Start-up Firms Research Articles

On the Tax Efficiency of Startup Firms

We examine the choice of organizational structure for VC-backed startup firms. These firms overwhelmingly organize as C-corporations rather than as tax advantaged limited liability companies (LLCs). This results in foregone tax savings of $43.9 billion, or 4.9% of the total equity invested in the sample firms. The decision is puzzling given plausible estimates of the direct costs involved, but appears related to ‘hassle,’ and other transition costs generated by participants implementing a new form. Firms with more employees and investors are likely to choose the C-corporation. VCs appear to prefer the C-corporation form, as receiving VC money is associated with most LLC firms switching to a C-corporation within 30 days. Greater VC preferences for C-corporations are linked to a preference for familiarity, and less attention to taxes.

Numerical labor flexibility and innovation outcomes of start-up firms: A panel data analysis

Using a panel data set based on repeated questionnaire surveys of Japanese start-up firms, this study examines the effects of numerical labor flexibility on the innovation outcomes of start-up firms, a topic on which there is currently insufficient research. Here, numerical labor flexibility is defined as the external labor turnover of regular employees and the proportion of non-regular employees, and innovation outcomes include product innovation and patent applications. The estimation results of a random-effects probit model indicate that an inverted U-shaped relationship exists between the external labor turnover of regular employees and the probability of patent applications. Moreover, a similar U-shaped relationship exists between the proportion of non-regular employees and the probability of product innovation. These results are interpreted in light of the organizational characteristics of start-up firms. The implications of the findings are discussed.

Crowd Equity Investors: An Underutilized Asset for Open Innovation in Startups

Collaborating with investor networks generated in the course of equity-based crowdfunding campaigns can contribute to the success of startup firms. Through a qualitative study of 60 European startups, this article identifies the type of inputs provided by equity investors, how these inputs are related to startups’ and founders’ characteristics, and startups’ later performance. Startups exploiting crowd network are more likely to be successful two years later compared with startups that do not exploit the crowd, or acquire from the crowd product, strategy, or market knowledge. The findings extend existing research on the relationships between open innovation and startups by identifying the inputs provided by the crowd and how the use of crowd equity investors in open innovation platforms is related to later success.

The Leasing Decisions of Startup Firms

Small business owners use a variety of bootstrap financing methods to acquire the needed resources necessary to survive and eventually grow their businesses. One such method is to lease equipment and/or machinery. Leasing is a viable alternative to bank financing and for small businesses, leasing is a flexible strategy to preserve cash. In this study, we analyze the impact of asset specificity and growth opportunities on leasing decisions of a large cohort of startup businesses. To test our hypotheses, we use a unique dataset provided by the Kauffman Foundation.1Our longitudinal analyses show that startups with unique/specific assets have a lower propensity to lease whereas startups with high growth opportunities are more likely to lease their assets. We also argue that the owners’ demographic and socioeconomic characteristics are likely to impact their individual risk-taking behavior. Thus, factors such as owners’ experience, education, age, gender, and race are likely to impact the decision to lease assets. Our results show that owners’ characteristics do have a significant impact on these decisions. The findings reveal that female and older entrepreneurs as well as highly educated owners are less likely to lease. Our work advances prior research on the determinants of leasing in large, publicly traded firms and provides additional insights on entrepreneurial bootstrapping.

신생기업 생존과 설립지역 특성에 대한 관계 실증분석 : 신생기업 설립지역의 산업활동 특성을 중심으로

신생기업 생존과 설립지역 특성에 대한 관계 실증분석 : 신생기업 설립지역의 산업활동 특성을 중심으로

Financing Patterns and Performance Outcomes of Women- Versus Men-Owned Firms: Evidence from the Kauffman Firm Surveys

This study examines and compares characteristics, financing patterns, and performance outcomes of women-owned and men-owned young entrepreneurial firms. Using fully imputed data from the Kauffman Firm Surveys of U.S. start-up firms, we first examine the differences in firm and owner characteristics between women- and men-owned firms at the firm’s start-up. Second, we explore the differences in equity and debt financing between the two groups of firms during the first several years of the firm’s operations. Third, we explore whether performance outcomes (in terms of survival and growth) of young entrepreneurial firms are different for firms owned by women versus firms owned by men. We find large and significant differences in the amount of start-up capital (debt and equity), with women-owned firms at a significant disadvantage. We also find that women-owned firms are significantly less likely to use business credit than are men-owned firms which is important considering prior findings that firms using business credit at start-up survive longer and grow faster. Finally, while we find large and significant univariate differences in performance of women-owned vs. men-owned firms, these differences disappear in our multivariate analysis of revenues and survival. However, these differences remain significant for employment.

Investments, incentives, and innovation: geographical clustering dynamics as drivers of sustainable entrepreneurship

This study attempts to fill the literature gap regarding sustainable entrepreneurship viewed through geographical clustering lenses by examining how institutional factors such as local entrepreneurship and innovation climates, knowledge networks, policies, resource availability, and awareness affect entrepreneurial firm formation in the USA. Drawing from various theoretical views within the interdisciplinary literature on the topic, we develop cross-cluster hypotheses regarding firm formation and geographic clustering of clean-technology companies. We test them using a negative binomial random effects model in a panel sample of US clean-technology startup firms and find general support.

Internet plus policy

PurposeThe purpose of this paper is to analyze and determine the best course of action for policymakers in China when dealing with the implementation of best practices for the internet of things (IoT). The recently introduced Internet Plus strategy is an attempt by Chinese policymakers to boost the Chinese economy by diminishing its reliance on manufacturing and export in favor of a knowledge-based economy driven by services and the tech sector. The IoT is arguably one of the key drivers behind this transformation.Design/methodology/approachThis paper conducts an analysis of existing literature on the IoT and uses two complimentary theories, resource-based view and dynamic capabilities theory, to determine a set of policy recommendations.FindingsA cooperative relationship between policymakers, start-up firms and academia is essential to the success of the IoT. The artificial intelligence industry also plays a key role in the development of the IoT and requires strategic funding and favorable policy. Finally, established and cost-effective standards and practices are much more likely to be effective than new and costly alternatives.Originality/valueThis paper examines the newly established field of the IoT and sets out a number of policy recommendations needed for its success. To achieve this, the author uses two complimentary theories unique to the business management field but increasingly compatible with the Chinese public policy sector.

Google search intensity and its relationship to the returns and liquidity of Japanese startup stocks

This study investigates the relationship between investor attention and stock price movements in Japan's startup stock exchanges, Mothers and JASDAQ. We find a positive relationship between search intensity and stock returns and between search intensity and liquidity. The positive correlation between search intensity and stock returns/liquidity tends to be larger for startup firms with a high proportion of individual shareholders. Contrary to prior studies that have reported a reversal after an immediate stock price increase, our results show the possibility that an immediate increase in stock returns of startup firms may not be neutralized in the long run.

Google Search Intensity and its Relationship to the Returns and Liquidity of Japanese Startup Stocks

This study investigates the relationship between investor attention and stock price movements in Japan’s startup stock exchanges, Mothers and JASDAQ. We find a positive relationship between search intensity and stock returns and between search intensity and liquidity. The positive correlation between search intensity and stock returns/liquidity tends to be larger for start-up firms with a high proportion of individual shareholders. Contrary to prior studies that have reported a reversal after an immediate stock price increase, our results show the possibility that an immediate increase in stock returns of startup firms may not be neutralized in the long run.

A tribute to those associated with this tribute, with great gratitude

ABSTRACTThe author expresses heartfelt gratitude for this special issue and to collaborators throughout his career. He notes that his fundamental commitment has been to conducting theoretical studies that are methodologically rigorous and socially relevant – increasingly in the form of engaged scholarship, and he reviews applied communication research publications across his career. He addresses three ongoing foci in connection with his current roles in technology management: small firms’ choice and use of advanced information and communication technologies to enable key interaction structures; team dynamics in start-up firms; and innovation in technology companies. Three challenges and opportunities for applied communication researchers are offered: the prevalence and importance of small businesses as sites for studies; the need for a larger number and wider range of fully developed theories that are grounded in communication and that have significant sway with practitioners; and conferences for communities of researchers (and in some cases practitioners too) in specific areas of scholarship and practice as potent forums for connection and ongoing collaboration.

Failure prediction of government funded start-up firms

This study aims to create a prediction model that would forecast the bankruptcy of government funded start-up firms (GFSUs). Also, the financial development patterns of GFSUs are outlined. The dataset consists of 417 Estonian GFSUs, of which 75 have bankrupted before becoming five years old and 312 have survived for five years. Six financial ratios have been calculated for one (t+1) and two (t+2) years after firms have become active. Weighted logistic regression analysis is applied to create the bankruptcy prediction models and consecutive factor and cluster analyses are applied to outline the financial patterns. Bankruptcy prediction models obtain average classification accuracies, namely 63.8% for t+1 and 67.8% for t+2. The bankrupt firms are distinguished with a higher accuracy than the survived firms, with liquidity and equity ratios being the useful predictors of bankruptcy. Five financial patterns are detected for GFSUs, but bankrupt GFSUs do not follow any distinct patterns that would be characteristic only to them.

Routinizing – A Key Capability for Building Resilient Start-Up Firms

This paper investigates the development of organizational resilience in young and entrepreneurial firms. Our findings of a qualitative cross-case analysis including 13 start-up firms suggest that r...

Have you been served? Entrepreneurial support organizations' impact on start-up network formation (WITHDRAWN)

Entrepreneurial support organizations devote increasing efforts to create a context and opportunities for interaction among start-up firms. The basic assumption behind these efforts is that network...

How Path Dependency Affects Startup Firms’ Capital Structures

The purpose of this research is to explore the capital structure of startup firms, providing theoretical reasoning and an empirical test of a path dependency model of funding portfolios. The logic ...

The Predictive Ability of Business Panel Assessments and Start-up Firm Survival

University-based incubators guide entrepreneurs through the start-up and growth process. They also create and provide many opportunities for new firms to develop their network with the business environment, get coaching assistance, and perhaps most importantly develop their business models and business plans. Within incubators, the progress of participants is often monitored by letting the participants pitch before an expert business panel. The feedback from these business panels can provide valuable input for the further development of the new ventures. However, little is known about the predictive power that business panel assessments have in predicting venture survival and growth. In this paper, we will explore the predictive ability of business panel assessments of business planning and business pitches and start-up firm survival in a university-based incubator context. We used business panelists’ assessments of 216 high tech start-ups business plans and pitches. We found that the most important predictor of success by business panel expert evaluations was the quality of the team. The attractiveness of the industry was a negative predictor of start-up firm survival.

Key Drivers of Export-Venture Competitive Advantage : An Empirical Assessment of Korean Start-Up Firms

Key Drivers of Export-Venture Competitive Advantage : An Empirical Assessment of Korean Start-Up Firms

Valley of the unicorns: consumer genomics, venture capital and digital disruption

Drawing on the sociology of expectations and sociology of conventions, this paper explores issues of worth and value in the bioeconomy, and the promissory character of contemporary capitalism. Arguing that the literature on biocapital has paid insufficient attention to geographical differentiation in capital accumulation strategies, this paper situates the consumer genomics firm 23andme in the entrepreneurial culture of Silicon Valley. The paper suggests that in Silicon Valley the relationship between moral worth and economic value is mediated through the concept of disruptive innovation, which functions as both ideological construct and a set of commercial practices utilized by the founders of start-up firms and the venture capitalists who invest in them. Analyzing 23andme’s status as a “unicorn” firm, the paper describes how the recent increase in private investment capital in Silicon Valley has led to a new model of business development for start-ups and considers its implications for corporate governance.

Regional determinants of the small and medium size manufacturing firm entry in a developing country: evidence from Turkey

Purpose- This study investigates regional determinants of the small and medium size firm entry in the manufacturing sector for a developing country, Turkey, in which regional economic development disparities are common. Methodology- Panel data was collected for the period between 2004 and 2009 and analysed by using Feasible GLS estimation technique. Findings- The results show that entrepreneurship culture, the structure of the industry, industry agglomeration overall are the most important factors stimulating the entry rates. However, the number of patent application as a supply-side variable seems to be the main deterrent of new firm entry by working as a fence in front of new firms. The average wage and low skill labor in labor force are the other factors that negatively influence new firm formation in demand and supply side of the economy. Conclusion- Some of these regional variables affecting business formation in developed countries have no influence on the small and medium size firm formation in developing countries. This suggests that the determinants could be country specific. Therefore, policy makers should be careful while using evidence from developed countries to stimulate firm start-ups in developing countries.

Securities Disclosure Reform

The adverse impact of the current securities disclosure regime on small entrepreneurial and start-up firms, as well as on innovation, job creation, and economic growth is substantial. Moreover, disclosure requirements have become so voluminous that they obfuscate rather than inform. This paper outlines a program of interim reforms to improve the existing disclosure regime. It recommends specific changes to Regulation A, crowdfunding, Regulation D, and the regulation of small public companies and of secondary markets to improve the current regulatory environment. This paper also outlines a program of fundamental reform that would dramatically simplify the existing disclosure regime to the benefit of both investors and issuers. This proposal would replace the current 14 disclosure categories with three disclosure regimes—public, quasi-public, and private—and disclosure under the first two categories would be scaled based on either public float or the number of beneficial shareholders.