nep-sbm New Economics Papers
on Small Business Management
Issue of 2016‒09‒18
twenty-one papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Small Firms, Human Capital, and Productivity in Asia By Vandenberg, Paul; Trinh, Long Q.
  2. Cluster Policy and Firm Performance: A Case Study of the French Optic/Photonic Industry By Amel Ben Abdesslem; Raphaël Chiappini
  3. How do collaboration and investments in knowledge management affect process innovation in services? By Ashok, Mona; Narula, Rajneesh; Martinez-Noya, Andrea
  4. Can microcredit impact the activity of small and medium enterprises? New evidence from a Regression Discontinuity Design in Panama By Nènè Oumou; Jonathan Goyette
  5. Production networks, geography and firm performance By Andrew B. Bernard; Andreas Moxnes; Yukiko U. Saito
  6. Commercial Bank Innovations in Small and Medium-Sized Enterprise Finance: Global Models and Implications for Thailand By Subhanij, Tientip
  7. Inward FDI and innovation in transitional countries By Allan Webster
  8. Determinants of exports: firm heterogeneity and local context By Pietro de Matteis; Filomena Pietrovito; Alberto Franco Pozzolo
  9. Tax evasion, firm dynamics and growth By Emmanuele Bobbio
  10. Do Stronger Patents Stimulate or Stifle Innovation? The Crucial Role of Financial Development By Chu, Angus C.; Cozzi, Guido; Pan, Shiyuan; Zhang, Mengbo
  11. A Dialogical Approach to increase " Matching " Efficiency before Collaborative Business Model Processes By Jérémie Faham; Maxime Daniel; Benjamin Tyl; Iban Lizarralde; Iñaki Garagorri; Jérémy Legardeur
  12. Industrial cluster policy and transaction networks: Evidence from firm-level data in Japan By Toshihiro Okubo; Tetsuji Okazaki; Eiichi Tomiura
  13. Multinational firms and tax havens By Gumpert, Anna; Hines Jr, James R; Schnitzer, Monika
  14. Fiscal incentives for R&D and innovation in a diverse world By Thomas Neubig; Fernando Galindo-Rueda; Silvia Appelt
  15. River deep, mountain high: Of long-run knowledge trajectories within and between innovation clusters By Nomaler, Onder; Verspagen, Bart
  16. Entrepreneurial heterogeneity and the design of entrepreneurship policies for economic growth and inclusive development By Calza, Elisa; Goedhuys, Micheline
  17. Firm Age and Size and the Financial Management of Infrequent Shocks By Benjamin L. Collier; Andrew F. Haughwout; Howard C. Kunreuther; Erwann O. Michel-Kerjan; Michael A. Stewart
  18. SME Global Development: Comparing Germany with Japan (Japanese) By IWAOMTO Koichi
  19. How Do Venture Capitalists Make Decisions? By Paul Gompers; William Gornall; Steven N. Kaplan; Ilya A. Strebulaev
  20. Essays on business cycles with liquidity constraints and firm entry-exit dynamics under incomplete information By Ma, Zhixia
  21. Self-Employment, Wealth and Start-up Costs: Evidence from a Financial Crisis By Koffi Elitcha; Raquel Fonseca Benito

  1. By: Vandenberg, Paul (Asian Development Bank Institute); Trinh, Long Q. (Asian Development Bank Institute)
    Abstract: The paper analyzes the link between human capital and firm-level productivity in five Asian countries. It draws on a dataset of over 4,000 enterprises and considers both the prior educational attainment of workers and in-service training programs of enterprises. Differences between small, medium-sized, and large enterprises and between countries are also presented. The key finding is that both preservice education and in-service training are positively correlated with labor productivity. The productivity of small and medium-sized enterprises (SMEs) is enhanced by a higher level of skills and education of the workforce, just as it is with large firms. However, there are country differences. The policy implications are that competitiveness is enhanced both by raising the general level of education in the workforce and by encouraging enterprise-based training programs.
    Keywords: SME; human capital; firms; enterprises; services; productivity; skills; education; in-service training; labor; workforce; competitiveness; enterprise-based training; People’s Republic of China; Indonesia; Malaysia; Thailand; Viet Nam
    JEL: D22 D24 J24
    Date: 2016–09–12
  2. By: Amel Ben Abdesslem (LAREFI; University of Bordeaux, France); Raphaël Chiappini (Université Côte d'Azur; GREDEG CNRS)
    Abstract: This study empirically analyzes the effects of a cluster policy on firms' productivity, exports, employment and capital in the French optic/photonic industry. Exploiting firm-level data, we first analyze the selection process of the French cluster policy through a logit model, before combining a propensity score matching procedure and a differences-in-differences estimation in order to capture its impact on firms' performance in the optic/photonic industry. We first show that larger firms are more likely to be selected by the French public policy in the optic/photonic industry. Second, the firms that have received the competitiveness cluster label have become more productive. We also found a positive and significant impact of the public policy on exports, total fixed assets and employment, but no evidence has been found localization economies. Third, when compared to an industrial cluster that only benefits from agglomeration economies, we found that firms from the competitiveness clusters have experienced a labor productivity gain, greater employment, and an increase in total fixed assets.
    Keywords: Cluster policy, productivity, difference-in-difference, optic/phonotic industry
    JEL: L25 L52 R12
    Date: 2016–09
  3. By: Ashok, Mona (Henley Business School); Narula, Rajneesh (Henley Business School); Martinez-Noya, Andrea (Spanish Ministry of Economy and Competitiveness)
    Abstract: Purpose: Despite the keen interest in radical and incremental innovation, few studies have tested the varying impact of firm-level factors in service sectors. This paper analyses how collaboration with existing and prospective users, and investments in knowledge management (KM) practices can be adapted to maximise the outputs of radical and incremental process innovation in a Knowledge-Intensive Business Service (KIBS) industry. Methodology: Original survey data from 166 Information Technology Service (ITS) firms and interviews with 13 executives provide the empirical evidence. PLS-SEM is used to analyse the data. Findings: Collaboration with different types of users, and investments in KM practices affect radical versus incremental process innovation differently. Collaboration with existing users influences incremental process innovation directly, but not radical innovation; and prospective user collaboration matters for radical, but not incremental innovation. Furthermore, for radical innovation, investments in KM practices mediate the impact of prospective user collaboration on innovation. Implications: While collaboration with existing users for incremental process innovations does not appear to generate significant managerial challenges, to pursue radical innovations firms must engage in intensive collaboration with prospective users. Higher involvement with prospective users requires higher investment in KM practices to promote efficient intra- and inter-firm knowledge flows. Originality: This study is based on a large-scale survey, together with management interviews. Radical and incremental innovations require engagements with different kinds of users in the service industry, and knowledge management tools.
    Keywords: user collaboration, existing and prospective users, incremental innovation, radical process innovation, KIBS firms, knowledge management, PLS-SEM
    JEL: O32 M15 F23
    Date: 2016–08–19
  4. By: Nènè Oumou (Département d'économique, Université de Sherbrooke); Jonathan Goyette (Département d'économique, Université de Sherbrooke)
    Abstract: In this paper, we conduct an impact analysis of microcredit on entrepreneurial activity using a new data-set collected among 740 entrepreneurs located in Panama. Our focus is on a new type of microfinance institution which grants loans to enterprises falling in what we call the financial missing middle, i.e., enterprises which are too big for traditional microcredit but not big enough for commercial banks. We collected an unbalanced panel of data on enterprise's business and credit history. Using our partner's rules of credit attribution, we build a regression discontinuity design to evaluate the effect of loan's obtainment on the activity of financed enterprises. Our results show a limited impact of access to credit on firm's revenues despite a significant impact on investment in equipment and immobilization. The magnitude of the positive effect is higher on micro-enterprises while auto-enterprises are negatively impacted by microcredit as is usually documented in the literature. We emphasize that the cost of credit is one of the major determinants of the limited impact of microcredit on entrepreneurial activity.
    Keywords: Microfinance Institutions, firm’s performance, Regression Discontinuity, Panama
    JEL: D22 G21 L26 O12 O16
    Date: 2016–08
  5. By: Andrew B. Bernard; Andreas Moxnes; Yukiko U. Saito
    Abstract: This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm’s marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms’ buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.
    Keywords: production networks; trade; productivity; infrastructure
    JEL: D85 F14 L10 L14 R12
    Date: 2016–06
  6. By: Subhanij, Tientip (Asian Development Bank Institute)
    Abstract: In Thailand, the government has long recognized the importance of small and medium-sized enterprises (SMEs) to the economy and has given a large amount of financial support to this sector. Still, SMEs are not able to catch up with larger enterprises and the constraints to SME financing remain the main topic of policy discussion today. Against this background, the important issue for Thailand may not be about the lack of financial assistance per se but about how to design an appropriate market-friendly business model and supporting scheme to help SMEs gain access to credit on a sustainable basis. Given the success of microfinance around the world, a large number of commercial banks have made a profitable business out of this sector. This paper explores various business models by commercial banks in microfinance and provides policy implications for Thailand. By making use of commercial banks' competitive advantage, Thailand can create a more market-friendly environment for SME financing. This will also ensure that lending to small-business clients is not a burden to the government and is self-sustaining in the long run.
    Keywords: SME; Thailand; bank; financing; microfinance; loans; credit; MFI; SFI; financial institution; commercial banking; financial access
    JEL: E50 G21
    Date: 2016–09–12
  7. By: Allan Webster (Bournemouth University, Executive Business Centre)
    Abstract: This study empirically examines the relationship between innovation and foreign ownership for a large sample of firms in 29 transitional countries, taken from the 2013 BEEPS survey. The analysis is based on two different aspects of FDI theory – technology transfer and strategic asset seeking (with respect to R&D). It finds that firms who innovate with respect to new products, new processes and new management techniques have, on balance, more foreign ownership than those who do not. The evidence supports a view that strategic asset seeking is associated with inward FDI. It also supports the view that technology transfer is also an important feature of the relationship between innovation and FDI in transitional countries. Of the two effects the technology transfer effect is of more consequence than the strategic asset seeking effect.
    Keywords: FDI; innovation; transition; firm; technology transfer; strategic asset seeking
    JEL: F23 O30 P20
    Date: 2016–07
  8. By: Pietro de Matteis (Banca d'Italia); Filomena Pietrovito (Università degli Studi del Molise); Alberto Franco Pozzolo (Università degli Studi del Molise)
    Abstract: It is frequently argued that the geographical context in which firms operate can have a crucial impact on their propensity to internationalize. In this paper, we present the results of an empirical analysis that examines the determinants of export performance for a sample including more than 4,300 Italian manufacturing firms over the period 2000-2013, focusing on the role of provincial context, after controlling for firm-level characteristics. To this end, we first adopt a cluster analysis methodology to classify each Italian province in terms of context variables, such as: the distance to foreign markets, the level of human and social capital and the degree of efficiency of the public administration. Second, we estimate a set of binomial choice and linear models to assess the impact of the economic and social environment on the extensive and intensive margins of trade. The results, after confirming that firm-specific factors (size, experience, productivity, capital intensity, innovation, geographical agglomeration and, to some extent, credit constraints) affect both the intensive and the extensive margins of exports, show that context characteristics at the province level have an additional (statistically and economically) significant impact on the export performances of firms.
    Keywords: firm internationalization, local context, firm heterogeneity
    JEL: D22 F10 F14 F18
    Date: 2016–09
  9. By: Emmanuele Bobbio (Banca d'Italia)
    Abstract: Italy's growth performance has been lacklustre in the last two decades. The economy has a low R&D intensity; firms are smaller and less likely to grow or exit than firms in other advanced countries; the shadow economy is large. I show how these features arise simultaneously in a Schumpeterian growth model with heterogeneous firms where the tax auditing probability increases with firm size. Tax evasion confers a cost advantage over competitors. In equilibrium, small firms invest less in innovation because growing entails a (shadow) cost of fiscal regularization. Unfair competition forces other firms to lower the mark-up they charge for their new products, reducing the incentive to innovate. Market selection is hampered, further lowering the aggregate growth rate along the extensive margin. I calibrate the model on Italian firm-level data for the period 1995-2006 and find that enforcing taxes would have increased the long-run growth rate from 0.9% to 1.1%. The market share of high type firms would have been 6 percentage points higher and average firm size 20% higher. Also, I find that lowering the tax burden can have a significant impact on growth when the shadow economy is large, while the effect is negligible when taxes are enforced.
    Keywords: growth, innovation, selection, firm dynamics, tax evasion, size dependent policies
    JEL: O30 O43 H26
    Date: 2016–09
  10. By: Chu, Angus C.; Cozzi, Guido; Pan, Shiyuan; Zhang, Mengbo
    Abstract: This study explores the effects of patent protection in a distance-to-frontier R&D-based growth model with financial frictions. We find that whether stronger patent protection stimulates or stifles innovation depends on credit constraints faced by R&D entrepreneurs. When credit constraints are non-binding (binding), strengthening patent protection stimulates (stifles) R&D. The overall effect of patent protection on innovation follows an inverted-U pattern. An excessively high level of patent protection prevents a country from converging to the world technology frontier. A higher level of financial development influences credit constraints through two channels: decreasing the interest-rate spread and increasing the default cost. Via the interest-spread (default-cost) channel, patent protection is more likely to have a negative (positive) effect on innovation under a higher level of financial development. We test these results using cross-country regressions and find supportive evidence for the interest-spread channel.
    Keywords: Patent protection, credit constraints, economic growth, convergence
    JEL: E44 O31 O34
    Date: 2016–09
  11. By: Jérémie Faham (ESTIA Recherche - Ecole Supérieure des Technologies Industrielles Avancées (ESTIA), IMS - Laboratoire de l'intégration, du matériau au système - Université Sciences et Technologies - Bordeaux 1 - Institut Polytechnique de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Maxime Daniel (ESTIA Recherche - Ecole Supérieure des Technologies Industrielles Avancées (ESTIA), LaBRI - Laboratoire Bordelais de Recherche en Informatique - Université Bordeaux Segalen - Bordeaux 2 - Université Sciences et Technologies - Bordeaux 1 - École Nationale Supérieure d'Électronique, Informatique et Radiocommunications de Bordeaux (ENSEIRB) - CNRS - Centre National de la Recherche Scientifique); Benjamin Tyl (APESA Innovation - APESA Innovation - APESA); Iban Lizarralde (ESTIA Recherche - Ecole Supérieure des Technologies Industrielles Avancées (ESTIA)); Iñaki Garagorri (Universidad de Deusto); Jérémy Legardeur (ESTIA Recherche - Ecole Supérieure des Technologies Industrielles Avancées (ESTIA), IMS - Laboratoire de l'intégration, du matériau au système - Université Sciences et Technologies - Bordeaux 1 - Institut Polytechnique de Bordeaux - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The 2014-2020 European Union cohesion policy settled the obligation to establish “Research and Innovation Strategies for the Smart Specialization” (RIS3) to build competitive advantages for each region. The originality of RIS3 is the “bottom-up” identification of regional priorities through the “Entrepreneurial Discovery” (ED) process which stresses the need to involve all the regional “entrepreneurs” (RE) - companies, research, consulting, public authorities etc. - into the design of territorial orientations. However there is a lack of recommendations to implement it into heterogeneous regions. The Collaborative Business Models (CBM) approach has probably a role to play within this process as a suitable strategic tool to set up regional “value networks”. However, the preparatory stage of CBM and especially the identification and the matching processes among potential RE partners is often not addressed. This work is a proposition to answer this issue of matching in order to improve the CBM efficacy within RIS3.
    Keywords: Matching,Collaborative Business Models,Profile Comprehension,Regional Entrepreneurs,Dialogical questionnaire,Entrepreneurial Discovery,RIS3,Innovation,Collaborative Platform,Smart Interface,Networking
    Date: 2016–06–19
  12. By: Toshihiro Okubo (Faculty of Economics, Keio University); Tetsuji Okazaki (Faculty of Economics, The University of Tokyo); Eiichi Tomiura (Graduate School of Economics, Hitotsubashi University)
    Abstract: Cluster policy is designed to facilitate inter-firm networking. We examine industrial clusters in Japan based on firm-level transaction data. Firms in clusters expand transaction networks at a higher speed, but significantly only with firms in the agglomerated core Tokyo, not with local firms within the same region. We confirm the robustness by regional historical background as instruments. By disaggregating firms by their main bank types, we find that cluster firms expanding networks are mainly financed by regional banks, not by banks with nation-wide operations. This suggests the importance of intensive relationship with the main banks for inter-firm network formation.
    Keywords: cluster policy, transaction network
    JEL: O25 R11 R38 R58
    Date: 2016–08–01
  13. By: Gumpert, Anna; Hines Jr, James R; Schnitzer, Monika
    Abstract: Multinational firms with operations in high-tax countries can benefit the most from reallocating taxable income to tax havens, though this is sufficiently diffcult and costly that only 20.4 percent of German multinational firms have any tax haven affiliates. Among German manufacturing firms, a one percentage point higher foreign tax rate is associated with a 2.3 percent greater likelihood of owning a tax haven affiliate. This is consistent with tax avoidance incentives, and contrasts with earlier evidence for U.S. firms. The relationship is less strong for firms in service industries, possibly reflecting the difficulty of reallocating taxable service income.
    Keywords: multinational firms; tax havens
    JEL: F23 H87
    Date: 2016–09
  14. By: Thomas Neubig; Fernando Galindo-Rueda; Silvia Appelt
    Abstract: Public policy has an important role to play in promoting research and development (R&D) the development, diffusion, and use of new knowledge and innovations. Fiscal incentives, including tax policies, should be directed at specific barriers, impediments or synergies to facilitate the desired level of investment in R&D and innovations. Without careful design, policies can have unintended consequences such as favouring incumbent firms, encouraging small firms to undertake less efficient activities, or creating arbitrage and rent-seeking activity. R&D tax policy needs to be considered in the context of the country’s general tax policies, its broader innovation policy mix and its other R&D support policies. More R&D activity in one country does not necessarily result in an overall increase in global innovation if it is simply shifted from another country. More research is needed to determine the extent to which R&D fiscal incentives in one country increase overall R&D, the quality of that R&D, and its positive spillovers to other sectors of the economy and other countries. Les incitations fiscales en faveur de la R-D et de l'innovation dans un monde diversifié La politique publique a un rôle important à jouer pour promouvoir la recherche et le développement, la création, la diffusion et l’utilisation de nouvelles connaissances et d’innovations. Les incitations fiscales, y compris les politiques fiscales, doivent cibler des obstacles, freins ou synergies spécifiques de manière à obtenir le niveau souhaité d’investissements dans la R-D et dans l’innovation. Si elles ne sont pas soigneusement conçues, ces politiques peuvent avoir des conséquences fortuites, comme favoriser les entreprises en place, inciter les petites entreprises à entreprendre des activités moins efficientes ou ouvrir la voie à l’arbitrage et à la recherche de rentes. Les mesures fiscales en faveur de la R-D doivent être appréhendées dans le contexte des politiques fiscales générales du pays, de l’ensemble des actions menées en faveur de l’innovation et de ses autres politiques d’aide à la R-D. Une intensification des activités de R-D dans un pays n’entraîne pas nécessairement une augmentation globale de l’innovation mondiale si elle correspond à un simple transfert d’un autre pays. Des travaux supplémentaires sont nécessaires pour déterminer dans quelle mesure les incitations fiscales en faveur de la R-D dans un pays augmentent le niveau global de R-D, la qualité de cette R-D et ses retombées positives dans d’autres secteurs de l’économie et dans d’autres pays.
    Date: 2016–09–13
  15. By: Nomaler, Onder (UNU-MERIT, and Eindhoven University of Technology); Verspagen, Bart (UNU-MERIT, and Maastricht University, SBE)
    Abstract: We bring together the topics of geographical clusters and technological trajectories, and shift the focus of the analysis of regional innovation to main technological trends rather than firms. We define a number of inventive clusters in the US space and show that long chains of citations mostly take place between these clusters. This is reminiscent of the idea of global pipelines of knowledge transfer that is found in the geographical literature. The deep citations are used to identify technological trajectories, which are the main directions along which incremental technological progress accumulates into larger changes. While the origin and destination of these trajectories are concentrated in space, the intermediate nodes travel long distances and cover many locations across the globe. We conclude by calling for more theoretical and empirical attention to the "deep rivers" that connect the "high mountains" of local knowledge production.
    Keywords: patent citations, regional concentration of inventive activities, technological trajectories, regional clusters, technological trends
    JEL: O33 O31 R11
    Date: 2016–09–14
  16. By: Calza, Elisa (UNU-MERIT); Goedhuys, Micheline (UNU-MERIT)
    Abstract: Entrepreneurship is the object of renewed and increasing attention, not only by academics, but also by policy makers worldwide. This interest partly results from a positive perception of entrepreneurship as a driver of economic growth, and the urgency for policy makers to find ways to stimulate and sustain economic growth, in developed as well as in developing countries. This trend raises the need to have a clear understanding of the role of entrepreneurship in the economy and society. This paper acknowledges that there is a large heterogeneity across entrepreneurs in their ability to contribute to economic growth. We present insights from macro-economic studies supporting this statement. We next take a micro perspective and discuss the evidence based literature to identify the critical factors and entrepreneur characteristics that can lead to entrepreneurial success and contribute to growth. This discussion serves as a framework against which we reflect on the rationales and effectiveness of entrepreneurial policies in developing countries.
    Keywords: entrepreneurship, firm growth, development policy
    JEL: O12 O20 L26
    Date: 2016–08–29
  17. By: Benjamin L. Collier; Andrew F. Haughwout; Howard C. Kunreuther; Erwann O. Michel-Kerjan; Michael A. Stewart
    Abstract: Age and size distinctly affect firms’ financial management of infrequent risks. We examine a rare, severe event using detailed firm-level data collected following Hurricane Sandy in the New York area. Our results follow recent contributions from dynamic risk management theory, namely that larger firms are more likely to insure and to use credit after a shock. We build on this theory, showing tradeoffs between managing frequent versus infrequent risks: young firms, exposed to many risks, do not insure against infrequent events and are ex post credit constrained. Consequently, younger firms and smaller firms disproportionately bore the costs of the shock.
    JEL: D22 G22 G28 G32 L25 Q54
    Date: 2016–09
  18. By: IWAOMTO Koichi
    Abstract: This paper describes the results of the research not covered in my previous paper "Implications for the Development of Local Economies and SMEs in Japan: Perspective from a field survey conducted on Germany, the EU's strongest economy" which was conducted after another PDP on the same theme, from the view of small and medium-sized enterprises (SME) global development. Although Germany was regarded previously as the "sick man of Europe," it is currently the sole leader in Europe. During this period, strong SMEs, especially those referred to as "the hidden champions," played a major role. Analyzing this phenomenon would provide us the key to raising the status of Japanese SMEs to that of global niche top (GNT). In principle, these enterprises develop products that are sellable around the world. We previously discussed and reported on the first part, which partly contributed to policymaking of the Japanese government. However, we are still conducting sampling surveys on the latter part. Japanese companies are the weakest in the world in forecasting demand. In order to surmount this difficulty, it is necessary to grasp Germany's SME global development comprehensively.
    Date: 2016–06
  19. By: Paul Gompers; William Gornall; Steven N. Kaplan; Ilya A. Strebulaev
    Abstract: We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing; investment selection; valuation; deal structure; post-investment value-added; exits; internal firm organization; and relationships with limited partners. In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).
    JEL: G24 G3 L26
    Date: 2016–09
  20. By: Ma, Zhixia
    Date: 2016–01–01
  21. By: Koffi Elitcha; Raquel Fonseca Benito
    Abstract: Financial constraints affect in important ways the decision of individuals to become entrepreneur (self-employed). This implicitly suggests a positive relation between the propensity of individuals to become entrepreneur and their personal wealth. Recent theoretical work and empirical evidence confirm this hypothesis. More interestingly, it has been shown that the slope of the entrepreneurship-wealth relationship increases with the extent of liquidity constraints and flattens with the magnitude of start-up costs. Using individual level data from 3 surveys (SHARE, ELSA and HRS) in Europe and the United States, as well as the World Bank’s Doing Business data, this paper empirically zeroes in on the impact of start-up costs on the self-employment-wealth relationship. The dynamic nature of the data enables us to investigate potential effects of the last global financial crisis. Results confirm the strong positive relationship between the entrepreneurial choice and wealth, as well as the negative effect stemming from the increase in start-up costs. Interestingly, although there is no strong evidence that wealth in itself played a bigger role during the crisis, we find that the negative impact of start-up costs on wealth proved to be significantly pronounced during the last crisis.
    Keywords: Self-Employment, Occupational Choice, Wealth, Liquidity Constraints, Start-up Costs, Financial Crisis,
    JEL: E02 E21 J21 J24
    Date: 2016–09–09

This nep-sbm issue is ©2016 by João Carlos Correia Leitão. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.