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on Entrepreneurship |
| By: | Joachim Hubmer (University of Pennsylvania); Mons Chan (Queen’s University); Serdar Ozkan (Federal Reserve Bank of St. Louis, University of Toronto); Sergio Salgado (University of Pennsylvania); Guangbin Hong (University of Chicago) |
| Abstract: | Do larger firms have more productive technologies, are their technologies more scalable, or both? We use administrative data on Canadian and US firms to estimate a joint distribution of output elasticities of capital, labor, and intermediate inputs—thus, returns to scale (RTS)—along with total factor productivity (TFP). We find significant heterogeneity in RTS across firms within industries. Furthermore, larger firms operate technologies with higher RTS, whereas the largest firms do not exhibit the highest TFP. Higher RTS for large firms are entirely driven by higher intermediate input elasticities. Descriptively, these align with higher intermediate input revenue shares. We also show that high-RTS firms grow faster, pay higher wages, and are owned by wealthier households. We then incorporate RTS heterogeneity into the workhorse model of endogenous entrepreneurship that matches the observed heterogeneity in TFP and RTS. We find that the efficiency losses from financial frictions are more than twice as large compared to a conventional calibration that attributes all heterogeneity to TFP and assumes a common RTS parameter. |
| Keywords: | Production function heterogeneity, returns to scale, misallocation |
| JEL: | E22 L11 L25 |
| Date: | 2024–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:24-036 |
| By: | Dawid, Herbert (Center for Mathematical Economics, Bielefeld University); Riedel, Frank (Center for Mathematical Economics, Bielefeld University); Steg, Jan-Henrik (Center for Mathematical Economics, Bielefeld University); Wen, Xingang (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | We study endogenous, credit-financed innovation under uncertainty in dynamic con- texts. In our model, a firm with limited cash reserves decides how much to invest in an R&D project, potentially using external financing. Investing more increases the proba- bility of a sooner innovation, but higher repayment obligations also increase bankruptcy risk if the innovation takes longer. We show that the firm reduces its investment dis- continuously if the financing cost is not favorable enough, in order to avoid the need for external financing. This insight implies that policies reducing financing costs can have discontinuous positive effects on investment, innovation rate and welfare. How- ever, policy measures increasing the effectiveness of R&D might reduce the innovation rate and welfare due to a discontinuous reduction of R&D investment. Furthermore, we find that low financing costs can lead to over-investment. The welfare loss from cash constraints is more severe for radical innovations compared to incremental ones. |
| Keywords: | Innovation, R&D investment, Cash constraints, Bankruptcy risk |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:bie:wpaper:699 |
| By: | Florian Horky (National Bank of Slovakia) |
| Abstract: | Our aim in this study is to investigate how SMEs perceive and expect the availability of bank loans, credit lines, and trade credits. Our findings highlight that past experiences and changing demands for financing are significant drivers in shaping both past perceptions and future expectations. Behavioral factors such as loss aversion and rational inattention play a crucial role in influencing managerial decisions. We use data from the semi-annually conducted Survey on the Access to Finance of Enterprises. The data covers the time-period from April 2014 to September 2022. Insights from our findings help explain the persistent low credit dynamics observed since the financial crisis and suggest similar trends may follow the current economic disruptions. Our results underscore the importance of considering behavioral elements and past experiences in designing effective monetary policies to support SMEs’ access to finance. |
| JEL: | D22 E51 F33 G21 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:svk:wpaper:1115 |
| By: | Williams, Olivia; Wilcox Jr., Michael D.; Wiatt, Renee D. |
| Abstract: | This report presents an analysis of the demographic profile of 1, 287 small-business owners using data from the NCR-Stat: Small Business Survey (collected from December 2023 to March 2024), conducted in the 12 states of the North Central Region by the North Central Regional Center for Rural Development. The survey is representative at the regional level based on business owner demographics such as race, ethnicity, gender, location (rural/urban), and veteran status. In addition to information on the demographic variables, this report presents a broader range of business owner characteristics such as education levels, workforce participation, income earned from businesses, and marital status of respondents to illustrate the profile of the business owners surveyed. After the initial analysis of all variables, some cross-sectional analysis delves into distributions and tendencies across categories. For example, it was found that a higher proportion of women had bachelor’s degrees than men. Overall, the findings of this report offer a comprehensive overview of the makeup of the sample of small business owners in the North Central Region surveyed. |
| Keywords: | Community/Rural/Urban Development, Consumer/Household Economics |
| Date: | 2024–12–10 |
| URL: | https://d.repec.org/n?u=RePEc:ags:ncrcrd:348436 |
| By: | Sara Biadetti (Università di Roma “Tor Vergata”, Italy); Lorenzo Carbonari (DEF and CEIS, Università di Roma “Tor Vergata”, Italy); Filippo Maurici (Department of Political Sciences, Università Roma Tre, Italy) |
| Abstract: | This paper explores forward-looking ambiguity (Knightian uncertainty) in a model with homogeneous workers and credit-constrained heterogeneous entrepreneurs. Agents are ambiguity-averse, using a worst-case criterion to form expectations about future productivity. We compare our economy with one that lacks uncertainty and find that ambiguity: (i) lowers the productivity threshold for market entry, (ii) reduces the equilibrium interest rate, and (iii) shifts expenditures from entrepreneurs to workers. These results stem from persistent expectation-realization mismatches. While ambiguity does not affect stability, it alters the convergence rate to the steady state and helps explain key macroeconomic comovements. |
| Keywords: | ambiguity, collateral constraints, heterogeneous agents, transition dynamics |
| JEL: | E22 D81 D84 G14 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:rim:rimwps:24-20 |
| By: | Sara Biadetti (Università di Roma “Tor Vergata”, Italy); Lorenzo Carbonari (DEF and CEIS, Università di Roma “Tor Vergata”, Italy); Filippo Maurici (Department of Political Sciences, Università Roma Tre, Italy) |
| Abstract: | This paper explores the effect of forward-looking ambiguity (Knightian uncertainty) on labor share distribution within a macro-development model involving entrepreneurs who are heterogeneous in productivity and wealth, and homogeneous saving workers. Ambiguity-averse agents base their decisions on worst-case labor share forecasts. As workers' expectations dominate, an endogenous hedging distribution emerges. The presence of ambiguity affects stability and induces cyclical fluctuations in labor supply, wages, and production, thereby amplifying short-term economic cycles. Capital over-accumulation arises as workers save more to hedge against uncertainty. Over time, persistent ambiguity leads to capital misallocation, reducing entrepreneurial assets while boosting aggregate capital. |
| Keywords: | ambiguity, Knightian uncertainty, heterogeneity, labor share, development |
| JEL: | E22 D81 D84 G14 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:rim:rimwps:24-18 |
| By: | Ali-Yrkkö, Jyrki; Kauhanen, Antti |
| Abstract: | Abstract This study examines the impact of foreign acquisitions on innovation activities in Finnish target firms using comprehensive linked employer-employee data from 2010–2021. Unlike previous research that found negative effects on R&D expenditures and patenting, we measure innovation through the share of R&D personnel in total employment. Our main finding is that foreign acquisitions have a statistically insignificant and economically small impact on the share of R&D employees in target firms. Three years post-acquisition, the point estimate shows a 0.9 percentage point increase in R&D employee share, and we can rule out increases over 2 percentage points and decreases below 0.09 percentage points. This null effect persists across different firm sizes and industries. Our results suggest that con-cerns about foreign acquisitions substantially reducing domestic R&D activity may be overstated, at least when measured by R&D employment. |
| Keywords: | Acquisition, M&A, Research, Development, R&D, Innovation, Impact |
| JEL: | O3 L6 L64 |
| Date: | 2024–11–27 |
| URL: | https://d.repec.org/n?u=RePEc:rif:wpaper:122 |