Firm Births Research Articles

Agent-based modelling of office market for a land use and transport model

This paper proposes an agent-based office market model, as a component of a Land Use and Transport (L-T) model, SelfSim, to simulate how firms and office buildings co-evolve over time. Essentially, the office market model is involved in both firm demography and office building development: the firmographic model is capable of simulating four typical events, namely, firm birth, growth, relocation and closure; the office building development model is to simulate how facility agents develop office buildings, according to the demand from firms, which is associated with the firm demography. The office market model was tested within theoretical examples set up based on a Chinese medium-sized city, Baoding: both global and local Sensitivity Analyses (SAs) were conducted to explore how the twenty seven key model parameters could influence the thirteen model outputs of interest, identifying five influential parameters. Finally, some specific spatially disaggregate model results were presented.

Using QCA to explain firm demography in the European Union

Entrepreneurship is currently considered one of the major foundations of economic growth. There is a strong tendency to understand entrepreneurship as technology, self-employment, new ideas, innovation, or wealth creation. We can thus expect more developed countries to show higher growth rates, given the importance of firms' development for economic and social growth. For this reason, it is important to determine the conditions that have the greatest influence on entrepreneurship dynamics at the macroeconomic level. Using firm birth and death rates (related to business dynamics and entrepreneurship), we focus on the European Union and use qualitative comparative analysis techniques to determine the necessary and sufficient conditions for business dynamics. After dividing the whole EU sample into cohesion and non-cohesion countries, we find that entrepreneurship in cohesion countries is driven by necessity, while in non-cohesion countries, it is driven by opportunity.

Michael Milken: The Junk Dealer

We take a closer look at the life and legacy of Micheal Milken. We discuss why Michael Milken, also know as the Junk Bond King, was not just any other King or run-of-the-mill Junk Dealer, but ”The Junk Dealer”. We find parallels between the three parts to any magic act and what Micheal Milken did, showing that his accomplishments were nothing short of a miracle. His compensation at that time captures to a certain extent the magnitude of the changes he brought about, the eco-system he created for businesses to flourish, the impact he had on the wider economy and also on the future growth and development of American Industry. We emphasize two of his contributions to the financial industry that have grown in importance over the years. One was the impetus given to the Private Equity industry and the use of LBOs. The second was the realization that thorough research was the key to success, financial and otherwise. Perhaps an unintended consequence of the growth in junk bonds and tailored financing was the growth of Silicon valley and technology powerhouses in the California bay area. Investors witnessed that there was a possibility for significant returns and that financial success could be had due to the risk mitigation that Milken demonstrated by investing in portfolios of so called high risk and low profile companies. We point out the current trend in many regions of the world, which is the birth of financial and technology firms and we suggest that finding innovative ways of financing could be the key to the sustained growth of these eco-systems.

How Does Urban Agglomeration Integration Promote Entrepreneurship in China? Evidence from Regional Human Capital Spillovers and Market Integration

Using firm birth records and startup data matched with cities’ characteristics, this paper analyzes nearly 300 prefecture-level cities to examine the role of human capital and market access in shaping the economic geography of innovation-driven entrepreneurship in China. We document strong positive entrepreneurial effects of local human capital resources and market size as well as market integration and human capital spillovers from mega urban agglomerations of integrated cities. Our estimates point to an elasticity of innovation-driven entrepreneurship with respect to human capital spillovers of 0.50-0.79. The elasticity with respect to market integration is 0.53-0.89. Our results also suggest heterogeneous human capital spillover and market integration effects across urban agglomerations. These effects are more robust in first-tier urban agglomerations because first-tier urban agglomerations have a stronger economic base and greater connectivity. Strong human capital spillover and large gains from access to surrounding economic mass jointly highlight the integrated development of megaurban agglomerations in China. We discuss policy implications that concern promotion of local innovation-driven entrepreneurship by strengthening intercity coordination, building transportation and social infrastructure, and improving urban management.

Unemployment and Entrepreneurship in the Mid-Atlantic Region of the United States: A Spatial Panel Data Analysis

Studies of whether unemployment leads to more or fewer firm births and whether firm births reduce unemployment have produced mixed, inconclusive, and even conflicting results. A group of studies have attempted to reconcile these findings by exploring the possibility that the assumed linear relationship may break down and become non-linear, as might be the case if the relationships were space- and time-variant. However, these studies have also produced inconclusive results. The current study extends the analysis in this small but growing literature from the usual single- and multi-country level to the sub-country level while paying particular attention to the role of spatial effects in the firm creation process. We do this by combining spatial exploratory data analysis and spatial econometrics based on panel data for 365 counties in the Mid-Atlantic region from 1999 to 2010. The results show that spatial effects play a crucial role in this process and that ignoring them substantially underestimates the long-run effects of unemployment on firm births. The results also reveal a robust and statistically significant inverted U-shaped relationship in which rising unemployment raises the firm birth rate up to a certain threshold. In addition, a U-shaped relationship where rising firm births lower unemployment for a period but subsequently increase it is observed. These non-linear results help explain some of the conflicting findings in the literature.

High-Growth Entrepreneurship

Analyzing data on all U.S. employers in a cohort of entering firms, we document a highly skewed size distribution, such that the largest 5% account for over half of cohort employment at firm birth and more than two-thirds at firm age 7. Little of the size variation is accounted for by industry or amount of finance, but relative size is strongly persistent over time: at age 7, the probability of 20+ employees is about 40 times larger for those entering with 20+ than for those entering with one. We link administrative and survey data to study the role of founder characteristics in high growth, defined as the largest 5% of the cohort at ages 0 and 7.Female-founded firms are 50% less likely to be in this ventile at both ages, and 34% less likely when controlling for detailed demographic and human capital variables. A similar initial gap for African-Americans, however, disappears by age 7. Founder age is positively associated with high growth at entry, but the profile flattens and turns negative as the firm ages. The education profile is initially concave, with graduate degree recipients no more likely than high school graduates to found high growth firms, but the former nearly catch up to those with bachelor's degrees by firm age 7, while the latter do not. Most other relationships of high growth with founder characteristics are highly persistent over time. Prior business ownership is strongly positively associated, and veteran experience negatively associated, with high growth. A larger founding team raises the probability of high growth, while, controlling for team size, diversity (by gender, age, race/ethnicity, or nativity) either lowers the probability or has little effect. Controlling for start-up capital raises the high-growth probability of firms founded by women, minorities, immigrants, veterans, smaller founding teams, and novice, younger, and less educated entrepreneurs. Perhaps surprisingly, female, minority, and less-educated entrepreneurs tend to choose high-growth industries, but fewer of them achieve high growth relative to their industry peers.

The foreign business and domestic enterprise relationship: Its implications for local entrepreneurial resilience

Both domestic small- and medium-sized enterprises and foreign direct investment are often seen as key parts in helping economies to withstand and recover from shocks. What is less clear is the impact that a greater presence of foreign-owned firms has on domestic enterprises’ ability to withstand such shocks and for entrepreneurial activity to renew itself after economic shocks, described as local entrepreneurial resilience. To examine how foreign influence affects local entrepreneurial resilience rather than considering the relationship between foreign influence and domestic firm births or deaths at a given point in time, this study takes a more dynamic perspective. The relationship between foreign influence and the change in local firm births, deaths, and their overall impact in terms of net births and business churn after the financial crisis is examined. UK data are examined at the local level to account for the within-region heterogeneity of foreign investments that will lead to quite different outcomes being found for domestic enterprises in the same regions. The results indicate that those areas with greater foreign business influence in the labour market are likely to have seen firm birth rates remain higher and recover more quickly. There are policy implications for localities with both higher and lower levels of foreign business ownership.

Firm-level entry and exit dynamics over the business cycles

This paper presents a set of facts on the cyclicality of firm births and deaths in the U.S. during the period 1979–2013. Asymmetry in the cyclicality between firm birth and firm death is observed: aggregate firm birth is generally significantly procyclical, while the (counter-)cyclicality in firm death is ambiguous and sensitive to the choice of cyclical indicator. Such a pattern exists within the majority of sectors as well and is mainly driven by small firms. Young firms are the main contributors to the findings on firm death activity. Further examination along the time-dimension discovers a reason for the contemporaneous cyclicality (or lack thereof) which can be documented as a new fact: firm births positively lead the usual business cycle measures and firm deaths positively lag them. Moreover, cyclicality in business openings and closings differs from establishment level to firm level due to the internal adjustment of continuing firms.

Firm-Level Entry and Exit Dynamics over the Business Cycles

This paper presents a set of facts on the cyclicality of firm births and deaths in the U.S. during the period 1979--2013. Asymmetry in the cyclicality between firm birth and firm death is observed: aggregate firm birth is generally significantly procyclical, while the (counter-)cyclicality in firm death is ambiguous and sensitive to the choice of cyclical indicator. Such a pattern exists within the majority of sectors as well and is mainly driven by small firms. Young firms are the main contributors to the findings on firm death activity. Further examination along the time-dimension discovers a reason for the contemporaneous cyclicality (or lack thereof) which can be documented as a new fact: firm births positively lead the usual business cycle measures and firm deaths positively lag them. Moreover, cyclicality in business openings and closings differs from establishment level to firm level due to the internal adjustment of continuing firms.

High-Growth Entrepreneurship

Analyzing data on all U.S. employers in a cohort of entering firms, we document a highly skewed size distribution, such that the largest 5% account for over half of cohort employment at firm birth and more than two-thirds at firm age 7. Little of the size variation is accounted for by industry or amount of finance, but relative size is strongly persistent over time: at age 7, the probability of 20+ employees is about 40 times larger for those entering with 20+ than for those entering with one. We link administrative and survey data to study the role of founder characteristics in high growth, defined as the largest 5% of the cohort at ages 0 and 7. Female-founded firms are 50% less likely to be in this ventile at both ages, and 34% less likely when controlling for detailed demographic and human capital variables. A similar initial gap for African-Americans, however, disappears by age 7. Founder age is positively associated with high growth at entry, but the profile flattens and turns negative as the firm ages. The education profile is initially concave, with graduate degree recipients no more likely than high school graduates to found high growth firms, but the former nearly catch up to those with bachelor's degrees by firm age 7, while the latter do not. Most other relationships of high growth with founder characteristics are highly persistent over time. Prior business ownership is strongly positively associated, and veteran experience negatively associated, with high growth. A larger founding team raises the probability of high growth, while, controlling for team size, diversity (by gender, age, race/ethnicity, or nativity) either lowers the probability or has little effect. Controlling for start-up capital raises the high-growth probability of firms founded by women, minorities, immigrants, veterans, smaller founding teams, and novice, younger, and less educated entrepreneurs. Perhaps surprisingly, female, minority, and less-educated entrepreneurs tend to choose high-growth industries, but fewer of them achieve high growth relative to their industry peers.

Regulating away competition: the effect of regulation on entrepreneurship and employment

Many scholars have worried that regulation deters entrepreneurship because it increases the cost of entry, reduces innovation in the regulated industry, and benefits large firms because they can overcome the costs of complying with regulations more easily than smaller firms. Using novel data on the extent of US federal regulations by industry and data on firm births and employment from the Statistics of US Businesses, we run fixed effects regressions to show that more-regulated industries experienced fewer new firm births and slower employment growth in the period 1998–2011. Large firms may even successfully lobby government officials to increase regulations to raise their smaller rivals’ costs. We also find that regulations inhibit employment growth in all firms and that large firms are less likely to exit a heavily regulated industry than small firms.

Panel Data Models of New Firm Formation in New England

This study examines the impact of the determinants of new firm formation in New England at the county level from 1999 to 2009. Based on the Spatial Durbin panel model that accounts for spillover effects, it is found that population density and human capital positively affect single-unit firm births within a county and its neighbors. Population growth rate also exerts a significant positive impact on new firm formation, but most of the effect is from spatial spillovers. On the contrary, the ratio of large to small firm in terms of employment size and unemployment rate negatively influence single-unit firm births both within counties and among neighbors. However, there is no significant impact of local financial capital and personal income growth on new firm formation.

Spatial Heterogeneity, Broadband, and New Firm Formation

This paper examines the spatial heterogeneity associated with broadband Internet and new firm formation. The global coefficient estimates of ordinary least-squares regression account for the marginal change in a phenomenon, but such a global measure cannot reveal the locally-varying dynamics. Using Geographically Weighted Regression, it was found that at both the aggregate and economic sector levels, the association between single-unit firm births and the provision of broadband varies across counties in Florida and Ohio and that the global measures do not uncover such a relationship. Hence, policy makers need to take into account such spatial variations while formulating broadband and economic development policies.

Spatial Heterogeneity, Broadband, and New Firm Formation

Purpose: This paper examines the spatial heterogeneity associated with broadband Internet and new firm formation in a number of U.S. states.Methodology/Approach: Both ordinary least-squares regression and Geographically Weighted Regression are used for the estimation purpose.Findings: The global coefficient estimates of ordinary least-squares regression account for the marginal change in a phenomenon, but such a global measure cannot reveal the locally-varying dynamics. Using Geographically Weighted Regression, it was found that at the aggregate and economic sector levels, the association between single-unit firm births and the provision of broadband Internet varies across counties in Florida and Ohio.Originality/Value of paper: There are numerous studies on broadband Internet in the U.S., but this is the first that explicitly examines broadband provision and new firm formation by taking into account spatial heterogeneity across countries.

Sequential Movement Pattern of Firm Births and Deaths Over the Business Cycles

This paper documents, at business cycle frequencies, the sequential pattern of firm births and deaths and the aggregate economic condition in the US. On the aggregate level, firm formation leads economic conditions and positively affects subsequent firm deaths, suggesting that startups have a delayed crowding-out effect. The pattern is mainly driven by young firms and it is observed in all major sectors. Then, a simple, tractable theoretical model is built, featuring the role of imperfect information, to illustrate how standard firm dynamics models can accommodate these new findings.

A spatial analysis of new business formation: Replicative vs innovative behaviour

Using spatial econometric tools, the paper examines the spatial structure of new business formation of Italian regions during the period 2004–2007. In particular, the study empirically investigates whether new business formation in a given geographical area may be explained in terms of replicative and/or innovative entrepreneurial behaviour in each area as well as in the neighbouring areas. Additionally, the analysis focuses on the influence of urbanization on the birth of new firms. From the estimation of a Spatial Durbin Model, we find a significant degree of spatial dependence among Italian regions not only in new business formation but also in some of its determinants. We also find that new business formation in Italy can be explained in terms of both replicative and innovative entrepreneurial behaviour, whose effects depend strictly on the degree of urbanization. Specifically, the replicative behaviour of new firms seems to be significantly dependent on the degree of urbanization, i.e. we find positive effects only when regions are lowly urbanized. A similar result is not found for the innovative behaviour, which positively influences new business formation independently on the degree of urbanization. However, when regions are lowly urbanized, some obstacles to new business of innovative nature can be observed.

Entrepreneurial Reward and Firm Birth Rate

The aim of the present paper is to show that entrepreneurial caliber and firm birth rate (start-ups) are very highly positively related and thus can be used alternatively as indicators for entrepreneurial talent. This fact enables researchers to use either of these above two indicators according to the availability of data. Our panel data sample covers annually the following countries: Belgium, Finland, France, Germany, Greece, Italy, Netherlands, Portugal, Spain and UK for the period (2004-2006), the countries Ireland, Norway and Sweden for the period (2004-2005) and the United Stated for the period (1980-2006). Data for Europe are taken from Eurostat, while for the United States are kindly offered by the United States Census Bureau.

When is a Firm Born? Alternative Criteria and Consequences

There are a number of ways to determine the birth date of a new firm. These include the date of a start-up venture’s initial transactions, initial registry listing, initial labor input, and initial profits. Utilizing the responses from the second Panel Study of Entrepreneurial Dynamics (PSED) cohort, it appears that different criteria for a firm’s birth date are associated with substantial differences in the proportion of start-ups that became new firms, the time required to become a new firm, survival following a new firm birth, and the provision of new jobs. This variation may help explain some inconsistent research findings related to firm births.

The spatial dynamics of new firm births during an economic crisis: the case of Great Britain, 2004–2012

Spatial variations in entrepreneurial activity have been shown to be a time persistent phenomenon in many countries. This paper analyses how these spatial variations have been affected by the recent financial crisis within the context of theories of regional resilience and adaptability. The analysis applies Exploratory Spatial Data Analysis techniques to data on firm births across Local Authority Districts of Great Britain during the period 2004–2012. The results demonstrate that, whilst the overall shape of the spatial distribution of firm births remained persistent, there is evidence of an increase in regional inequality. This is primarily associated with a divergence between London and the rest of the distribution. London, together with part of its surrounding area, appears to constitute a resilient entrepreneurial regime that has generated a dynamic, adaptive response to the crisis with high rates of new firm formation in contrast to other regions which have remained locked into lower rates of entrepreneurship. This supports the view that regional entrepreneurship is a path dependent process: entrepreneurial regions are more adaptable to the effects of an exogenous shock than less entrepreneurial regions. Accordingly, entrepreneurship is a critical factor influencing the resilience of regions in responding to an economic crisis.

The impact of taxes and regulations on firm births and deaths in state border counties

Purpose– The purpose of this paper is to examine the influence of the institutional environment on firm birth and death rates. It is hypothesized that high taxation levels, large government size, high levels of unionization and high minimum wages will be associated with relatively low firm birth and death rates.Design/methodology/approach– This study makes use of a set of custom tabulations from the US Census Bureau that contain data on county-level firm births and deaths. To account for differences in state policies, matched contiguous counties located on state borders are used to calculate matched birth and death ratios.Findings– In the sample of eastern US state border counties, state taxation levels and minimum wages had no significant relationship with firm birth rates, but there was a negative relationship between state union densities and firm birth rates. Both state education and public welfare expenditures were marginally negatively related to firm birth rates. State public welfare expenditures were negatively related to firm death rates, while a marginally significant negative relationship between hospital/health expenditures and firm death rates was observed.Research limitations/implications– These results indicate that state government expenditures may have varying influences on firm birth and death rates, and that high union densities may deter new firm entry.Originality/value– This paper makes use of a county matching technique to help control for confounding variables, allowing for differences in state policies to be better accounted for.