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on Entrepreneurship |
| By: | Hui Chen (MIT Sloan School of Management); Jianjun Miao (Department of Economics, Boston University); Neng Wang (Columbia Business School and National Bureau of Economic Research) |
| Abstract: | Entrepreneurs face significant non-diversifiable business risks. We build a dynamic incompletemarkets model of entrepreneurial finance to demonstrate the important implications of nondiversifiable risks for entrepreneurs’ interdependent consumption, portfolio allocation, financing, investment, and business exit decisions. The optimal capital structure is determined by a generalized tradeoff model where leverage via risky non-recourse debt provides significant diversification benefits. More risk-averse entrepreneurs default earlier, but also choose higher leverage, even though leverage makes his equity more risky. Non-diversified entrepreneurs demand both systematic and idiosyncratic risk premium. Cash-out option and external equity further improve diversification and raise the entrepreneur’s valuation of the firm. Finally, entrepreneurial risk aversion can overturn the risk-shifting incentives induced by risky debt. |
| Keywords: | Default, diversification benefits, entrepreneurial risk aversion, incomplete markets, private equity premium, hedging, capital structure, cash-out option, precautionary saving |
| JEL: | G11 G31 E2 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bos:iedwpr:dp-180&r=ent |
| By: | Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We construct a model where incumbents can either acquire basic innovations from entrepreneurs, or wait and acquire developed innovations from entrepreneurial firms supported by venture capitalists. We show that venture-backed entrepreneurial firms have an incentive to overinvest in development vis à vis incumbents due to strategic product market effects on the sales price of a developed innovation. This will trigger preemptive acquisitions by incumbents, thus increasing the reward for entrepreneurial innovations. We also show that venture capital can emerge in equilibrium if venture capitalists have cost advantages, or if development is associated with double moral hazard problems. |
| Keywords: | Acquisitions; Entrepreneurship; Innovation; Venture Capital |
| JEL: | G24 L10 L20 M13 O30 |
| Date: | 2009–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0783&r=ent |
| By: | Bottazzi, L.; Da Rin, M.; Hellmann, T. (Tilburg University, Center for Economic Research) |
| Abstract: | We examine the effect of trust on financial investment and contracting decisions in a micro-economic environment where trust is exogenous. Using hand-collected data on European venture capital, we show that the Eurobarometer measure of trust among nations significantly affects investment decisions. This holds even after controlling for investor and company fixed effects, geographic distance, information and transaction costs. The national identity of venture capital firms’ individual partners further contributes to the effect of trust. Education and work experience reduce the effect of trust but do not eliminate it. We also examine the relationship between trust and sophisticated contracts involving contingent control rights and find that, even after controlling for endogeneity, they are complements, not substitutes. |
| Keywords: | Venture Capital;Social Capital;Trust;Financial Contracts;Corporate Governance. |
| JEL: | G24 G34 K22 M13 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200943&r=ent |
| By: | Haeussler, Carolin; Harhoff, Dietmar; Mueller, Elisabeth |
| Abstract: | This paper investigates how patent applications and grants held by new ventures improve their ability to attract venture capital (VC) financing. We argue that investors are faced with considerable uncertainty and therefore rely on patents as signals when trying to assess the prospects of potential portfolio companies. For a sample of VC-seeking German and British biotechnology companies we have identified all patents filed at the European Patent Office (EPO). Applying hazard rate analysis, we find that in the presence of patent applications, VC financing occurs earlier. Our results also show that VCs pay attention to patent quality, financing those ventures faster which later turn out to have high-quality patents. Patent oppositions increase the likelihood of receiving VC, but ultimate grant decisions do not spur VC financing, presumably because they are anticipated. Our empirical results and interviews with VCs suggest that the process of patenting generates signals which help to overcome the liabilities of newness faced by new ventures. |
| Keywords: | biotechnology, intellectual property rights, patents, R&D and venture capital |
| JEL: | G24 L20 L26 O30 O34 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7529&r=ent |
| By: | Metzger, Georg |
| Abstract: | Many entrepreneurs who close a business are actually willing to venture anew. However, to realize a restart is not only a matter of willingness on the part of the entrepreneur but also of its feasibility. Regarding the feasibility of a restart, the aspect of capital acquisition might be particularly precarious for renascent entrepreneurs since business closures are likely to come up with financial losses. Financial losses arising from business closure can befall various stakeholders : shareholders, banks and public institutions, or suppliers and other stakeholders. The major finding of this analysis is that financial losses due to business closure strongly influence the likelihood of entrepreneurial restart – yet only when losses are incurred by banks. Losses which are incurred privately by the entrepreneurs or by other stakeholders do not influence the restart likelihood. Entrepreneurs who would seek to continue their entrepreneurial career after a business closure would be well advised to avoid causing losses at banks. |
| Keywords: | Firm closure, financial loss, restart |
| JEL: | G33 L26 M13 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7436&r=ent |
| By: | Douhan, Robin (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Can educational institutions explain occupational choice between wage employment and entrepreneurship? This paper follows Lazear's (2005) Jack-of-all-trades hypothesis according to which an individual with a more balanced set of abilities is more likely to enter into entrepreneurship. In the theoretical model proposed, abilities are an outcome of talent and educational institutions. Institutions, in turn, differ with respect to mandatory time in school and the scope of the curriculum. Implications of the theory are tested using Swedish data for a school reform. Empirical results support the main theoretical predictions. |
| Keywords: | Human Capital; Occupational Choice; Entrepreneurship; Education Institutions |
| JEL: | I21 J24 L26 |
| Date: | 2009–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0797&r=ent |
| By: | Knockaert, M.; Ucbasaran, D.; Wright, M.; Clarysse, B. (Vlerick Leuven Gent Management School) |
| Abstract: | The increased pressure put on public research institutes to commercialize their research results has given rise to an increased academic interest in technology transfer in general and science based entrepreneurial firms specifically. By building on innovation speed and knowledge literatures, this paper aims to improve understanding of how tacit knowledge can be effectively transferred from the research institute to the science based entrepreneurial firm. More specifically, we assess under which conditions tacit knowledge contributes to the generation of innovation speed, which is a crucial success parameter for technology based ventures. Using an inductive case study approach, we show that tacit knowledge can only be transferred effectively when a substantial part of the original research team joins the new venture as founders. Our analysis also reveals that the mere transfer of tacit knowledge is insufficient to ensure the successful commercialization of technology. Commercial expertise is also required on the condition that the cognitive distance between the scientific researchers and the person responsible for market interaction is not too large. Our findings have implications for science based entrepreneurs, technology transfer officers, venture capitalists, policy makers and the academic community. |
| Keywords: | science based entrepreneurial firms; tacit knowledge; technology transfer; innovation speed; cognitive distance |
| Date: | 2009–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:vlg:vlgwps:2009-07&r=ent |
| By: | Zhou, H.; Uhlaner, L.M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | This study examines the relationship between knowledge management (KM) (in terms of external acquisition and internal sharing) and innovation behavior. The concept of absorptive capacity and assumptions from the dynamic capabilities view underlie the proposed framework and hypotheses. The framework is empirically tested using a random sample of 649 Dutch small to medium sized enterprises (SMEs). Our empricial results indicate that external acquisition practices play a key role in fostering SMEs’ innovativeness while internal sharing practices do not appear to have a significant influence. External acquisition activity enhances a firm’s awareness of available knowledge opportunities. Firms which actively acquire external knowledge (regardless of the type of knowledge) may build a greater competitive dynamic capability to sense and seize business opportunities which in turn may lead to new or improved products or processes. We suggest that owners/entrepreneurs of SMEs and their firms will benefit in the long term if they strategically manage knowledge, especially using external acquisition practices. |
| Keywords: | knowledge management;absorptive capacity;innovation orientation;innovation behavior;SMEs |
| Date: | 2009–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765015913&r=ent |
| By: | Zhou, H.; Uhlaner, L.M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | In this study, we examine the prevalence of different KM practices and the organizational determinants of KM among SMEs by conducting a quantitative study of empirical data from nearly 500 Dutch SMEs. Our empirical results show that knowledge is managed in a people-based approach in SMEs. SMEs are most likely to acquire knowledge by staying in touch with professionals and experts outside the company and they incline to share knowledge and experience by talking to each other. Furthermore, KM is dependent on other organizational resources and processes. Organizational learning and competitive strategy with a formality approach are the positive determinants of KM while family orientation is a negative determinant of it. One of the challenges in the current study was to clearly distinguish, on an empirical basis, the previously defined concepts of knowledge management practices and organizational learning. Although in theory, they are distinct, the results of this study lead us to conclude that they may overlap in practice. In the conclusion, we recommend a learning-oriented knowledge management model for SMEs which combines aspects of the two literatures. |
| Keywords: | knowledge management;strategy;family orientation;organizational learning;SMEs |
| Date: | 2009–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765015914&r=ent |
| By: | Massimo Riccaboni; Fabio Pammolli; Sergey V. Buldyrev; Linda Ponta; H. Eugene Stanley |
| Abstract: | The relationship between the size and the variance of firm growth rates is known to follow an approximate power-law behavior σ(S) similar to S^-β(S) where S is the firm size and β(S) almost equal to 0.2 is an exponent weakly dependent on S. Here we show how a model of proportional growth which treats firms as classes composed of various number of units of variable size, can explain this size-variance dependence. In general, the model predicts that β(S) must exhibit a crossover from β(0) = 0 to β(∞) = 1/2. For a realistic set of parameters, β(S) is approximately constant and can vary in the range from 0.14 to 0.2 depending on the average number of units in the firm. We test the model with a unique industry specific database in which firm sales are given in terms of the sum of the sales of all their products. We find that the model is consistent with the empirically observed size-variance relationship. |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:trt:disawp:0901&r=ent |
| By: | Gellynck, Xavier; Kuhne, Bianka |
| Abstract: | In an increasingly globalising market, innovation is an important strategic tool for micro, small, and medium sized enterprises (SMEs) to achieve competitive advantage (Avermaete et al., 2004a; Gellynck et al., 2007; Murphy, 2002). Innovation can be defined as an ongoing process of learning, searching and exploring resulting in new products, new techniques, new forms of organization and new markets (Lundvall, 1995). Innovation is a continuous process characterised by three steps: efforts, activities and results. Efforts are all resources, such as human and financial resources, a firm is investing in activities for the development of innovations. Results are the effects of these innovation activities on tangible (e.g. growth of market share, profit) as well as less tangible aspects (e.g. firm stability, efficiency) (Gellynck et al., 2006). Consequently, the measurement of innovation competences captures also the progress in developing an innovation and not only the result, such as the successful implementation of innovation (Gellynck et al., 2007). |
| Keywords: | Agribusiness, Agricultural and Food Policy, Farm Management, Food Consumption/Nutrition/Food Safety, Industrial Organization, |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eea110:49847&r=ent |