicing large contracts into smaller ones, helps these firms grow and overcome financial constraints in the long run. However, we also find that reducing the average size of contracts |or making it less likely for large firms to access them| removes saving incentives for large firms, whose negative effects on capital accumulation can overcome the expansionary consequences for small firms and hence generate a drop in aggregate output.
    Keywords: Government procurement, financial frictions, capital accumulation, aggregate productivity.
    JEL: E22 E23 E62 G32
    Date: 2022–02
  7. By: Miglo, Anton
    Abstract: Entrepreneurial, innovative and small- and medium-sized firms experience difficulties with raising funds using traditional debt and equity. Consequently, they are constantly looking for new strategies of financing. Latest inventions are crowdfunding and token issues. In contrast to traditional ways of raising funds these innovations: 1) use modern technology (on-line transactions, blockchain etc.) much more actively; 2) are usually quicker in reaching potential investors/funders; 3) use more actively network benefits such as, for example, a large number of interactions between investors/funders and between funders and firms. These changes are so significant that some experts list them among the top business inventions of 21st century. This article provides a review of the growing number of theoretical papers in the areas of crowdfunding and token issues, compare their findings with empirical evidence and discuss directions for future research. The research shows that a large gap exists between theoretical literature and empirical literature.
    Keywords: entrepreneurial finance, crowdfunding, token issues, initial coin offerings (ICO), initial exchange offerings (IEO), security token issues (STO)
    JEL: G32 L26 M13 M21
    Date: 2022
  8. By: Aysegul Kayaoglu (Istanbul Technical University); Zeynep Sahin Mencutek (Bonn International Centre for Conflict Studies); Ching-An Chang (National Chengchi University)
    Abstract: Refugee entrepreneurship is key to promoting self-reliance and resilience among refugees. It ensures a smoother transition from humanitarian to development programs, so it is considered mutually beneficial for the refugees, their hosts, and the overall humanitarian-development aid sector. Its success, however, relies on the development of multidimensional resilience strategies since refugee entrepreneurship is a complex phenomenon related to capabilities and structures for integration. Little is known about the resilience strategies of urban refugee entrepreneurs in the face of legal, economic, and sociocultural challenges; therefore, they should be addressed. Studying the case of Syrian refugees in Turkey, we show that urban refugee entrepreneurs are heterogenous and their resilience strategies depend on factors such as the size of their businesses, sectoral dynamics, access to financial markets, trade options, social acceptance in the host society, local economic structure, and costs of production. Our empirical analysis shows that they navigate these challenges by adopting certain strategies according to their capabilities.
    Date: 2022–11–20
  9. By: Linda Smail (Zayed University); Mouawiya Alawad (Zayed University); Wasseem Abaza (Zayed University); Firuz Kamalov (Canadian University Dubai); Hamdah Alawadhi (Zayed University)
    Abstract: Economic growth in most advanced countries is driven by small and medium-sized enterprises (SMEs), and most countries prioritize entrepreneurship for economic growth and innovation. This is very apparent in the United Arab Emirates (UAE), where an average of around 39 percent of adults want to start a business in the next three years. As such, entrepreneurial intentions have been a major area of focus in research, but they have always been studied using generic models. We use Bayesian networks as a relatively new technique to model entrepreneurial intentions as it provides an advantage over classical methods. Using the theory of planned behavior as a foundation, we conduct a cross-sectional study among a random sample of 324 Emirati university students in the UAE. We implement unsupervised structural learning within BayesiaLab using the SopEQ unsupervised algorithm to minimize the “minimum description length” score. Our model provides confirmation of and more robust statistical support for existing theoretical frameworks. It helps us find relationships among the different entrepreneurial factors and assess the effects of changes in these variables on intentions. One of the strengths of our study is the inclusion of attitudes toward entrepreneurship and self-efficacy variables. Accordingly, the main conclusion that can be drawn from our model is that entrepreneurial intentions are highly affected by attitude, self-efficacy, subjective norms, and opportunity feasibility. The results can be used by professionals for proposing new policies for university opportunities and government support.
    Date: 2022–09–20
  10. By: Iman Cheratian (Tarbiat Modares University); Saleh Goltabar (Tarbiat Modares University); Mohammad Reza Farzanegan (Philipps-Universität Marburg)
    Abstract: Given the importance of firm strategic management in time of crises, this study investigates Micro, Small, and Medium Enterprises (MSMEs) survival strategies during the international sanctions against Iran. Using data from a questionnaire of 486 firms between December 2019 to September 2020, we found that firm strategies in reducing research and development (R&D) expenditures, marketing costs, and fixed/overhead costs and investing in information technology (IT) are positively related to their survivability. Conversely, managerial decisions to “reduce production” and “staff pay cut/freeze” have negative and significant impacts on a firm’s ability to survive during sanctions. Moreover, micro firms are more resilient than their small and medium counterparts. The findings also confirm that age has a significant and positive impact on firm survival. Finally, the results show that having a business plan, access to finance and technology, owner education, export orientation, business networking and consulting services are the key drivers of withstanding the pressure from sanctions.
    Date: 2022–08–20
  11. By: Diego Martin; Erin Neale; Raffaele Bertini (Regional Office of IOM for Middle East and North Africa); Julia Smith Omomo; Olga Aymerich
    Abstract: Among the main socio-economic effects of the COVID-19 pandemic in Middle Eastern countries, its impact on small- and medium-sized enterprises (SMEs) is one of the most relevant, especially in post-conflict and fragile countries and contexts. To analyze this, the United Nations’ International Organization for Migration (IOM) in Iraq, the Food and Agriculture Organization (FAO), and the International Trade Centre (ITC) jointly conducted a panel study tracking the pandemic’s impact on SMEs in Iraq. The survey was disseminated among more than 700 SMEs across the country covering 16 economic sectors. Four rounds of data were collected at four points in time between June 2020 and June 2021 (June/July 2020, September 2020, November/December 2020, and June 2021) from businesses registered in the IOM’s database, located in both urban and rural areas. Findings from four rounds of data collection show that COVID-19 negatively affected production, revenue, and employment and, notably, the gender gap in the labor force at the beginning of the pandemic (February to June 2020) and COVID-19-related movement restrictions. This study concludes with related policy recommendations for Iraq and the Middle Eastern countries.
    Date: 2022–06–20
  12. By: Amirah El-Haddad (German Development Institute); Chahir Zaki (Cairo University)
    Abstract: The COVID-19 outbreak has had severe economic consequences across the globe. The crisis emanating from the pandemic has caused demand and supply side shocks, which are more far reaching than any crisis in living memory. We use a new data set from the 2020/21 Egyptian Industrial Firm Behavior Survey (EIFBS) to examine determinants of firms’ resilience during the COVID-19 pandemic. Crisis present the opportunity for what Schumpeter (1934) called creative destruction. Have manufacturing firms been all hit by the crisis equally, or were less efficient firms more likely to exit or downsize their activities thereby ‘cleansing’ the market? Two sets of factors affect firm dynamics and survival: 1) firms’ innate characteristics, such as formality and export status, sector, ownership, age, size and location and; 2) firm behavior which captures the extent to which good managerial practices, innovation, the adoption of advanced technologies and worker training have provided an opportunity for firms to adapt their business models and show greater resilience in coping with the crisis. Our main findings illustrate the vulnerability of private, smaller, informal firms and those that are not located in industrial zones. Also, as expected, preCOVID behavioural characteristics matter for firm dynamics. The food sector and sectors identified as ‘COVID sectors’ show more resilience. More nuanced results show that the effect of some behavioral traits vary by sector and are more influential depending on firm size.
    Date: 2022–09–20
  13. By: Bailey Klinger
    Abstract: This paper explores franchising in South Africa, and its potential to help resolve the economy’s challenges of low entrepreneurship and concentrated ownership. South Africa features a large franchising sector, with half a million formal workers and a large number of small businesses owners competing directly with vertically integrated chains. Traditional franchising may not have much space for further growth as a percentage of the economy, but it can be made more inclusive with innovations in franchise finance that broaden the base of potential franchisees, as well as enforcement of consumer protections to ensure franchisee-franchisor relationships are balanced. The expansion of the franchising model to less capital-intensive business concepts and serving lower-income consumers (micro-franchising) is one area with expanding growth potential for the country, while the application of the franchising model to public services and socially driven organizations is less promising. Finally, while the franchising model is only directly applicable to particular sectors, there are features of franchising and the capabilities built up around the franchising that could be applied to other priority areas of the economy, in particular to smallholder agriculture. The success of traditional franchising shows the power of a menu of standardized proposals and contracts in a marketplace with a range of franchisors (in this case, up- and downstream agriculture corporates) offering different opportunities to potential franchisees (in this case, smallholder farming communities), along with training and technology transfer at scale.
    Keywords: South Africa
    Date: 2022–06
  14. By: Dutta, Nabamita (University of Wisconsin, La Crosse); Kar, Saibal (Centre for Studies in Social Sciences, Calcutta); Ray, Shaswata (Centre for Studies in Social Sciences)
    Abstract: The ambiguity in the relationship between self-employment and educational attainment is well documented in the literature. Using an extensive individual level dataset from Periodic Labor Force Survey, we estimate the probability of being self-employed in India based on educational attainments. Our results suggest that the probability of being self-employed rises for an individual with education but not monotonically so. Indeed, the impact of education on likelihood of self-employment does not convey much information without considering how the effect varies across gender, caste, age, household size, religion, and industry as various cohorts chosen for this study using 418, 297 observations. The probability to be self-employed varies considerably based on gender, caste and age when the level of education rises. A cohort based analysis for determination of self-employment is novel for India along with the findings where college educated women show higher probability of self-employment than men, for example. The importance of considering the non-linearity in the relationship between self-employment and education, usually part of analytical frameworks but inadequately addressed empirically, should be useful for better policies on the interaction between human capital and occupational choice. Robustness analysis considering further cohort effects in terms of household size and religion, buttresses our benchmark results.
    Keywords: Labor Force Survey, education, occupation, self-employment, gender, India
    JEL: J24 N3 N35
    Date: 2022–12
  15. By: Amirah El-Haddad (German Development Institute); Chahir Zaki (Cairo University, EMNES and ERF)
    Abstract: We use data from the 2020/21 Egyptian Industrial Firm Behavior Survey (EIFBS) to assess the effects of the COVID-19 crisis on firm dynamics, behavior and performance. The crisis emanating from the COVID-19 pandemic induced both demand and supply side shocks, which are more far reaching than any crisis in living memory. Our results show that the crisis has hit the entire Egyptian manufacturing sector. But, in line with Schumpeter’s (1934) creative destructive theory, the market shows signs of ‘self-cleansing’, whereby the less efficient are more likely to exit and downsize their activities. Our descriptive results show resilience of larger, public, formal, and export sector firms. Thus, revealing pre-existing fragilities of the private, informal and, more generally the lower productivity firms in the manufacturing sector. The counter cyclicality of the relation implies that contraction of the formal sector expands the informal as the only alternative way to earn a living. As a ‘survival sector’, the informal sector has provided 'helping hand employment'. Pre-crisis good managerial practices, innovation, the adoption of advanced technologies and training workers all provide an opportunity for firms to adapt their business model, as reflected by superior firm dynamics and post-crisis performance. Larger firms and mostly less vulnerable sectors such as fabricated metals and rubber have had more access to government support. It is likely that the government has chosen to support sectors with potentially better chances of survival rather than support the most vulnerable. Firms in pharmaceuticals were also recipients of support, which is sensible in a health crisis.
    Date: 2022–01–20

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