Firm Formation Research Articles

Do New Firms Boost Local Innovation? Evidence From Turkey

New firms have been regarded as one of the key elements for local development. Existing studies focus on the direct impact of new firms via labour markets and job creation. However, the impact of new firms on regional innovation is less investigated. Our analyses are conducted for a developing country, Turkey. Findings of the study show that new firms are crucial for the regional differences in innovation. Results are robust to spatial dependence, an alternative firm formation measure, various regional controls and endogeneity issues. Additionally, impact of the new firms is spatially non-homogenous reminding the ineffectiveness of one-size-fits-all type policies.

University venture capital in big data, regional and historical perspective: where and why has it arisen?

ABSTRACT This article contributes to the international comparative analysis of university venture capital (UVC), providing a quasi-experimental design for follow-up research and practice. The US venture capital industry, with its unicorn focused high-growth format opened up a venture capital gap. UVC transmutes academic innovation into high-tech firms, industries and regional renewal, filling interstitial funding gaps among angel, public and private venture capital offers. It is a knowledge-based industrial policy by Another Name, with direct/explicit and indirect/implicit versions, on a continuum with variation depending upon shifting ideological and competitive concerns. Beyond as of right “womb” provision, UVC capstones an academic innovation ecosystem of technology transfer, incubation and acceleration, translational research, proof of concept funds and entrepreneurship education. Venture capital, exemplified by Sand Hill Road, de-emphasizes classic regional development objectives, neglecting appropriability conditions such as academic and regional circumstances that UK and China prioritize. More modest firm formation outcomes are dismissed as failures, with entrepreneurs encouraged to return to the entrepreneurial churn. We examine the origin and development of UVC from macro, meso and micro, historical and comparative perspectives. Multi-method/multi-sample, comparative case study, and big data analytics show the constraint, variety, and early affinity of UVC to academic icons with significant untapped potential to inspire widespread economic and social advance.

Immigration and New Firm Formation – Evidence from a Quasi-Experimental Setting in Germany

This paper provides new insights into the economic impact of international migration by analyzing how immigration can affect business formation in the host country. For this purpose, we exploit a placement policy in Germany in the 1990s for immigrants of German descent from Eastern Europe and the former Soviet Union (Aussiedler). Our empirical results at the regional level suggest that immigration had a positive impact on firm formation. The most likely mechanism driving this result is a positive implication of population diversity, while entrepreneurial activities of ethnic Germans and supply-side aspects seem to be of minor importance for our findings. Our results demonstrate that immigration under certain conditions – among others, equal legal treatment to natives – can stimulate business creation. Our findings enrich the political debate about the economic effects of immigration frequently discussed in receiving countries.

College quality, students performance and labor market outcomes

This paper decomposes the effect of college’s quality signalling on former students’ early labor market outcomes. We propose a new measure of the signal for college quality: the performance of the previous cohort that has graduated three years before the individual in the same institution and major. Using a unique administrative educational data set matched with the employer-employee data for Brazilian formal firms we are able to identify that an increase of 1 percentage point in the signal variable is related to up to 0.42% larger probability of being employed in the formal sector and an increase of up to 0.4% in the early career wage. We also investigate heterogeneity returns by gender, individual’s prior working experience and field of education. We control for both individual and institutional performance levels.

Regional entrepreneurship and the structure of the banking market

ABSTRACT This paper investigates whether local banking market structure affects regional entrepreneurship, measured by new firm formation. Considering provincial data over the period 2011–21 in Italy, we found that bank concentration and firm formation had an inverted ‘U’-shaped relationship. Lower levels of bank concentration fostered firm formation, but above a market share of about 58% for the largest banks, which is seen in the South and some peripheral and inner areas of central and northern Italy, increased concentration reduced firm formation. However, the presence of local banks is beneficial for the birth of new firms and can reduce the negative impact of high concentration. These findings suggest that banking market structure plays an important role in shaping regional entrepreneurship.

New Firms Formation in Medical, Creative and Agri-Food Sectors as a Function of Local Conditions and Budget Policy of Polish Communes

Theoretical background: The article will help to answer the question what factors contribute to the emergence of new companies in medical, agri-food and creative sectors. Moreover, the aim of the article is to examine to what extent the budget policy of communes determines the creation of new enterprises in each of the analysed sectors separately. Purpose of the article: The aim of the article is to examine the factors affecting new firms formation in medical, agri-food and creative sectors in Poland, as well as the impact of budget policy of local government units at commune level on entrepreneurship in chosen sectors. Research methods: The study was conducted by means of a panel econometric model. In particular, the study was based on FEM estimation modelling based on 2,477 communes in the years 2010–2021. Main findings: The conducted research confirmed that different factors affect new firms formation in studied sectors. The research proved that budget policy of communes influences new firms formation. Moreover, the study confirmed that individual elements of the local budget policy have a different impact on each economic activity. Thus, local budget policy should be profiled in terms of type of activity supported.

New firm formation and regional employment in Russia: Direct and indirect effects

Studies of employment growth factors are more relevant during crises. Review of foreign studies and analysis of Russian data in 2005—2018 using a distributed lag model based on the Almon method shows that there are multidirectional short-term direct and longer-term indirect effects of starting a business on employment growth. The regional context is important; and the prevalence of one effect over another and the direction of influence of additional factors depend on the type of region. Thus; for large agglomerations with high labor productivity and an active SME sector; an S-shaped lag structure of the dependence of employment on the creation of new firms was revealed: with short-term positive; medium-term negative; and further positive effects. For regions with low urbanization; labor productivity and a less active SME sector; the most striking is the short-term positive impact on employment from the opening of firms; which is replaced by a negative one after 2—3 years. At the same time; in the latter regions; the total impact may be higher than in the former; and on average; a new firm (per 1;000 people in the workforce) leads to an increase in employment by 0.56 p.p. This provides grounds for some policy recommendations.

One size fits all? The differential impact of federal regulation on early-stage entrepreneurial activity across US states

Numerous studies evaluate how a jurisdiction’s institutional and specifically regulatory environment impact firm formation and entrepreneurial activity. This study adds to this by employing a dataset measuring the differential impact that federal regulations have on industries across US states. Specifically, the paper addresses how such differences affect several facets of early-stage entrepreneurial activity, including an index measure of early-stage entrepreneurship, opportunity entrepreneurship, job creation at startup, and new firm survival rates all derived from the Kauffman Index of Entrepreneurial Activity. Overall, the results suggest that early-stage entrepreneurial activity tends to be negatively correlated with a relatively more burdensome federal regulatory environment. While the channels do not indicate an effect through new firm formation or firm survival rates, both opportunity entrepreneurship and job formation are negatively and significantly affected. Implications are discussed.

Productivity gaps at formal and informal microfirms

Although evidence of a productivity gap between formal and informal firms has been observed, this “formality premium” has been less explored for microfirms. The informality of microfirms is a central concern in low- and middle-income countries, leading to a crucial demand for designing economic policies addressing this issue. We fill this void by estimating a productivity premium for the case of Colombia, considering two margins of formality for microfirms: extensive, referring to business registration, and intensive, which includes labor regulations. We use a unique longitudinal dataset from the Microenterprise Survey by the Colombian Statistics Department, which follows approximately 39,000 micro-establishments with up to nine employees during 2012–2016. We utilize the transition into and out of formality to estimate the productivity premium (yearly sales per worker) between informal and formal firms, thereby exploring differences concerning initial productivity. We use a fixed-effects quantile regression to explore differential effects along the productivity distribution. We find evidence of a premium for both the extensive (18%) and intensive margins (7%), a gap that decreases with a firm’s productivity when considering a strict definition of formality. The evidence of these premiums is related to two growth strategies of firms: an increase in capital investments for the extensive margin and an increase in human capital quality for the intensive margin. Further, we find the premium is notably wider for young firms (less than three years in the business) relative to the older; and for the least productive ‘necessity’ driven businesses in comparison with the business-driven businesses. We do not find systematic differences according to the gender of the owners. These results are new evidence to support the existence of a premium and the transition into and out of formality for microfirms in middle-income countries. Moreover, they suggest that microfirms’ formalization and growth policies should be oriented toward promoting and enhancing formality’s benefits.

Ron Harris. Going the Distance: Eurasian Trade and the Rise of the Business Corporation, 1400–1700.

Ron Harris’s Going the Distance: Eurasian Trade and the Rise of the Business Corporation, 1400–1700 is an impressive and authoritative work considering the environment in which modern forms of corporations became the dominant vehicles for business around the world. Through twelve chapters divided into four distinct parts, Harris lucidly leads his reader through the formation and evolution of contracts, business partnerships, and family firms from the Mediterranean to central Asia and back again. In doing so, Harris makes a clear and theoretically sound case for the migratory nature of institutions, which was not in and of itself reliant upon colonial imposition or a by-product of European imperialism. Instead, Harris places far more agency upon merchants themselves as vectors and adopters of successful forms of corporate governance when a complementary legal and political system was in place. He similarly foregrounds how the relative poverty of European states, particularly England, informed the need for cooperative measures and organizations that could challenge existing stakeholders, exemplified in the East India Company. Harris sees this as a shift from a personal relationship based upon trust to an impersonal one that was instead built upon information sharing and ultimately shared commercial success. This success was based on the local trust networks built by agents of the European joint-stock companies, which Harris asserts was necessary to integrate with local legal and political frameworks, rather than attempting to cross legal jurisdictions when making transactions.

Dynamic capabilities: Axiomatic formation of firms’ competitive competencies

The capabilities concept is critical in understanding the competitive competencies of firms. Capabilities allow firms to sense, seize and reconfigure their resources in response to opportunities and threats within their environments. This systematic review reviewed a total of 37 Scopus database-selected peer-reviewed articles on capabilities, technology, innovation, and capability frameworks. The purpose was to identify and discuss firms' capabilities and formation processes and effects on competitive advantages to generate an encompassing framework that overcomes the limited and fragmented nature of current capability frameworks. The study employed thematic content analysis and author-anchored keywords analysis which enabled the identification of several themes regarding capabilities and formation processes. The findings of the study were discussed under the following themes: technological capabilities; supply chain capabilities; networking, collaboration, interactive, coordinating, and alignment capabilities; organisational capabilities; and lastly systems capabilities. The study contributes to enlightening a body of firms' capabilities theories and generated an encompassing interactive capabilities framework to guide researchers in understanding firms' capabilities formation processes. The value of the study to the research community lies in emphasising the multi-level approach (macro; mezzo; firm level) and the virtues of combining tenets from different frameworks for a nuanced understanding of firms' capabilities development. The study will be critical in guiding firms in building their capabilities, particularly the importance of open innovation networks and collaboration in reducing innovation risks and costs. The paper is important to policy makers regarding the institutions facilitating the interaction of international, national and firms level dynamics in propping and propelling firms’ capabilities development.

Returns to scale, firm entry, and the business cycle

In the U.S. data, aggregate financial conditions play an important role in accounting for the formation of firms with high returns to scale. A version of a firm dynamics model with financial frictions and the ability of potential entrepreneurs to choose their returns to scale can match the data. In the estimated model, financial frictions slow the rate at which businesses with high returns to scale grow disproportionately; this discourages such firms from entering during recessions. The “missing generation” of firms with high returns to scale delays recoveries in the aftermath of economic crises. +

Fiscal policy before and during COVID-19 and its impact on the creation of new comapnies

Abstract The article analyses relationships between fiscalism indicators and the number of newly registered companies (i.e. a new business density index). The study covered the period from 2015 to 2020 (inclusive). Considering the timeframe, the purpose is to determine the impact of COVID-19 on new firm formation. Two principal research hypotheses are formulated. The first hypothesis assumes a negative impact of fiscal burden on the creation of new firms. The second hypothesis assumes that COVID-19 reduced interest in starting new business entities. The research results demonstrate that there is a negative relationship between fiscalism and new firm formation. Contrary to expectations, the research has shown that COVID-19 did not adversely affect the creation of new companies, as the new business density index remained stable in most of the analyzed countries.

Can the Belt and Road Initiative Promote the Dezombification of Firms?

ABSTRACT Based on China’s supply-side structural economic reforms, this paper examines the impact of the Belt and Road Initiative (BRI) on the formation of zombie firms. We find that the BRI significantly inhibits the formation of zombie firms by easing financial constraints and optimizing investment efficiency. Our findings are robust to different model specifications and samples. Further investigations find that the impact of the BRI is pronounced for private enterprises, manufacturing enterprises and enterprises with more intense market competition. Overall, our results provide clear policy implications by shedding light on the role of the BRI in optimizing the allocation of resources.

Entrepreneurship and income inequality in cities: differentiated impacts of new firm formation and self-employment

ABSTRACT This article examines the effects of two types of entrepreneurship – new firm formation versus self-employment – on income inequality within cities in the United States. Regression analysis based on metropolitan areas between 2005 and 2015 shows that an increase in new firm formation decreases household income inequality. In contrast, more self-employment increases inequality. These results are consistent across different measures of income inequality and model specifications. This study highlights the need for differentiating entrepreneurship in understanding its role in regional development. It further confirms vibrant start-up activity as a key strength of a regional economy.

Covid-19 in Central America: Firm resilience and policy responses on employment

This paper examines how government support interacts with firm-level resilience capabilities in the reduction of layoffs among formal firms in Central America. Our analysis suggests that government support measures play a role in reducing the probability of layoffs among firms with only dynamic resilience capabilities (i.e., those that are developed after the pandemic onset). The effect of government support is not statistically different from the effect of static resilience capabilities alone (i.e., those that were present before the pandemic); thus, in firms with such capabilities, the effect of government support will be marginal. These results hold across sectors - exhibiting a marginally higher treatment effect in service sectors. Our results do not imply that Covid-19 supportive measures are to be disregarded, but instead raise the question of how government support policies could improve the allocation of support among firms in times of crises. Moreover, it underlines the necessity of policies that enhance resilience more broadly – a task that hints at structural issues and requires continuous government support in lieu of ad-hoc measures.

How do political connections affect the formation of zombie firms? Evidence from Chinese manufacturing listed enterprises

Zombie firms that rely on government subsidies and bank loans have seriously affected the healthy development of economies. This paper uses data from Chinese listed manufacturing enterprises from 2007 to 2017 to test and analyse the relationship between political connections and zombie enterprises. The study finds: (i) political connections are positively correlated with the ‘zombification’ of enterprises; (ii) credit subsidies play an intermediary role between political connections and ‘zombification’ of enterprises, with the acquisition of large credit subsidies the main path to the ‘zombification’ of politically connected enterprises; and (iii) firms that have political connections may use credit subsidies for inefficient over‐investment. This study has value for other countries in clarifying the causes of zombie firms and preventing politically connected enterprises from becoming zombie firms.

The large firm dilemma: anchor embeddedness and high-technology competition

Abstract Do large firms support or suppress regional entrepreneurship? Comparing Ottawa and Waterloo, two entrepreneurial ecosystems dominated by large, flagship firms, Nortel and Research in Motion (RIM), we demonstrate how an anchor firm’s relationship to the entrepreneurial community shapes entrepreneurial activity. In Ottawa, an engaged anchor delivered the public goods to overcome the negative externalities associated with large firm growth. In the long run, however, this vibrant, startup scene proved surprisingly vulnerable to Nortel’s decline. In Waterloo, in contrast, new firm formation plummeted under a detached anchor. RIM’s isolation, however, enabled Waterloo to construct the independent, entrepreneurial infrastructure it needed to capitalize on its collapse. Illuminating the mechanisms behind ‘entrepreneurial recycling’, or the reallocation of labor from declining anchor firms, we argue that regions confront a strategic dilemma in how they engage large firms.

Intrapreneurship and regional development in the South East of Ireland

ABSTRACT Intrapreneurship is known to play an important role in enhancing innovation and competitiveness within firms. However, there remains a dearth of literature on the workings of intrapreneurship at the regional level. Based on a qualitative analysis of intrapreneurship in the South East Region of Ireland, this paper explores the link between intrapreneurship and regional development. It makes several contributions that further the understanding of intrapreneurship at the regional level: (1) we detail the manner in which intrapreneurship emerges in distinct corporate contexts; (2) we identify the main barriers and challenges to intrapreneurship in these different contexts; and (3) we provide evidence that sets out the relative importance of the two key routes through which intrapreneurship stimulates regional development: firm growth and new firm formation.

A matter of life and death? Knowledge intensity of FDI activities and domestic enterprise

AbstractThere is no overall agreement on the relationship between foreign direct investment (FDI) and domestic enterprise, this may reflect different effects from various types of FDI. A panel data regression approach is adopted to examine the impact of knowledge intensive FDI on both new firm formation and the deaths of enterprises. Jobs created by FDI are found to not influence firm births, but influence domestic enterprise through deaths. Renewal knowledge intensive activities reduce firm deaths, but routine or compliance knowledge intensive activities increase the death rate. This means policy seeking to attract FDI must distinguish even within different types of knowledge intensive activities.