From marcus.dejardin@fundp.ac.be Wed Nov 20 09:44:43 2002 Received: from mx1.fundp.ac.be ([138.48.4.207]) by lists.repec.org with esmtp (Exim 3.36 #1 (Debian)) id 18EX1u-00068t-00 for ; Wed, 20 Nov 2002 09:44:42 -0600 Received: from eco-crew2.fundp.ac.be (eco-crew2.eco.fundp.ac.be [138.48.22.131]) by mx1.fundp.ac.be (8.11.6+Sun/8.11.6) with ESMTP id gAKFl2Y27793 for ; Wed, 20 Nov 2002 16:47:03 +0100 (MET) Message-Id: <5.1.0.14.1.20021120162751.00aa42a0@pop.fundp.ac.be> X-Sender: mdejardi@pop.fundp.ac.be X-Mailer: QUALCOMM Windows Eudora Version 5.1 Date: Wed, 20 Nov 2002 16:42:19 +0100 To: nep-ent@lists.repec.org From: Marcus DEJARDIN Mime-Version: 1.0 Content-Type: text/plain; charset="iso-8859-1"; format=flowed Content-Transfer-Encoding: quoted-printable X-MailScanner: Found to be clean Subject: [nep-ent] nep-ent-2002-11-18 (6 papers) Sender: nep-ent-admin@lists.repec.org Errors-To: nep-ent-admin@lists.repec.org X-BeenThere: nep-ent@lists.repec.org X-Mailman-Version: 2.0.13 Precedence: bulk List-Help: List-Post: List-Subscribe: , List-Id: NEP report on Entrepreneurship List-Unsubscribe: , List-Archive: ++++++++++++++++++++++++++ NEP - New Economics Papers Issue: nep-ent-2002-11-18 ++++++++++++++++++++++++++ NEP report on Entrepreneurship Edited by Marcus Dejardin (marcus.dejardin@fundp.ac.be) This document is in the public domain, please circulate to any. All NEP reports have moved to a new address. This report is now at=20 http://lists.repec.org/mailman/listinfo/nep-ent In this issue: *( 1 ) The Vanishing Hand: the Changing Dynamics of Industrial Capitalism Richard N. Langlois *( 2 ) Schumpeter and the Obsolescence of the Entrepreneur Richard N. Langlois *( 3 ) Optimal Financing Contracts, Investor Protection, and Growth. Rui Castro & Gian Luca Clementi & Glenn MacDonald *( 4 ) A Theory of Financing Constraints and Firm Dynamics Gian Luca Clementi & Hugo Hopenhayn *( 5 ) Ipos and The Growth of Firms Gian Luca Clementi *( 6 ) Personal Bankruptcy and the Level of Entrepreneurial Activity Wei Fan & Michelle J. White --------- *(1) The Vanishing Hand: the Changing Dynamics of Industrial Capitalism Richard N. Langlois (University of Connecticut) Abstract: Downloads: http://d.repec.org/n?u=3DRePEc:uct:uconnp:2002-21 Working papers / University of Connecticut, Department of Economics *(2) Schumpeter and the Obsolescence of the Entrepreneur Richard N. Langlois (University of Connecticut) Abstract: The English-language literature of technological change is one of the few areas of economic writing in which Joseph Schumpeter has maintained a following and in which he has been accorded some modicum of the attention he deserves. There has grown up within this literature a standard interpretation of Schumpeter's famous assertion that progress will eventually come to be 'mechanized'. The conventional wisdom goes something like this. The argument in Schumpeter's early writings by which writers invariably mean the 1934 English translation of The Theory of Economic Development -- is really quite different from that in Capitalism, Socialism, and Democracy. There are, in effect, two Schumpeters: an 'early' Schumpeter and a 'later' Schumpeter. It was the former who believed in the importance of bold entrepreneurs, while the latter envisaged their demise and replacement by a bureaucratized mode of economic organization. Moreover, the reason Schumpeter changed his views is that he was reacting to the historical development of capitalism as he saw it taking place around him. As he moved from the world of owner-managed firms in early twentieth-century Europe to the world of large American corporations in the 1930s and 1940s, his opinions changed appropriately.

The paper attempts to make two points. The first is that, as a doctrinal matter, the 'two Schumpeters' thesis, as it is understood in the Anglo-American literature on technological change, is clearly wrong. Equally wrong is the idea that the fundamentals of Schumpeter's thought on entrepreneurship were influenced importantly by any observation of large firms in the United States after 1931. Schumpeter's ideas were remarkably consistent from at least 1926 (five years before he came to the U. S.) until his death. The obsolescence thesis speaks to a distinction between early capitalism and later capitalism, perhaps, but not to an earlier and later Schumpeter. The second, and more important, point is that the obsolescence thesis is wrong. It rests on a confusion -- or perhaps a bait-and-switch -- between two quite different kinds of economic knowledge. Downloads: http://d.repec.org/n?u=3DRePEc:uct:uconnp:2002-19 Working papers / University of Connecticut, Department of Economics *(3) Optimal Financing Contracts, Investor Protection, and Growth. Rui Castro ; Gian Luca Clementi ; Glenn MacDonald Abstract: Recent empirical evidence has suggested a positive association between various measures of investor protection and financial market development, and between financial market development and economic growth. We introduce investor protection in a simple extension of the two-period overlapping generations model of capital accumulation. We use such structure in order to develop predictions for the effects of investor protection on economic growth. Young individuals (entrepreneurs) are endowed with investment projects that need to be financed by outside investors. The quality of each project is random and unknown at the time of financing. Ex-post, once production is carried out, entrepreneurs observe their cash-flows, but financiers do not. Thus agents have an incentive to misreport their cash-flows and appropriate part of them. We capture the degree of investor protection as the extent to which this appropriation is possible. For a closed economy, our results show that, contrary to conventional wisdom, better investor protection is generally detrimental to capital accumulation and economic growth. The standard argument says that if investors are risk-averse, better investor protection results in larger demand for capital. In addition to this effect, we show that the aggregate supply of capital decreases with better investor protection, and we find that this second effect generally dominates the first. With international capital mobility, instead, better investor protection does promote financial market development and output growth. The key mechanism is an increase in the net inflow of capital from abroad, suggesting a specific channel through which investor protection affects the economy. Downloads: http://d.repec.org/n?u=3DRePEc:cmu:gsiawp:-1709258802 GSIA Working Papers / Carnegie Mellon University, Graduate School of=20 Industrial Administration *(4) A Theory of Financing Constraints and Firm Dynamics Gian Luca Clementi ; Hugo Hopenhayn Abstract: There is widespread evidence supporting the conjecture that borrowing constraints have important implications for firm growth and survival. In this paper we model a multi-period borrowing/lending relationship with asymmetric information. We show that borrowing constraints emerge as a feature of the optimal long-term lending contract, and that such constraints relax as the value of the borrower's claim to future cash-flows increases. We also show that the optimal contract has interesting implications for firm dynamics. In agreement with the empirical evidence, as age and size increase, mean and variance of growth decrease, firm survival increases, and the sensitivity of investment to cash-flows declines. Downloads: http://d.repec.org/n?u=3DRePEc:cmu:gsiawp:1966279713 GSIA Working Papers / Carnegie Mellon University, Graduate School of=20 Industrial Administration *(5) Ipos and The Growth of Firms Gian Luca Clementi Abstract: Recent years have witnessed a rapid accumulation of empirical evidence documenting firm dynamics around the IPO date. A particularly striking finding is that operating performance, as measured by Returns on Assets for example, peaks in the fiscal year preceding the offering, worsens on impact at the IPO date, and keeps on declining for a few more years. In this paper, I provide a novel rationalization of this evidence. To this end, I construct a simple dynamic stochastic model of firm behavior in which the decision to go public is modelled explicitly. The model predicts that the operating performance reaches its peak in the period before the offering and experiences a sudden decline at the IPO date. The comparative advantage of my approach is that it produces further implications that are in line with the data. Most importantly, the model predicts that the IPO coincides with an increase in sales and capital expenditures. Consistently with evidence pointed out by the Industrial Organization literature, the firm growth rate is shown to be decreasing in age and size. Downloads: http://d.repec.org/n?u=3DRePEc:cmu:gsiawp:1625157792 GSIA Working Papers / Carnegie Mellon University, Graduate School of=20 Industrial Administration *(6) Personal Bankruptcy and the Level of Entrepreneurial Activity Wei Fan ; Michelle J. White Abstract: The U.S. personal bankruptcy system functions as a bankruptcy system for small businesses as well as consumers, because debts of non-corporate firms are personal liabilities of the firms' owners. If the firm fails, the owner has an incentive to file for bankruptcy, since both business debts and the owner's personal debts will be discharged. In bankruptcy, the owner must give up assets above a fixed exemption level. Because exemption levels are set by the states, they vary widely. We show that higher bankruptcy exemption levels benefit potential entrepreneurs who are risk averse by providing partial wealth insurance and therefore the probability of owning a business increases as the exemption level rises. We test this prediction and find that the probability of households owning businesses is 35% higher if they live in states with unlimited rather than low exemptions. We also find that the probability of starting a business and the probability of owning a corporate rather than non- corporate business are higher for households that live in high exemption states. JEL Codes: E6 K2 Downloads: http://d.repec.org/n?u=3DRePEc:nbr:nberwo:9340 NBER Working Papers / National Bureau of Economic Research, Inc ------------------------------------------- You can can search previous issues of nep-ent and other NEP related resources following the links at: http://repec.org/ Alternatively browse the list's website at: http://lists.repec.org/mailman/listinfo/nep-ent ------------------------------------------- General information on the NEP project including subscription information can be found at: http://nep.repec.org To end your subscription, visit http://lists.repec.org/mailman/listinfo/nep-ent For comments, suggestions or any other issue please feel free to approach the General Editor, Bernardo B=E1tiz-Lazo (oubs-ednep@open.ac.uk). ------------------------------------------- This report is Copyright 2002 by Marcus Dejardin=20 (marcus.dejardin@fundp.ac.be). It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, it must include this copyright notice. It may not be sold, or placed in something else for sale. [nep-ent] nep-ent-2002-11-18 (6 papers)

[nep-ent] nep-ent-2002-11-18 (6 papers)

Marcus DEJARDIN marcus.dejardin@fundp.ac.be
Wed, 20 Nov 2002 16:42:19 +0100 

            ++++++++++++++++++++++++++

            NEP - New Economics Papers
            Issue: nep-ent-2002-11-18

            ++++++++++++++++++++++++++

NEP report on Entrepreneurship
            Edited by Marcus Dejardin (marcus.dejardin@fundp.ac.be)

This document is in the public domain, please circulate to any.

All NEP reports have moved to a new address. This report is now at=20
http://lists.repec.org/mailman/listinfo/nep-ent

In this issue:

*( 1 )   The Vanishing Hand: the Changing Dynamics of Industrial
   	 Capitalism
          Richard N. Langlois
*( 2 )   Schumpeter and the Obsolescence of the Entrepreneur
          Richard N. Langlois
*( 3 )   Optimal Financing Contracts, Investor Protection, and Growth.
          Rui Castro & Gian Luca Clementi & Glenn MacDonald
*( 4 )   A Theory of Financing Constraints and Firm Dynamics
          Gian Luca Clementi & Hugo Hopenhayn
*( 5 )   Ipos and The Growth of Firms
          Gian Luca Clementi
*( 6 )   Personal Bankruptcy and the Level of Entrepreneurial Activity
          Wei Fan & Michelle J. White

---------

*(1)

  The Vanishing Hand: the Changing Dynamics of Industrial
    Capitalism


    Richard N. Langlois (University of Connecticut)


Abstract:

Downloads:
http://d.repec.org/n?u=3DRePEc:uct:uconnp:2002-21

  Working papers / University of Connecticut, Department of Economics

*(2)

  Schumpeter and the Obsolescence of the Entrepreneur


    Richard N. Langlois (University of Connecticut)


Abstract: The English-language literature of technological change is one
   of the few areas of economic writing in which Joseph Schumpeter has
   maintained a following and in which he has been accorded some modicum
   of the attention he deserves. There has grown up within this
   literature a standard interpretation of Schumpeter's famous assertion
   that progress will eventually come to be 'mechanized'. The
   conventional wisdom goes something like this. The argument in
   Schumpeter's early writings by which writers invariably mean the 1934
   English translation of The Theory of Economic Development -- is
   really quite different from that in Capitalism, Socialism, and
   Democracy. There are, in effect, two Schumpeters: an 'early'
   Schumpeter and a 'later' Schumpeter. It was the former who believed
   in the importance of bold entrepreneurs, while the latter envisaged
   their demise and replacement by a bureaucratized mode of economic
   organization. Moreover, the reason Schumpeter changed his views is
   that he was reacting to the historical development of capitalism as
   he saw it taking place around him. As he moved from the world of
   owner-managed firms in early twentieth-century Europe to the world of
   large American corporations in the 1930s and 1940s, his opinions
   changed appropriately. <P> The paper attempts to make two points. The
   first is that, as a doctrinal matter, the 'two Schumpeters' thesis,
   as it is understood in the Anglo-American literature on technological
   change, is clearly wrong. Equally wrong is the idea that the
   fundamentals of Schumpeter's thought on entrepreneurship were
   influenced importantly by any observation of large firms in the
   United States after 1931. Schumpeter's ideas were remarkably
   consistent from at least 1926 (five years before he came to the U.
   S.) until his death. The obsolescence thesis speaks to a distinction
   between early capitalism and later capitalism, perhaps, but not to an
   earlier and later Schumpeter. The second, and more important, point
   is that the obsolescence thesis is wrong. It rests on a confusion --
   or perhaps a bait-and-switch -- between two quite different kinds of
   economic knowledge.

Downloads:
http://d.repec.org/n?u=3DRePEc:uct:uconnp:2002-19

  Working papers / University of Connecticut, Department of Economics

*(3)

  Optimal Financing Contracts, Investor Protection, and Growth.


    Rui Castro  ; Gian Luca Clementi  ; Glenn MacDonald


Abstract: Recent empirical evidence has suggested a positive association
   between various measures of investor protection and financial market
   development, and between financial market development and economic
   growth. We introduce investor protection in a simple extension of the
   two-period overlapping generations model of capital accumulation. We
   use such structure in order to develop predictions for the effects of
   investor protection on economic growth. Young individuals
   (entrepreneurs) are endowed with investment projects that need to be
   financed by outside investors. The quality of each project is random
   and unknown at the time of financing. Ex-post, once production is
   carried out, entrepreneurs observe their cash-flows, but financiers
   do not. Thus agents have an incentive to misreport their cash-flows
   and appropriate part of them. We capture the degree of investor
   protection as the extent to which this appropriation is possible. For
   a closed economy, our results show that, contrary to conventional
   wisdom, better investor protection is generally detrimental to
   capital accumulation and economic growth. The standard argument says
   that if investors are risk-averse, better investor protection results
   in larger demand for capital. In addition to this effect, we show
   that the aggregate supply of capital decreases with better investor
   protection, and we find that this second effect generally dominates
   the first. With international capital mobility, instead, better
   investor protection does promote financial market development and
   output growth. The key mechanism is an increase in the net inflow of
   capital from abroad, suggesting a specific channel through which
   investor protection affects the economy.

Downloads:
http://d.repec.org/n?u=3DRePEc:cmu:gsiawp:-1709258802

  GSIA Working Papers / Carnegie Mellon University, Graduate School of=20
Industrial Administration

*(4)

  A Theory of Financing Constraints and Firm Dynamics


    Gian Luca Clementi  ; Hugo Hopenhayn


Abstract: There is widespread evidence supporting the conjecture that
   borrowing constraints have important implications for firm growth and
   survival. In this paper we model a multi-period borrowing/lending
   relationship with asymmetric information. We show that borrowing
   constraints emerge as a feature of the optimal long-term lending
   contract, and that such constraints relax as the value of the
   borrower's claim to future cash-flows increases. We also show that
   the optimal contract has interesting implications for firm dynamics.
   In agreement with the empirical evidence, as age and size increase,
   mean and variance of growth decrease, firm survival increases, and
   the sensitivity of investment to cash-flows declines.

Downloads:
http://d.repec.org/n?u=3DRePEc:cmu:gsiawp:1966279713

  GSIA Working Papers / Carnegie Mellon University, Graduate School of=20
Industrial Administration

*(5)

  Ipos and The Growth of Firms


    Gian Luca Clementi


Abstract: Recent years have witnessed a rapid accumulation of empirical
   evidence documenting firm dynamics around the IPO date. A
   particularly striking finding is that operating performance, as
   measured by Returns on Assets for example, peaks in the fiscal year
   preceding the offering, worsens on impact at the IPO date, and keeps
   on declining for a few more years. In this paper, I provide a novel
   rationalization of this evidence. To this end, I construct a simple
   dynamic stochastic model of firm behavior in which the decision to go
   public is modelled explicitly. The model predicts that the operating
   performance reaches its peak in the period before the offering and
   experiences a sudden decline at the IPO date. The comparative
   advantage of my approach is that it produces further implications
   that are in line with the data. Most importantly, the model predicts
   that the IPO coincides with an increase in sales and capital
   expenditures. Consistently with evidence pointed out by the
   Industrial Organization literature, the firm growth rate is shown to
   be decreasing in age and size.

Downloads:
http://d.repec.org/n?u=3DRePEc:cmu:gsiawp:1625157792

  GSIA Working Papers / Carnegie Mellon University, Graduate School of=20
Industrial Administration

*(6)

  Personal Bankruptcy and the Level of Entrepreneurial Activity


    Wei Fan  ; Michelle J. White


Abstract: The U.S. personal bankruptcy system functions as a bankruptcy
   system for small businesses as well as consumers, because debts of
   non-corporate firms are personal liabilities of the firms' owners. If
   the firm fails, the owner has an incentive to file for bankruptcy,
   since both business debts and the owner's personal debts will be
   discharged. In bankruptcy, the owner must give up assets above a
   fixed exemption level. Because exemption levels are set by the
   states, they vary widely. We show that higher bankruptcy exemption
   levels benefit potential entrepreneurs who are risk averse by
   providing partial wealth insurance and therefore the probability of
   owning a business increases as the exemption level rises. We test
   this prediction and find that the probability of households owning
   businesses is 35% higher if they live in states with unlimited rather
   than low exemptions. We also find that the probability of starting a
   business and the probability of owning a corporate rather than non-
   corporate business are higher for households that live in high
   exemption states.

  JEL Codes: E6 K2
Downloads:
http://d.repec.org/n?u=3DRePEc:nbr:nberwo:9340

  NBER Working Papers / National Bureau of Economic Research, Inc

  -------------------------------------------

You can can search previous issues of nep-ent and other NEP related
resources following the links at:

http://repec.org/

Alternatively browse the list's website at:

http://lists.repec.org/mailman/listinfo/nep-ent

-------------------------------------------
General information on the NEP project including subscription
information can be found at:

   http://nep.repec.org

To end your subscription, visit

http://lists.repec.org/mailman/listinfo/nep-ent

For comments, suggestions or any other issue please feel
free to approach the General Editor, Bernardo B=E1tiz-Lazo
(oubs-ednep@open.ac.uk).

-------------------------------------------

This report is Copyright 2002 by Marcus Dejardin=20
(marcus.dejardin@fundp.ac.be).
It is provided as is without any express or implied warranty.
It may be freely redistributed in whole or in part for any purpose.
If distributed in part, it must include this copyright notice.
It may not be sold, or placed in something else for sale.