Firm Formation Research Articles

Why are some nations more entrepreneurial than others? Investigating the link between cultural tightness–looseness and rates of new firm formation

AbstractResearch SummaryWe evaluate the role of cultural tightness–looseness as an explanation for cross‐cultural variation in new firm formation rates. Modeling cultural tightness–looseness as an antecedent for individual entrepreneurial dispositions and informal institutions, we examine its impact on the number of new limited‐liability companies registered per 1000 people and the rate of new entrepreneurs in the working‐age population. Our findings show that cultural tightness–looseness explains 56% of the variation in new firm formation rates in a sample of 156 nations, and 71% of the variation in the rate of new entrepreneurs in the 50 US states, with greater cultural looseness corresponding to higher rates of entrepreneurship, on average. This effect is robust to various model specifications, measures, and controls for other cultural dimensions.Managerial SummaryOur study examines how cultural tightness–looseness impacts new firm formation rates across nations and US states. We find that cultural looseness, characterized by flexible social norms, significantly influences entrepreneurial activity. Specifically, it explains 56% of the variation in new firm formation rates across 156 nations and 71% of the variation in new entrepreneur rates in the 50 US states. Nations and states with looser cultures tend to have higher rates of entrepreneurship. These findings are robust across different model specifications, measures, and control variables. Managers and policymakers should consider the strength and enforcement of social norms as factors in fostering new firm formation.

CEO Cross-Sector Work Experience and Public–Private Partnership Formation of Private Firms in China

Abstract As the need for collaboration across multiple organizations to deal with complex social issues such as poverty, crime, and public health grows, Public–Private Partnership (PPP) is of increasing importance. However, little is known about when and why private firms engage in such partnerships. Drawing on upper-echelon theory and the information-processing perspective, we highlight the importance of institutional knowledge and information embedded in CEO cross-sector work experience. We argue that such tacit knowledge and information enables CEOs to better identify the potential risks associated with PPPs. Consequently, CEOs with cross-sector work experience tend to be more cautious in participating in such partnerships, especially in developing economies like China, where private actors face greater information incompleteness concerning post-collaboration hazards due to the government's selective disclosure. Moreover, we develop a multi-moderator framework in which regional marketization and political connection alter the main effect by serving as supplementary information channels for private actors. A panel dataset of Chinese private listed firms from 2013 to 2021 provides strong support for our hypotheses. This study contributes to our understanding of the micro-foundation of PPP formation and draws attention to CEOs’ prior career experiences in different organizational forms.

Weak vs Strong Knowledge Spillover Effects. Evidence from Geographic Distribution of Innovative Startup in Italy

This paper introduces the concepts of weak and strong knowledge spillover effects within the context of the Knowledge Spillover Theory of Entrepreneurship. In this context, the fundamental idea of our proposition is to provide a comprehensive analysis of the factors and conditions promoting and supporting entrepreneurship development at the regional and provincial level using a unique unbalanced panel database, consisting of 9242 Italian Innovative startups for the period 2008-2018. In general terms, we argue that the evidence from our unbalanced panel dataset indicates that these dynamics are as follows. First, spillover effects deriving from competition are initially strong at the province level, and later decay to weak spillover effects at the regional level. Second, in terms of specialization (intra-industry) spillover effects, they are initially strong at the provincial level, and later become weak at the regional level. Third, spillover effects deriving from diversity (inter-industry) are predominantly strong at the regional level, yet weak at the provincial level of aggregation. At the provincial level, higher levels of competition result in strong knowledge spillover effects leading to higher new firm formation, with weak knowledge spillover effects deriving from specialization. Furthermore, in line with the Knowledge Spillover Theory of Entrepreneurship, the existence of non-homogeneous distribution of opportunities and related knowledge spillover effects create heterogeneity of patterns of new firm formation across different units of geographic aggregation. These results provide evidence of constraint potential for growth that remains a puzzle and challenge for academics and policymakers.

중소 수출 제조기업의 빅데이터 분석 역량이 공급망 회복탄력성과 공급망 성과에 미치는 영향에 관한 연구 - 기계/장비 산업을 중심으로

As the economic environment of the global market is rapidly changing, uncertainty is increasing, and technological innovation, as well as financial and human resources, are becoming important factors. In particular, small and medium-sized export manufacturing companies are building global supply chains to improve their competitive advantage, and big data analytics capabilities to collect and analyze manufacturing and import/export information have been raised as a way to solve these risks. Therefore, this study analyzed the influence of big data analytics capabilities on supply chain performance through logistics flexibility and supply chain resilience in the supply chain formation of small and medium-sized export manufacturing firms. The survey was distributed to small and medium-sized export manufacturing companies from January 3, 2024, to March 31, 2024, through face-to-face, email, mail, and fax, focusing on the list of member companies provided by the Korea International Trade Association, the Ministry of SMEs and Startups, the Smart Manufacturing Innovation Association, and the SME Technology Information Promotion Agency. More than 2,000 copies were distributed and 215 copies (21.5%) were collected, and 203 copies of the questionnaire were constructed after removing 12 non-response questionnaires. Based on the collected questionnaires, the analysis was conducted using SPSS Ver. 28.0 and the extension program Process Macro Ver. 4.2. The results of the empirical analysis of this study are as follows. First, big data analytics capabilities have a positive impact on supply chain performance. Second. big data analytics capabilities have a positive effect on supply chain performance through the mediation of logistics flexibility. Third, big data analytics capabilities have a positive effect on supply chain performance through the mediation of supply chain resilience. Fourth, big data analytics capabilities have a positive effect on supply chain performance through the dual media.

The role of trademark rights expansion in the formation and abuse of market power

Trademarks play a critical role in the creation and abuse of market power, in the sense that when expansively protected, trademark rights yield legal advantages that can be leveraged to lock in consumers and raise entry barriers. But this role has long been underestimated or even overlooked. Based on empirical research and qualitative case analysis, we find that the legal advantages created by the expansion of trademark rights are a key factor in the formation of firms’ market power in product domains with a high degree of information asymmetry. In situations where firms have market power, the geographical and cross-category expansion of trademark rights can enable and rationalize the implementation of abusive practices such as price discrimination and tying. Limiting the anti-competitive effects of the expansion of trademark rights requires the combined efforts of ex post antitrust and ex ante regulation.

Does Competition from Informal Firms Really Influence New Product Development by Formal Firms?

Does Competition from Informal Firms Really Influence New Product Development by Formal Firms?

The impact of climate vulnerability on new firm formation

The impact of climate vulnerability on new firm formation

Macroeconomic determinants of enterprise births in European countries: The moderating role of human capital in the unemployment structure

Research background: While micro-level studies evidence that unemployment increases the probability of being self-employed, the findings at the macro-scale are ambiguous. At the macroscale, the unemployment push mechanism is further conditioned by cyclical fluctuations and industry-specific characteristics. Most studies, however, have neglected the heterogeneity of the group of unemployed, which could also be behind the disparate results. Purpose of the article: In filling this gap, the study aims to examine the links between the unemployment rate and enterprise births, while considering the unemployment structure in terms of the human capital of the unemployed and the unemployment duration. Methods: The issue is examined using the example of 20 European countries in the period 2004–2020. The fixed- and random-effects panel models were applied. The sectoral diversity of entrepreneurial activity (manufacturing, wholesaling and retailing, professional and scientific activities, ICT), and the size class of the newly established enterprises (with/without employees) are also considered. Findings & value added: The study reveals that the share of long-term unemployment and the skill structure of the unemployed have an impact on new firm formation, which varies with the knowledge intensity of the start-ups and their size. A higher share of highly qualified unemployed increases the start-up rates, particularly in knowledge-intensive services and manufacturing. A higher share of long-term unemployed has a negative impact on enterprise births, specifically in new businesses with employees. The findings are important for designing effective instruments to address unemployment by entrepreneurship within active labour market policy.

Informality and aggregate productivity: The case of Mexico

This paper develops and estimates a quantitative model to analyze the aggregate productivity consequences of informality in Mexico. While informality is typically viewed as prevailing solely among small firms, we use rich census data to document a high and rising share of large informal firms between 1998 and 2013. The model is quantified using the observed size and productivity distributions of both informal and formal firms. We use the model to assess the role of changes in labor market regulations, entry costs and enforcement in contributing to the rise in informality and decline in TFP in Mexico from 1998 to 2013. We find that the factors most important for the decline in aggregate productivity were not important drivers of the increase in informality, and conversely, the factors most important for the increase in informality had little impact on aggregate productivity. Regulatory changes during the 2000s contributed to over a third of the observed rise in the informal employment share, but with small aggregate productivity consequences. In contrast, rising entry costs account for a third of the decline in TFP from 1998 to 2013, but had little impact on informality.

Spawned by opportunity or out of necessity? Organizational antecedents and the choice of industry and technology in employee spinouts

AbstractResearch summaryI examine how the organizational antecedents of spinouts shape the new firms' industry and technological trajectory choices compared to those of the parent firms. Building on prior research on employee entrepreneurship and integrating insights from the literature on opportunity and necessity entrepreneurship, I hypothesize that spinouts launched to exploit a new business opportunity shunned by the parent firm (i.e., opportunity spinouts) are more likely to enter a different but related industry and technological field to those of the parent firm. I hypothesize also that spinouts triggered by adverse developments in the parent firm (i.e., necessity spinouts) are more likely to target the same industry and technological field as the parent. Analysis of data from the European biotech industry supports these predictions.Managerial summaryThe prevailing view of employee entrepreneurship is that the established firm's unwillingness to commercialize an employee's ideas leads to the employee leaving to start a new firm. However, evidence suggests that spinout activity (new firm formation by former employees) can be also triggered by adverse developments in the established firm that disrupt an employee's job. This study examines how the organizational antecedents of spinouts shape the new firms' early‐stage strategic choices. Using data from the biotech industry, I show that opportunity driven spinouts are more likely to enter a different but related industry and technological field to those of their founders' prior employer and that necessity driven spinouts are more likely to target the same industry and technological field as the prior employer.

Technological Innovations in Agricultural Firms in Bulgaria: What is the Role of EU Funds?

Abstract The value chains that originate from agricultural production across the globe are of critical importance to achieving the Sustainable Development Goals. In the context of Bulgaria on the country level, the gross capital formation of agricutural firms has experienced an incredible increase of 95% because of buying machines and equioments during the years 2018 and 2022. Our research project focuses on analyzing the effects of governmental financial support on the growth and competitiveness of agricultural companies. For the study, data on firms that were financially aided to buy agricultural machinery between 2021 and 2023 was derived from the eufund.bg database. It was discovered that medium and large businesses are two to three times more likely to receive funding from the EU compared to the micro-enterprises. The study identified a significant North-South divide signaling a positive impact of funding to the less developed regions and in particular the Northwest region. Furthermore, the crucial role of the EU funding in enhancing the growth of the agricultural sector are emphasized by the study. The study identifies gaps in the efficacy of support programs and policy interventions in enhancing innovations in the agricultural sector. The study also offers insights on specific impacts on farm productivity, profitability, environmental sustainability, and socio-economic implications for the future studies.

Dynamic effects of path dependence on regional entrepreneurship in transitional China

ABSTRACT Previous studies fall short when explaining the determinants of regional entrepreneurship in an unstable environment from a dynamic perspective. This study investigates the dynamic feedback effects of path dependence on the regional entrepreneurial activities in China. Using a sample of panel data related to 47,515,084 enterprises from 2000 to 2018, we estimate a set of panel models analyzing the effects of dynamic increasing returns and formal and informal institutional hysteresis on the new firm formation in Chinese cities. Our results provide evidence of positive relationships between peer effects from past entrepreneurial activities, past FDI and government intervention as well as the historical environment of the proportion of foreign-funded enterprises and SOEs in 1989 with the start-up rates. This study on regional entrepreneurship in the Chinese context develops a broader understanding of entrepreneurship in transition economies.

The effect of informal competition on the performance of formal firms: a systematic review of the literature

PurposeThe purpose of this paper is to examine the empirical literature on the effects of informal competition on firm performance and provide directions for future research.Design/methodology/approachWe search the Scopus and Web of Science databases and adopt a specific protocol to perform a systematic review of the literature. We screen 536 documents and apply three inclusion criteria for filtering.FindingsWe identify the impact of informal competition on nine types of formal firms' performance. We assess the findings according to the explanatory and response variables and the data samples of the articles reviewed. We find that five areas of focus are under-researched due to analyses of country or region-specific data, or lack of consensus because of contradicting findings.Originality/valueTo the best of our knowledge, this is the first review of the empirical literature on the effects of informal competition on the performance of formal firms.

The effect of competition from informal firms on proactive environmental strategies in emerging economies

AbstractDrawing on the Attention Base View (ABV) theory, this paper examines the adoption of Proactive Environmental Strategies (PES) by formal firms in emerging economies and explores the influence of informal competition. We investigate the moderating effects of contextual factors (number of formal competitors) and firm characteristics (CEO's experience). Using data from the 2019 World Bank Enterprise Survey, we apply a Negative Binomial model to a sample of 7,436 manufacturing firms across 25 emerging economies. Unlike previous evidence, our findings suggest that formal firms facing competition from informal counterparts tend to adopt PES to bolster competitiveness. However, the perception of high formal competition and the CEO's industry experience may reduce PES adoption. This study advances our understanding of PES adoption in emerging economies, emphasizing the significance of informal competition. It also increases the evidence of the ABV approach to environmental strategy research, offering insights for managing environmental challenges in emerging markets.

Productivity and wage gaps between informal and formal firms in India: Trends and determinants

ABSTRACT This study examines the productivity and wage gaps between informal and formal sector firms in India. Using a comprehensive dataset covering a 15-year period, we explore the influence of access to finance, infrastructure, and labor regulations on these gaps. Employing standard Oaxaca decomposition method, we analyze the role of these factors in explaining the informal–formal gaps in wages and productivity. Our results reveal significant and expanding gaps in both productivity and wages between informal and formal firms. Decomposition analysis suggests firm characteristics and infrastructure as primary factors widening the gaps, while access to finance and flexible labor regulations help narrow them. The findings point to the importance of targeted interventions needed to augment the growth and development of the informal manufacturing sector. Policies that enhance access to finance, improve infrastructure, and promote favorable labor markets can contribute to narrowing the gaps.

Management practices and partial government ownership in the Middle East and North Africa

AbstractA wealth of evidence has shown the positive effects of better management practices on firms. More recent evidence has highlighted that ownership matters for several developing and advanced economies. However, this relationship has not been studied extensively for economies in the Middle East and North Africa (MENA), a region where the presence of the government in the productive sphere looms large. This study addresses a gap in the literature by exploring how partial government ownership can influence management practices of medium and large formal firms in the MENA. Using two waves of Enterprise Surveys undertaken in 2013 and 2019/2020, the evidence points at a negative relationship between partial government ownership and management practices in the developing MENA region. The findings pass several robustness checks.

An empirical study of firm characteristics, degree of informality, and productivity heterogeneity in the Indian informal sector

ABSTRACT Traditionally, informal firms are assumed to be a homogeneous mix of firms structurally different from formal firms. However, the emerging literature recognizes the high level of heterogeneity among the informal firms and hypothesizes that these informal firms vary in terms of their degree of informality. The goal of this study is to understand the characteristics of the firms operating at different levels of informality and to investigate its impact on firm performance, using a nationally representative dataset from India. We find that firms that are female-owned, rurally located, unbanked, have small asset sizes, and belong to traditional sectors are more likely to operate at higher informal levels. We also find that less informal firms are more productive. We also estimate the average treatment effect using propensity score matching as a robustness check.

How do land and migration restrictions inhibit the formation of zombie firms? Quasi-natural experimental evidence from China

ABSTRACT This paper takes China’s land and migration restrictions (LMRs) on mega cities in 2014 as a quasi-natural experiment. Employing a staggered difference-in-differences (DID) model, the study investigates the impact of LMRs on the formation of zombie firms and explores the underlying mechanisms. The findings reveal that LMRs lead to increased land and labour costs in mega cities. Consequently, firms respond by enhancing management efficiency and increasing R&D innovation, which significantly inhibits firm zombification. Heterogeneity analysis indicates that this inhibitory effect is more pronounced in firms with low financial constraints, those located in high marketization regions, and those without political connections. Furthermore, a detailed analysis demonstrates that LMRs play a role in facilitating the recovery of zombie firms, while not influencing their exit. This nuanced understanding of the relationship between LMRs and the formation of zombie firms contributes valuable insights to the existing literature.

Import Competition, Formalization, and the Role of Contract Labor

Abstract Does higher import competition increase formalization and aggregate productivity? Exploiting plausibly exogenous variation from Chinese imports, we provide empirical causal evidence that higher imports increases the share of formal manufacturing enterprise employment in India. This formal share increase is due to both the rise in formal-enterprise employment driven by high-productivity firms, and a fall in informal-enterprise employment. The labor reallocation is enabled by the formal firms’ hiring of contract workers, who do not carry stringent firing costs. Overall, Chinese import competition increased formal-sector employment share by 3.7 percentage points, and aggregate labor productivity by 2.87 percent, between the years 2000–2001 and 2005–2006.

From the paper age to the electronic age: an electronic business registry reform in Ecuador

ABSTRACT This paper analyzes the short- and long-run effects of implementing an electronic business registry in Ecuador in September, 2014. Using a regression discontinuity in time (RDiT) design jointly with official administrative data, I find an increase in the short-run in the number of new formal firms that ranges from 14% to 18% depending on the outcome studied. In the long-run, the policy implementation increases the number of new formal firms by around 27%. For the entry rate outcome, the results are similar but in less magnitude. In particular, the impact of the policy implementation increases the entry rate by 9.10% in the short-run and 0.91% in the long-run. Overall, this paper supports the idea that reducing red tape and applying new technologies in business registries increase firm entry into the formal economy.