Showing papers in "Small Business Economics in 2015"
TL;DR: In this article, the authors proposed that the relationship between entrepreneurship, innovation and regional growth is governed by a series of network dynamics and that the nature of the networks formed by entrepreneurial firms is a key determinant of regional growth differentials.
Abstract: Despite the growing acknowledgement that entrepreneurship is an important driver of regional innovation and growth, the role of the networks in these processes has been less formally examined. In order to address this gap, this paper proposes that the relationship between entrepreneurship, innovation and regional growth is governed by a series of network dynamics. Drawing upon aspects of endogenous growth theory and the knowledge spillover theory of entrepreneurship, it is proposed that the nature of the networks formed by entrepreneurial firms is a key determinant of regional growth differentials. In particular, network capital, in the form of investments in strategic relations to gain access to knowledge, is considered to mediate the relationship between entrepreneurship and innovation-based regional growth. It is suggested that network dynamics should be further incorporated into theories concerning the link between knowledge spillovers, entrepreneurship and regional growth. The paper concludes with a series of theoretical, entrepreneurial and policy implications emerging from the study.
228 citations
TL;DR: In this article, the authors examined the link between infrastructure and entrepreneurship and found that infrastructure can enhance connectivity and linkages that facilitate the recognition of entrepreneurial opportunities and the ability of entrepreneurs to actualize those opportunities.
Abstract: This paper is one of the first studies to examine the link between infrastructure and entrepreneurship. Because infrastructure can enhance connectivity and linkages that facilitate the recognition of entrepreneurial opportunities and the ability of entrepreneurs to actualize those opportunities, a hypothesis is developed suggesting that startup activity is enhanced by infrastructure. However, not all types of infrastructure have a homogeneous impact on the entrepreneurial decision, so that a second hypothesis is developed suggesting that certain types of infrastructure which facilitate connectivity and linkages among people are more conducive to startup activity. The empirical results suggest that startup activity is positively linked to infrastructure in general, but that certain specific types of infrastructure, such as broadband are more conducive to infrastructure than are highways and railroads. Finally, we hypothesize that the types of infrastructure have varying influences in different sectors. Our empirical analyses support this view and we conclude that particular infrastructure policies can be used to facilitate regional startup activities and, furthermore, to foster startup activities in desired industries.
205 citations
TL;DR: Corporate entrepreneurship (CE) as a valid and effective area of research has real and tangible benefits for emerging scholars because their work will significantly impact an emerging strategy as mentioned in this paper. But despite the recent expansion in CE research, the theoretical and empirical knowledge about the domain of CE and the entrepreneurial behavior on which it is based are still key issues that warrant a deeper understanding.
Abstract: Corporate entrepreneurship (CE) as a valid and effective area of research has real and tangible benefits for emerging scholars because their work will significantly impact an emerging strategy. The research on CE has evolved over the last 40 years beginning very slowly and growing in importance through the decades. While the inherent value of entrepreneurial action on the part of established organizations has been established, there remains a greater need for further research about CE in organizational settings. Fortunately, knowledge accumulation on the topic of CE has been occurring at a rapid rate, and many of the elements essential to constructing a theoretically grounded understanding of the domains of CE can now be identified. However, despite the recent expansion in CE research, the theoretical and empirical knowledge about the domain of CE and the entrepreneurial behavior on which it is based are still key issues that warrant a deeper understanding. Ongoing scholarly work has also raised new and important research questions and identified further theoretical avenues requiring exploration. In this article, we review some of the significant research work that has been done in the CE literature and examine the future directions for CE researchers. The increasing value of future research in this domain, including the research highlighted in this special issue, may very well enhance the innovative challenges confronting organizations in this new global economic reality.
197 citations
TL;DR: This article conducted a bibliometric analysis of scholarly research on the knowledge spillover theory of entrepreneurship (KSTE) and identified the key academic journals, the main issues and subjects addressed and the backward and forward citations.
Abstract: In the past decade, a new and promising literature has been established linking endogenous growth theory to knowledge spillovers and entrepreneurship theory: the knowledge spillover theory of entrepreneurship (KSTE). This study conducts a bibliometric analysis of scholarly research on this fruitful and promising strand of the literature. It highlights the increasing importance and acceptance of KSTE in the scientific community worldwide, its emergence across different fields in economics, management and policy and also the issues and questions raised. Based on all articles on KSTE published in refereed journals in the past 15 years (1999–2013), we identify the key academic journals, the main issues and subjects addressed and the backward and forward citations. We also identify the authors and their connections in terms of coauthorships to reconstruct the scientific community debating on KSTE. We are confident that our work will benefit scholars intending to leverage KSTE in their research in that it summarizes the main academic conversations within this theoretical perspective and set the boundaries of the network of scholars developing it.
180 citations
TL;DR: In this article, the authors investigate whether high-growth tends to persist and find that high growth firms had declining growth rates in the previous 3-year period, and their probability of repeating high growth rates was very low.
Abstract: Most firms do not grow, and a small number of high-growth firms seem to create most new jobs. These firms have therefore received increasing attention among policymakers. The question is whether high-growth tends to persist? We investigate this question using firm-level data from Sweden during 1997–2008. We find that high-growth firms had declining growth rates in the previous 3-year period, and their probability of repeating high growth rates was very low. Thus, these are essentially “one-hit wonders,” and it is doubtful whether policymakers can improve economic outcomes by targeting them.
177 citations
TL;DR: In this article, the authors examined the factors that affect firm performance in a sample of 376 small and medium-sized Italian enterprises over the period 2000-2010 and found that a modification of the business model has a positive effect on the ability of the firm to perform well.
Abstract: This paper examines the factors that affect firm performance in a sample of 376 small- and medium-sized Italian enterprises over the period 2000–2010. It looks in particular at changes in business models and investments in intangibles. We compared firms that continued to be managed through an existing business model with matched firms that changed their business model over the period. We found that a modification of the business model has a positive effect on the ability of the firm to perform well. There was also a positive complementary effect on performance of business model change and intangibles. These results are even more evident when business model changes were categorised by their degree of innovation, suggesting that business model innovation is core to firm performance and that intangibles are positive moderators. They play a crucial role in shaping the firm’s competences, which favour the success of an innovative business model configuration.
175 citations
TL;DR: In this article, the authors show that necessity entrepreneurs are more likely than other entrepreneurs to pursue a cost leadership strategy and less likely to pursue differentiation strategy and up to half of the difference in choice of strategy can be attributed to distinct endowments of human capital, socioeconomic attributes, and start-up project characteristics that correlate with necessity entrepreneurship.
Abstract: Many start-ups chose to compete with incumbent firms using one of two generic strategies: cost leadership or differentiation. Our study demonstrates how this choice depends on whether the start-up was founded out of necessity. Our results, based on a representative data set of 4,568 German start-ups, show that necessity entrepreneurs are more likely than other entrepreneurs to pursue a cost leadership strategy and less likely to pursue a differentiation strategy. Decomposition analyses further show that up to half of the difference in choice of strategy can be attributed to distinct endowments of human capital, socioeconomic attributes, and start-up project characteristics that correlate with necessity entrepreneurship.
164 citations
TL;DR: In this paper, the authors synthesize prior literature regarding the CE-performance relationship of 43 independent samples including 13,237 firms and find that strategic renewal, innovation and corporate venturing positively influence overall, subjective and objective firm performance.
Abstract: Despite considerable research, empirical findings on the relationship between corporate entrepreneurship (CE) (i.e., strategic renewal, innovation and corporate venturing) and performance remain inconclusive. Using a meta-analysis, the present paper synthesizes prior literature regarding the CE–performance relationship of 43 independent samples including 13,237 firms. Our results reveal that strategic renewal, innovation and corporate venturing positively influence overall, subjective and objective firm performance. In addition, we conduct moderator analyses to reflect on the context and to verify whether and how the relationships vary in the presence of several study-specific factors. We find that innovation has a stronger effect on performance in high-tech as opposed to low-tech industries, and the association between corporate venturing and performance is the strongest in Europe (compared with North America and Asia). Against our theoretical predictions, we find the association between strategic renewal and performance to be stronger for larger than for smaller firms. Based on our results, we derive recommendations for future research and point to managerial implications.
156 citations
TL;DR: In this paper, the authors studied the influence of firm characteristics on SMEs' environmental behavior and found that different characteristics have dissimilar influences on both types of environmental practices such as the type of customers served.
Abstract: The objective of this paper is to develop a better understanding of what drives small and medium-sized enterprises (SMEs) to engage in envi- ronmental practices, and whether the drivers differ across types of practices. Two types of environmental practices are distinguished: practices related to pro- duction processes (greening processes) and practices related to products and services (greening product and service offerings). Despite a growing literature on socially responsible behavior of large firms, the role of SMEs remains underexposed. This neglect is remark- able given the substantial impact of SMEs on the economy and the natural environment. By using unique data for almost 8,000 SMEs across 12 sectors in 36 countries, we study the influence of firm characteristics on SMEs' environmental behavior. Our results suggest that different characteristics have dissimilar influences on both types of environmental practices such as the type of customers served. Stringent environmental legislation encourages firms to actively take on environmental activities, but only in case of green products and services. Moreover, the dominant idea that small firms are reluctant to invest in environmental practices is clearly more nuanced: firm size matters most for engagement in greening pro- cesses. Finally, SMEs active in tangible sectors and that receive financial support are more involved in either type of environmental practices.
151 citations
TL;DR: In this article, the authors developed and tested a model of how the prevalence of small-and medium-size enterprises under family control affects economic growth, and they found support for their hypothesis and the underlying contention that economic growth is maximized when an economy includes a balanced mix of family and non-family SMEs.
Abstract: Drawing on family business studies and the knowledge-based view of economic growth, we develop and test a model of how the prevalence of small- and medium-size enterprises (SMEs) under family control affects economic growth. Specifically, we propose there is an inverted U-shaped relationship between family SMEs' proportional representation and economic growth owing to their relative strengths and limitations vis-a`-vis non-family SMEs. Using state-level data from the US between 2004 and 2010, we find support for our hypothesis and the underlying contention that economic growth is maximized when an economy includes a balanced mix of family and non-family SMEs.
144 citations
TL;DR: In this paper, the authors developed a model to examine how an entrepreneur's creativity, self-efficacy, and entrepreneurial orientation affect small-firm performance and found that selfefficacy and EO are positively and directly associated with firm performance, whereas creativity and firm performance are fully mediated by EO.
Abstract: Determinants of small-firm performance represent a central topic in the entrepreneurship literature. Addressing associations among personal traits, entrepreneurial orientation (EO), and small-firm performance, we develop a model to examine how an entrepreneur’s creativity, self-efficacy, and EO affect small-firm performance. The hypotheses are tested on a sample of 256 French small-firm owners. The findings show that self-efficacy and EO are positively and directly associated with firm performance, whereas creativity and firm performance are fully mediated by EO. These findings offer important theoretical and practical implications.
TL;DR: In this paper, the authors examine the various theoretical perspectives and frameworks of entrepreneurship and offer an integrative perspective through a proposed "framework of frameworks" which ties together other existing frameworks, each of which explores a particular aspect of the overall phenomenon of entrepreneurship.
Abstract: Although entrepreneurship is not a new phenomenon, attempts to study it in a systematic manner are fairly recent. The field of entrepreneurship has evolved in a rather disjointed or seemingly random manner, and entrepreneurship has developed as a business discipline by borrowing, building upon, and adapting theoretical and conceptual work from such fields as sociology, psychology, anthropology, marketing, management, finance, organizational behavior, and engineering. And yet, it would appear that the volume of work attempting to describe, explain, and predict aspects of entrepreneurship has grown to a point where we can begin to develop a more complete and integrated picture. The purpose of this paper was to examine the various theoretical perspectives and frameworks of entrepreneurship and to offer an integrative perspective through a proposed “framework of frameworks” which ties together other existing frameworks, each of which explores a particular aspect of the overall phenomenon of entrepreneurship. The value of using a framework to explain and therefore better understand entrepreneurship is examined.
TL;DR: The authors reconcile the seemingly chaotic and contradictory literature by proposing a coherent approach to structure the disparate ways that entrepreneurship is used and referred to in the scholarly literature and identify an emerging eclectic view of entrepreneurship, which combines several of the views prevalent in the main approaches discussed discussed.
Abstract: The term “entrepreneurship” apparently means different things to different people including scholars and thought leaders Because entrepreneurship is multifaceted, it is studied from many different perspectives, yet, that has fostered a multitude of definitions Even the scholarly literature (where normally the deepest understanding would be found) is rife with disparities and even contradictions about what is and is not entrepreneurship Some have suggested a narrower and more defined focus on entrepreneurship where only bona fide entrepreneurship research theories would explain entrepreneurial phenomena We believe that constricting the field may the wrong approach Our purpose then is to try and make sense of the disparate meanings and views of entrepreneurship prevalent in both the scholarly literature as well as among thought leaders in business and policy We reconcile the seemingly chaotic and contradictory literature by proposing a coherent approach to structure the disparate ways that entrepreneurship is used and referred to in the scholarly literature We examine three coherent strands of the entrepreneurship literature and identify an emerging eclectic view of entrepreneurship, which combines several of the views prevalent in the main approaches discussed
TL;DR: This article found that individuals who exhibit behavior associated with ADHD are more likely to have entrepreneurial intentions and that risk taking propensity is a mediator that partly explains the positive effect of behavioral tendencies associated with developmental disorders.
Abstract: Little is known about the relation between entrepreneurship and the extent of psychiatric symptoms. Validated psychiatric symptom scores are seldom used for non-clinical reasons. One prevalent symptom that deserves our interest is Attention Deficit and Hyperactivity Disorder (ADHD). ADHD is a developmental disorder characterized by inattentiveness and hyperactivity that has been linked to occupational choice and performance. Building on the person–environment fit literature, we hypothesize that individuals who exhibit behavior associated with ADHD are more likely to have entrepreneurial intentions. Using a sample of 10,104 students enrolled in higher education, we can confirm our prediction that students with a higher level of ADHD-like behavior are more likely to have entrepreneurial intentions. Additionally, we show that risk taking propensity is a mediator that partly explains this positive effect. Our study points to the importance of behavioral tendencies associated with developmental disorders, when making entrepreneurship decisions. Our study contributes to the literature on the determinants of entrepreneurship, which so far has largely neglected the effects of psychiatric symptoms on entrepreneurship.
TL;DR: In this paper, four types of start-up ventures are considered, with each having differing needs and making unique contributions to the economic welfare of a nation, region, or locality, and seven counterarguments to Shane's position are presented, addressing issues related to the cost of entry and exit, rates of efficiency and failure, employment levels, sector differences, ecosystems and venture emergence.
Abstract: Because the large majority of new ventures remain small, their economic contribution is questioned. Shane (Small Bus Econ 33(2):141–149, 2009) has argued that designing public policies which encourage more people to become entrepreneurs is counterproductive, and the exclusive focus should be high-growth ventures, or gazelles. As a counter to Shane’s position, four types of start-up ventures are considered, with each having differing needs and making unique contributions to the economic welfare of a nation, region, or locality. Based on this typology, seven counter-arguments to Shane’s position are presented, addressing issues related to the cost of entry and exit, rates of efficiency and failure, employment levels, sector differences, ecosystems, and venture emergence. Based on these counter-arguments, a portfolio perspective is advocated, where societal risks and a variety of returns are balanced across all four types of new ventures. An example of a portfolio approach to policy design is provided, and implications are drawn.
TL;DR: In this article, the authors developed a motivation, opportunity, and ability framework to examine knowledge sharing and organizational learning as a mean to drive entrepreneurship and innovation in complex organizational networks, using survey data collected from 200 franchise operators of a single large hybrid organization.
Abstract: This paper develops a motivation, opportunity, and ability framework to examine knowledge sharing and organizational learning as a mean to drive entrepreneurship and innovation in complex organizational networks. Utilizing the theoretical linkages and antecedents suggested in established corporate entrepreneurship models that identify what is necessary for innovation to occur in existing organizations, we offer both a theoretical model and an additional tool of analysis looking at how corporate entrepreneurial activity emerges in organizational networks. Using survey data collected from 200 franchise operators of a single large hybrid organization, our results demonstrate how knowledge sharing and organizational learning are associated with the motivation, opportunity, and ability to act within the corporate entrepreneurial context. Moreover, this motivation, opportunity, and ability framework was observed to provide a complementary tool to traditional measures of CE (e.g., CEAI from Hornsby et al. in J Bus Ventur 17(3):253–273, 2002) as it provided insights into functional and process variables affecting corporate entrepreneurial activity. As such, this research introduces both practical and theoretical implications that further our understanding of how to develop, manage, and leverage corporate entrepreneurship in a complex organizational network to achieve both operational performance and entrepreneurial innovation.
TL;DR: In this article, the authors investigated the empirical link between total factor productivity (TFP) growth and high growth firms, defined in terms of sales growth, in the United Kingdom over the period 2001-2010, by examining two related research questions.
Abstract: There is considerable evidence that high-growth firms (HGFs) contribute significantly to employment and economic growth. However, the literature so far does not adequately explore the link between HGFs and productivity. This paper investigates the empirical link between total factor productivity (TFP) growth and HGFs, defined in terms of sales growth, in the United Kingdom over the period 2001–2010, by examining two related research questions. Firstly, does higher TFP growth lead to HGF status and secondly, does HGF experience help firms achieve faster TFP growth? Our findings reveal that firms in both the manufacturing and services sectors are more likely to become HGFs when they exhibit higher TFP growth. In addition, firms that have had HGF experience tend to enjoy faster TFP growth following the high-growth episodes. Policy implications are drawn based on the self-reinforcing process of the high-growth phenomenon that is revealed by our results.
TL;DR: In this article, the investment patterns of different types of VC investors in Europe were studied, including independent VC, corporate VC, bank-affiliated VC, and governmental VC, using a unique dataset that covers 1663 first VC investments made by 846 investors in 737 young high-tech entrepreneurial ventures in seven European countries.
Abstract: We study the investment patterns of different types of venture capital (VC) investors in Europe: independent VC, corporate VC, bank-affiliated VC and governmental VC. We rely on a unique dataset that covers 1663 first VC investments made by 846 investors in 737 young high-tech entrepreneurial ventures in seven European countries. We compare the relative specialization indices of the different VC investor types across several dimensions that characterize investee companies: industry, age, size, stage of development, distance from the investor and country. Our findings indicate that VC investor types in Europe differ substantially in their investment patterns when compared to one another and that, in terms of investment patterns, governmental VC investors appear to be the most distinct type of VC investor. The investment patterns of different VC investors are stable over time and similar across different European countries. Finally, the investment patterns of the different VC investor types in Europe are significantly different from those observed in the USA.
TL;DR: In this paper, the importance and workings of parental role models for the probability of becoming self-employed were investigated using Danish register data, and they found that the effect of a self employed father (mother) is much higher for males (females).
Abstract: It is well established that children of self-employed parents are more likely to become self-employed themselves, but the reasons are still hotly debated. Using Danish register data, we investigate the importance and workings of parental role models for the probability of becoming self-employed. We find that the effect of a self-employed father (mother) is much higher for males (females). These results are statistically and economically very significant, and they survive when we control for parental wealth and work experience from the parents’ firms and when we exclude cases where the offspring takes over the family business. This points to a strong role for parental role models in explaining why self-employment runs in the family.
TL;DR: In this paper, the authors highlight key findings from a 25-year-long stream of research, conducted in several countries, that shows how CE creates knowledge and the variety of knowledge that emerges from different CE activities.
Abstract: Corporate entrepreneurship (CE) is an important means for inducing innovation, revitalizing organizations, and enhancing productivity. It is also the source of new knowledge that allows companies to create capabilities to enter new markets and achieve growth. This article highlights key findings from a 25-year-long stream of research, conducted in several countries, that shows how CE creates knowledge and the variety of knowledge that emerges from different CE activities. It also explains the role of entrepreneurial hubs in capturing, accumulating, converting and translating, and integrating this knowledge, enabling companies to build new revenue streams. The role of these hubs is pervasive, calling for engaged management and creativity in building linkages within and across the different units of an organization. Knowledge, the foundation of competitive superiority, is clearly one of the most important products of CE in today’s dynamic global markets.
TL;DR: This article examined how failure ascriptions (how the core causal characteristics of a failure are identified) impact perceptions of learning, defined here as the ability to transfer knowledge from a failed venture to a subsequently started new venture.
Abstract: We examine how failure ascriptions (how the core causal characteristics of a failure are identified) impact perceptions of learning, defined here as the ability to transfer knowledge from a failed venture to a subsequently started new venture. Our findings are consistent with prior work in that internal unstable failure ascriptions are associated with greater perceived learning, while external stable ascriptions are associated with less perceived learning. Inconsistent with prior work, however, we find that starting a new venture more quickly after failure enhances perceived learning for entrepreneurs who made internal unstable ascriptions. Further, entrepreneurs with external stable ascriptions have even less perceived learning when they abandon their previous domain in their new venture. Implications for research on failure, ascriptions, and perceived learning for future ventures are discussed.
TL;DR: In this article, the authors examined the entrepreneurial capacity of firms in leveraging shared resources in clusters to achieve market performance and analyzed the influences of regional shared resources derived from entrepreneurial networking capacity on firm market performance.
Abstract: This paper examines the entrepreneurial networking capacity of firms in leveraging shared resources in clusters to achieve market performance. Defining industrial clusters from a social network perspective and entrepreneurial networking capacity as the capacity of firms in orchestrating relational-based resources to achieve enhanced performance and build competitive advantage, this paper analysed the influences of regional shared resources derived from entrepreneurial networking capacity on firm market performance. This paper used the primary data collected from the 65 wine regions (GIs) in Australia and tested the proposed hypotheses using structural equation modeling. The results show the unique roles of different types of cluster shared resources in enhancing firm market performance. We contribute to further development of the social network theory, the resource-based view, entrepreneurship and cluster theory and provide grounds for closer examination of how the context of industrial clusters influences the resource-based competitive advantage of firms.
TL;DR: In this article, the role of relationship lending for small and micro-sized firms is explored in times of crisis, and the authors find that small companies can gain disproportional benefits from banks accumulation of soft information, especially for the introduction of new products and processes.
Abstract: Financial frictions represent a severe obstacle to firm innovativeness. The paper explores this link in times of crisis and provides new insights on the role of relationship lending for small and micro-sized firms. Not only small and medium enterprises (SMEs) have a lower probability to innovate and a higher likelihood to face financial constraints, their innovative propensity is also more sensitive to firm financial condition. The establishment of close ties with the lender bank can help overcoming financial barriers to innovation. By exploiting firm-specific proxies of relationship lending I document a highly nonlinear effect that is decreasing with the size of the firm, suggesting that small companies can gain disproportional benefits from banks’ accumulation of soft information, especially for the introduction of new products and processes.
TL;DR: Using microdata from the US Survey of Business Owners 2007, this article examined transnational activities of immigrant-owned businesses in three aspects: whether they export, outsource jobs, and have overseas establishments.
Abstract: Using microdata from the US Survey of Business Owners 2007, this study examines transnational activities of immigrant-owned businesses in three aspects: Whether they export, outsource jobs, and have overseas establishments Results show that immigrant-owned firms have significantly higher tendency to be involved in transnational economic activities when compared to non-immigrant-owned firms Immigrant firms without transnational activities have significantly fewer employees, smaller annual total sales, and smaller total payrolls than non-immigrant firms However, immigrant-owned firms with transnational activities fare significantly better than non-immigrant-owned firms without transnational activities These findings speak directly to the long-debated issues concerning different motivations and performance outcomes of immigrant business ownership
TL;DR: This article used quantile regression techniques to study the R&D-growth relationship in HGF compared to low-growth firms and found that the relationship depends on the particular period in the industry's life cycle.
Abstract: Firms across sectors and regions are highly skewed in their ability to engage with innovation and even more skewed in their ability to translate investments in innovation into higher growth. Recent attention has been placed on the importance of ‘high-growth firms’ (HGF) for innovation policy. Our paper explores under what conditions HGF matter for translating R&D investments into economic growth and how this depends on firm-specific and industry-specific factors. We use quantile regression techniques to study the R&D–growth relationship in HGF compared to low-growth firms. Unlike previous studies, we pay particular attention to whether this relationship depends on the particular period in the industry’s life cycle. We focus on the US pharmaceutical industry from 1963 to 2002 and find that the R&D–growth relationship is sensitive to the changing competitive environment over the industry’s history, which suggests that innovation policy must focus not only on firm attributes but also competitive structures.
TL;DR: This article found that the children of self-employed parents who encountered a great deal of resistance in the socialist German Democratic Republic due to their self-employment are much more likely to give mastery as the reason for running their own venture compared to entrepreneurs whose parents did not have to overcome this sort of challenge.
Abstract: There is mounting empirical evidence that there is intergenerational transmission of parental preferences for entrepreneurship. However, much of the work on this topic is not explicit about the role of values in this transmission process. Furthermore, nearly all studies neglect potential heterogeneity of values among entrepreneurial parents. This paper contributes to the literature by making use of a natural experiment that allows (1) identifying a group of entrepreneurial parents who have a distinct priority of challenging existing conditions (“mastery”) and (2) detecting whether this value orientation is transmitted. Comparing German entrepreneurs two decades after Reunification reveals that the children of self-employed parents who encountered a great deal of resistance in the socialist German Democratic Republic due to their self-employment are much more likely to give mastery as the reason for running their own venture compared to entrepreneurs whose parents did not have to overcome this sort of challenge.
TL;DR: In this article, an instrument variable approach was used to address the endogeneity of education and found a significant and substantial effect of an added year of primary education on entrepreneurial profitability, consistent with theoretical arguments that primary schooling provides a generalised form of competence that underpins the variety of skills an entrepreneur needs to succeed in business.
Abstract: This paper estimates the effect of education on the success of entrepreneurial activity, using survey data from Malawi. An instrument variable approach is used to address the endogeneity of education. We find a significant and substantial effect of an added year of primary education on entrepreneurial profitability. This is consistent with theoretical arguments that primary schooling provides a generalised form of competence that underpins the variety of skills an entrepreneur needs to succeed in business. Results are robust to non-random selection into entrepreneurship.
TL;DR: In this paper, the authors investigated the relation between local financial development and trade credit in an integrated financial market and found that trade credit complements the formal finance of small and medium-sized enterprises (SMEs) at the local level.
Abstract: We investigate the relation between local financial development and trade credit in an integrated financial market. Our results suggest that trade credit complements the formal finance of small- and medium-sized enterprises (SMEs) at the local level. Provincial banking development in Italy increases the provision of trade credit by SMEs and stimulates the redistribution of loans via trade credit. However, cooperative banking reduces the use of trade credit at the local level. Evidence shows that lower levels of provincial banking development are linked with a stronger decline in trade credit at the start of the global financial crisis. We also find that SMEs in provinces with industrial districts use more trade credit. Our results confirm that local differences in banking development and the trade credit policy of SMEs within countries matter, adding to earlier findings that the provision of trade credit is complementary to the development of financial institutions at the country level.
TL;DR: This paper explored a large and detailed dataset of financial statements of Belgian small and medium-sized enterprises (SMEs) over the 1997-2010 period and found that the quality of SMEs' financial statements is negatively related to those companies' effective interest cost.
Abstract: This study explores a large and detailed dataset of financial statements of Belgian small and medium-sized enterprises (SMEs) over the 1997–2010 period. Using accruals quality as a proxy for the quality of SMEs’ financial reports, we find that the quality of SMEs’ financial statements is negatively related to those companies’ effective interest cost. This result is also highly economically significant. The findings in this paper are consistent with the idea that earnings are important for creditors in predicting SMEs’ reimbursement capacity (i.e., future cash flows) and that less estimation error in accruals enhances earnings’ ability to predict future cash flows. We deliver evidence of an important economic benefit of financial reporting for SMEs, to wit, the potential to reduce information asymmetry between SMEs and their creditors through higher-quality financial reporting.
TL;DR: The authors examined which aspects of a venture's activities, structures, and outcomes, as conveyed by its narrative, are associated with legitimacy judgments by potential angel investors in a sample of 176 new venture proposals and found that entrepreneurial ventures with quality top management teams, advisors and developed products are viewed more favorably by angel investors and likely have better access to these investors.
Abstract: Favorable legitimacy judgments by potential resource providers are critical for the survival and growth of new ventures. We examine which aspects of a venture’s activities, structures, and outcomes, as conveyed by its narrative, are associated with legitimacy judgments by potential angel investors in a sample of 176 new venture proposals. We find that entrepreneurial ventures with quality top management teams, advisors, and developed products are viewed more favorably by angel investors and likely have better access to these investors. This research provides new insights into the establishment of legitimacy within the economically important angel capital market.