Start-up Firms Research Articles

Entrepreneurial Orientation and Business Performance: An Assessment of Start-up Companies

The purpose of the present research is to analyse from the core constructive influence of entrepreneurial orientation (EO) (risk taking, innovativeness, and pro-activeness) on the business performance (BP) of start - up enterprises. Various related literature aspects discussed for to embrace entrepreneurial orientation to increase business performance. Profitability index, size, age, return on sales, technological advancement, profit and sales among others used to relate EO with BP. Linear regression models, descriptive statistics, Pearson’s correlation, Cronbach's Alpha for reliability test etc., among many used to relate statistically EO with BP. Sample of 53 start-up firms from Addis Ababa, Ethiopia, chosen for data interpretation. It is found out that there is a positive relationship exists between Entrepreneurial Orientation (EO) and Business performance (BP). This study wants to create awareness and knowledge among startup entrepreneurs to adopt entrepreneurship. In the global competitive and dynamic environment to outperform rivals, start-up companies expected to become entrepreneurial to meet long-term goals of superior performance by discovering new and better entrepreneurial opportunities. To focus more on entrepreneurial opportunity, attention be given on knowledge creation and understanding towards EO process, practices, and decisions making, which will help to have more competitive advantage for higher performances and as a whole develop countries economy.

The Role of Venture Capital Investment in Startups’ Sustainable Growth and Performance: Focusing on Absorptive Capacity and Venture Capitalists’ Reputation

This study provides evidence on how venture capital (VC) investment affects startup firms’ sustainable growth and performance. Despite the rich and abundant research on the relationship between VC investment and startup performance, there is no clear evidence about the contribution of VC investment on the performance and market value of invested firms. In order to accurately measure the impact of VC investment, this study explored how VC investment at each stage of growth affects a startup’s sustainable growth and performance. Based on signaling theory and information asymmetry, this study proposed a positive link between initial-stage VC investment and a startup’s growth and performance. Using a sample of 363 firms listed from 2000 to 2007, this study demonstrated that startups are sustained and perform better as they receive their VC investment at the initial stage. The level of potential absorptive capacity positively moderated this association, unlike realized absorptive capacity, which did not show significant moderating effects.

Applying the Random Forest Model to Forecast the Market Reaction of Start-up Firms: Case Study of GISA Equity Crowdfunding Platform in Taiwan

In 2015, Taiwan introduced an exchange platform for equity crowdfunding called the Go Incubation Board for Startup and Acceleration (GISA) which is supervised by the OTC Taipei Exchange organization. Equity crowdfunding provides another channel for startups to access capital and allows for a new mechanism for start-up firms to establish their reputation with investors. However, the risks to investors from equity crowdfunding are high. The high-risk nature of equity crowdfunding has the potential to act as a contagion, and further erode confidence in the startup capital market by retail investors -- and this lingers over the GISA platform in Taiwan. Therefore, this study applies the of Random Forest (RF) algorithm to evaluate the market reaction for start-up firms on the GISA in Taiwan. The RF algorithm is proposed to be integrated into an AI model to forecast the market reaction to start-up firms as they get listed on the GISA equity crowdfunding platform. The results not only fulfill the gap of detecting market reaction in equity crowdfunding, but the proposed RF model can replace the traditional statistics analytical technique to evaluate the market reaction. In proposed model applied AI algorithms to predict the market reaction on Taiwan GISA platform which can provide a useful ensemble tool for start-up firms and entrepreneurs to evaluate the degree of market reaction more efficiently before listing on the Taiwan GISA platform.

Public or perish? From founding to initial public offering

We examine the factors affecting the time to initial public offering (IPO), using a sample of more than 10,000 start-up firms in Japan. We provide evidence that start-up firms engaging in innovative and uncertain businesses are more likely to go public earlier than other firms. The results also reveal that start-up firms that rely on equity financing at founding are more likely to go public earlier than others. Moreover, we find that start-up firms in highly valued industries are more likely to go public earlier than in other industries and that the likelihood of an IPO among start-up firms depends on market conditions.

Churning in Rural and Urban Retail Markets

Using data on the universe of taxable retail sales, retail firm start-ups, and retail firm exits in Iowa from 1992 through 2011, we test whether patterns of retail firm entry and exit are consistent with churning. Consistent with churning, the same factors that increase retail sales in a local market also increase new retail firm entry and either increase or do not affect retail firm exit. Evidence suggests that there is more churning in urban than in rural markets. Similar evidence is found using a sample of national firm entry and exit into local markets. If churning increases productivity growth, then the greater churning rate in urban markets is another source of agglomeration advantages in thick markets.

외식기업 매니저의 민주적 리더십과 권위적 리더십이 종사원의 조직몰입 및 직무성과에 미치는 영향에 관한 연구: 종사원과 외식업체 특성에 따른 조절효과 분석

This study is designed to investigate how foodservice company managers’ democratic and authoritarian leadership influence their employees’ organizational commitment and examine how it contributes to increasing their job performance. This study also examines how the relationships between the two types of managers’ leadership and employees’ organizational commitment would be affected by organizational characteristics. To do so, 400 responses obtained from foodservice company employees in Korea were analyzed. Results found that both types of leadership had a significant and positive effects on employees’ organizational commitment, further leading to greater job performance. The effects of authoritarian leadership upon organizational commitment was significantly greater in long term employees than short term employees, whereas the effect of democratic leadership was significantly greater in start-up firms than established firms. Lastly, the influence of authoritarian leadership on organizational commitment was more strongly shown in large sized firms than small sized firms. Our findings are expected to contribute to developing effective leadership management strategies in the foodservice industry.

Recent Developments in the FinTech Industry

In this article, we review some recent developments in the field of Financial Technology or “FinTech.” We begin with an overview of what FinTech is and why it has become an important growth industry in the financial services area and therefore an important research topic in finance. In the next section, we review some of the academic literature in the FinTech area. In the subsequent section, we characterize the financing of FinTech startups, especially by venture capital firms. In the following section, we characterize innovation by FinTech firms as well as by incumbent financial intermediaries. In the next section, we move on to discuss potential sources of value creation by FinTech start-up firms relative to existing incumbent firms: we conjecture that one source of value creation may arise from FinTech startups being able to provide a superior customer experience relative to incumbent firms in various areas of consumer finance. In the following section, we discuss the regulatory environment facing FinTech firms, in their banking as well as in their financial market activities. In the penultimate section, we analyze the buy-versus-build decision facing firms choosing to enter the FinTech sector, and discuss the trade-offs that may drive such decisions in practice. We conclude with some remarks about the future directions that may be taken by the FinTech industry.

The impact of urban transit on nearby startup firms: Evidence from Hangzhou, China

This article investigates the effects of an urban transit line, opened in late 2012, on startup firms of five major industries in Hangzhou China. We use geo-coded firm-level longitudinal data and apply geographical informational software (GIS) to draw a 50 × 50 grid on to the map. For each grid-cell, we count the number of startup firms and use each grid-cell as an observation unit for regressions. The kernel density estimation uncovers the distributional change of startups of different distances to the nearest transit stations and graphically shows that within 1 km areas of transit stations experience a surge of new startups. Using difference-in-differences Poisson regression with matching methods, we find the effect of the transit on nearby business formation is significant: the number of retail and technology firms increases by 42% and 29% respectively, while the effects are relatively insignificant and weak for business service, construction, and manufacture firms. Further, we provide evidence that the transit effects are heterogeneous in terms of firm size and spatial dimension. First, the positive effects fade away in distance, and the attenuation is larger for technology than retail firms. Second, the agglomeration effects triggered by the new transit mostly come from firms with large registered capital. We posit that in addition to agglomeration benefits to firms, transit development also causes urban congestion costs that raise business operating cost and potentially negatively impact the small firms that are cost-sensitive.

The impact of research results on the research expenditure at The U.S. Universities

The research spending at universities has become an integral part of development strategies among universities in the world. It is also used as one of key indicators to evaluate university ranking. Therefore, many studies have emphasized on the quality of research results and the impact of technology spillovers from universities to industry. However, the previous empirical evidence is ambiguous as well as it has not identified either the necessary time for an inventor to recoup the initial investment or the linkage between startup and research spending. To fulfill unsolved problems from previous studies, the paper focuses on finding the determinants impacting on the research expenditure at universities by employing a panel of the U.S universities from 1998 to 2004. Specifically, we implement the regression model with differentiating both the level effects and the rate effects of patent applications and licensing income, the estimatedresults imply that an increase in either the number of patent applications or licensing income reduces the short-term research expenditure but increases the long-term rate of research spending growth of average universities. Moreover, we also find that the more startup firms the inventors pursue, the more research spending they receive.

Competition, innovation, and the number of firms

Theories of endogenous markups, firm entry, and innovation consistently predict a positive relationship between barriers to competition and firm-level innovation, in stark contrast to a large empirical literature that documents a negative relationship. I argue that this puzzle can be resolved by considering two distinct types of barriers – barriers to starting a firm, and barriers to competing in a product market. Barriers to starting firms discourage startups, resulting in higher markups, higher market shares, and more innovation. Barriers to product-market entry also increase market shares within each market, and thereby encourage innovation. But firms also enter fewer markets, which discourages innovation. On net, market-entry barriers decrease firm-level innovation and the number of competitors per market, while increasing the number of firms per industry. To test the implications of the theory, I consider an episode of product market deregulation (the Single Market Programme in the E.U.), and find that lower market-entry barriers indeed resulted in fewer firms. Interpreted through the lens of the model, I estimate that productivity increased by 8.4% in deregulated industries, and show that this estimate would be 30% lower if deregulation was mistakenly modeled as lowering firm startup costs. Across countries, I provide evidence that market-entry barriers are quantitatively much more important than startup barriers. As evidence for the central mechanism in the model I show that across countries, higher market-entry barriers are associated with fewer products per firm.

Investment Proximity and Venture Capital Returns

Using a large dataset of 82,818 investments in start-up firms from December 1965 through August 2019, we document that the biggest group of investors are venture capital firms (about 79% of all observations). The majority of in-state investments are found clustered in California (with the San Francisco VC Hub), Massachusetts (with the Boston VC Hub) and New York. Returns generated from early round investing to late round decrease generally: early investors generate a higher return than late stage investors, and IPO exits entail the highest return. We find that geographical proximity is significantly and positively associated with cumulative returns or annualized returns, when we use actual distance (in km) between the VC investment firm HQ and portfolio firm HQ, or a cross-region indicator variable when the portfolio firm HQ is out-of-state as compared to VC investment firm HQ. The relation between investment proximity and returns continues to be robust even after controlling for selection bias, and in a matched-sample analysis where we pair each proximate investment with a matched distant investment. We find that VC Director and other outside directors as a proportion of all Directors on the boards on portfolio companies is significantly higher, on average, for in-state and shorter distance investments as compared to out-of-state or longer distance investments, indicating better involvement by VCs in their more proximate investments.

Mind the gap: The role of gender in entrepreneurial career choice and social influence by founders

AbstractResearch summaryWomen continue to be disproportionately underrepresented in new venture creation. We investigate whether and how founders can differently influence future entrepreneurial career choices of their male and female joiners. Using a large sample of startup firms with personnel where founders interact closely with joiners, we demonstrate that founders have a strong influence on a joiner's entrepreneurial career choice if both are female. We find empirical support for role modeling as a key underlying mechanism, accounting for alternative explanations such as selective matching based on gender and push‐driven factors. These findings increase our understanding of the roles of socialization and organizational context in shaping the career outcomes of employees, and provide evidence of a multiplier effect of female entrepreneurs.Managerial summaryWomen are less likely to be entrepreneurs than men. We investigate whether working in a startup founded by a woman instead of a man influences individuals' decision to become an entrepreneur later. We find this to be the case for women. This result is best explained by female founders acting as role models for their female employees in male‐dominated domains. Female founders able to break gender stereotypes seem to have an influence on the career choices of their female employees, especially among those who have lacked contact with entrepreneurs. Moreover, this influence is stronger if the female founder and employee have similar backgrounds. These findings confirm the importance of social interactions at work and suggest new ways to inspire more women to launch startups.

The Influence of Entrepreneurial Self-Efficacy and Innovation on Firm Performance: Evidence from Thai Startup Firms

This descriptive case study examined the relationship between entrepreneurial self-efficacy and innovation and the business success of digital startup firms. Qualitative data was collected from in-depth interviews with entrepreneur-founders from four leading digital startups. In addition, interviewees completed a questionnaire measuring self-rated ESE and innovation to confirm whether the qualitative interviews were in accordance with the quantitative analysis. The results showed that ESE and innovation has a direct positive relationship to the financial and customer aspects of firm performance. ESE influences innovation, which in turn corresponds to firm performance. As juvenile organizations that are just venturing into entrepreneurship, startup firms inevitably face a unique set of obstacles. The performance of new ventures varied depending on the startup’s stage and type of business. Entrepreneurs should focus on specific goals to survive during the early emerging stages. This study extends current research by investigating the relationships between types of innovation and ESE as a component of individual personality, as well as how these variables interact to contribute to the performance of early-stage startup firms. The findings present new insights concerning factors related to business success, which can inform supportive policies and programs to enhance ESE and innovation.

The Impact of Social Media on Venture Capital Financing: Evidence from Twitter Interactions

We examine how information acquisition through social media affects venture capital (VC) investments into VC-backed startups. We collect a unique data set from Twitter API to measure the impact of portfolio companies owned social media (OSM) and earned social media (ESM) on the structure of VC investments. We find evidence consistent with the hypothesis that startup firms’ social media engagement affects the staging of VC financing, the VC syndicate structure, and the probability of a successful exit. If a portfolio company’s social media accounts are more active and the company has a higher engagement volume with its followers, VC firms reduce the extent of stage financing and are less likely to syndicate with each other in financing such a portfolio company. In particular, our results demonstrate that entrepreneurial firms with higher OSM and ESM engagement volume have fewer VC financing rounds, a smaller number of VCs in their VC syndicates, a lower probability of VC syndication, a higher probability of an IPO exit and a higher amount total funding across all rounds. Our findings are robust to a variety of alternative model specifications, subsamples, controlling for endogeneity in VC staging and syndication, selection biases and machine learning approaches.

Corporate Financial Portfolio and Distress Risk: Forewarned is Forearmed

This paper explores how corporate financial portfolio influences distress risk. We define distress risk as a dummy determined by whether firms need external subsidies to repay the interest payable. Spanning our analysis with 3,698 listed firms in China during 2006 and 2019, our findings are twofold. First, financial portfolio is associated with less distress risk, especially in start-up firms and degenerating firms. Second, the impact is more pronounced for firms with higher consumption of liquid financial portfolio, which is weakened for firms with lower consumption of that. Besides, the impact is enhanced for firms with seniors who had financial vocation previously. The findings suggest that corporate financial portfolio reduces distress risk by relaxing borrowing constraints and by improving profitability. While corporate financial portfolio is found to squeeze out non-financial investment, it can alleviate over-investment for firms.

How Do Banks Interact with Fintech Startups?

The increasing pervasiveness of technology-driven firms that offer banking services has led to a growing pressure on traditional banks to modernize their core business activities. Many banks tackle the challenges of digitalization by cooperating with startup firms that offer technology-driven financial services (fintechs). In this paper, we examine which banks typically collaborate with fintechs, how intensely they do so, and which form of alliance they prefer. Using hand-collected data covering the largest banks from Canada, France, Germany, and the United Kingdom, we provide detailed evidence on the different forms of alliances occurring in practice. We show that banks are significantly more likely to form alliances with fintechs when they pursue a well-defined digital strategy and/or employ a chief digital officer. Moreover, in line with incomplete contract theory, we find that banks more frequently invest in small fintechs but often build product-related collaborations with larger fintechs.

Regulation, Entrepreneurship, and Dynamism

Recent empirical studies estimating the impact of US federal regulations on domestic business activity have reached seemingly contradictory conclusions. When measuring business activity with traditional measures of entrepreneurship (i.e., firm startups and job formation), some researchers observe a negative association between regulatory accumulation and entrepreneurship. Others, however, fail to find a significant association between regulatory accumulation and startup business activity when measuring business activity with metrics common to the dynamism literature. After ruling out differences in unit of measure (i.e., firms vs. establishments), industry aggregation (i.e., three- vs. four-digit NAICS code classification), and measurement of regulation (i.e., RegData 2.0 vs. 2.1), we demonstrate that methodological differences in the measurement of entrepreneurship are responsible for the conflicting results. However, when we allow the impact of regulation on the startup rate to vary across industries and over time, we empirically demonstrate that the decline in dynamism measured over the sample period is associated with higher regulation.

Entrepreneurial Recovery from Covid-19: Decentralization, Democratization, Demand, Distribution, and Demography

Entrepreneurship, as reflected in the start-up of new firms, the growth and market exit of existing firms, and the ow of venture capital, has been severely curtailed by the lockdown and social distancing measures taken by governments around the world in the fight against COVID-19. This paper, after documenting preliminary evidence on these declines, argues that there is a strong possibility that the unintended damage to entrepreneurship, innovation and growth could be persistent. This requires that short- term economic and business rescue packages be complimented by measures aimed at the longer-term, and that these be based on at least five principles. These 5 principles (5Ds) refer to decentralization, democratization, demand, distribution and demography.

Innovation and Entrepreneurship in the Energy Sector

Historically, innovation in the energy sector proceeded slowly and entrepreneurial start-up firms played a relatively minor role. We argue that this may be changing. Energy markets are going through a period of profound structural change. The rise of hydrofracturing lowered fossil fuel prices so much that natural gas is now the primary fuel for electricity generation in the US. Renewable energy technologies also experienced significant cost and performance improvements. However, integrating intermittent resources creates additional grid management challenges, requiring further innovation. This chapter documents the evolving roles of innovation and entrepreneurship in the energy sector. First, we provide an overview of the energy industry, highlighting that many new energy technologies are smaller, modular, and increasingly rely on innovation in other fast-moving high-tech sectors. We then conduct two descriptive data analyses that document a sharp decline in both clean energy patenting and start-up activity from about 2010 onwards. We discuss potential explanations and provide some evidence that while innovation in existing technologies may simply have been successful, continued innovation will be needed in enabling technologies that are more likely to depend on progress in other sectors.

The Roles of Government and Private Financial Institutions in Supporting Startup Firms after Post-Opening

The Roles of Government and Private Financial Institutions in Supporting Startup Firms after Post-Opening