Large family-owned conglomerates known as zaibatsu have long been credited with leading Japanese industrialization during the Meiji Period (1868-1912), despite a lack of empirical analysis. Using a new dataset collected from corporate genealogies estimate of entry probabilities, I find that characteristics associated with zaibatsu increase a firm's likelihood of being an industry pioneer. In particular, first entry probabilities increase with industry diversification and private ownership, which may provide internal financing and risk-sharing, respectively. Nevertheless, the costs of excessive diversification may deter additional pioneering, which may account for the loss of zaibatsu technological leadership by the turn of the century.
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Entrepreneurship and Japanese Industrialization in Historical Perspective
September 2009
Working Paper Number:
CES-09-30
Studies of entrepreneurship in nineteenth century Japan typically focus on the activities of leading industrialists who founded large, family-owned conglomerates known as zaibatsu. These individuals do not conform well with the archetypal Schumpeterian entrepreneur, but this discrepancy may be more an issue of context than behavior. However, due to a lack of documentation for smaller independent firms, it is difficult to make this comparison. To broaden the scope of analysis, I use data drawn from corporate genealogies, which provide a more complete cross-section of entrepreneurial activity. This dataset of firm entry during the Meiji Period (1868-1912) covers a wide range of industries, allowing me to analyze aspects of Japan's early industrialization that heretofore have relied on anecdotal or case evidence. I also propose a game-theoretic model of entry appropriate for entrepreneurs in late developing economies that exploit the qualitative nature of these data.
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Financial Intermediation and Late Development: The Case of Meiji Japan, 1868 to 1912
January 2008
Working Paper Number:
CES-08-01
Was nineteenth century Japan an example of finance-led growth? Using a new panel dataset of startup firms from the Meiji Period (1868-1912), I test whether financial sector development influenced the emergence of modern industries. Results from multiple econometric models suggest that increased financial intermediation, particularly from banks, is associated with greater firm establishment. This corresponds with the theory of late development that industrialization requires intermediaries to mobilize and allocate financing. The effect is pronounced in the second half of the period and for heavy industries, which may be due to improved institutions and larger capital requirements, respectively.
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Credit Market Competition and the Nature of Firms
April 2009
Working Paper Number:
CES-09-07
Empirical studies show that competition in the credit markets has important effects on the entry and growth of firms in nonfinancial industries. This paper explores the hypothesis that the availability of credit at the time of a firm's founding has a profound effect on that firm's nature. I conjecture that in times when financial capital is difficult to obtain, firms will need to be built as relatively solid organizations. However, in an environment of easily available financial capital, firms can be constituted with an intrinsically weaker structure. To test this conjecture, I use confidential data from the U.S. Census Bureau on the entire universe of business establishments in existence over a thirty-year period; I follow the life cycles of those same establishments through a period of regulatory reform during which U.S. states were allowed to remove barriers to entry in the banking industry, a development that resulted in significantly improved credit competition. The evidence confirms my conjecture. Firms constituted in post-reform years are intrinsically frailer than those founded in a more financially constrained environment, while firms of pre-reform vintage do not seem to adapt their nature to an easier credit environment. Credit market competition does lead to more entry and growth of firms, but also to complex dynamics experienced by the population of business organizations.
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Survival Patterns Among Newcomers to Franchising
January 1997
Working Paper Number:
CES-97-01
This study analyzes survival patterns among franchisee firms and establishments that began operations in 1986 and 1987. Differing methodologies and data bases are utilized to demonstrate that 1) franchises have higher survival rates than independents, and 2) franchises have lower survival rates than independent business formations. Analyses of corporate establishment data generate high franchisee survival rates relative to independents, while analyses of young firm data generate the opposite pattern. In either case, the franchise trait is one of several determinants of survival prospects. The larger-scale, more established firms consistently stay in operation more frequently than smaller-scale, younger firms. Analysis of all corporate establishment restaurant units opened in 1986 or 1987 that use paid employees in 1987 helps to reconcile the seeming inconsistencies reported above. Most of the young franchisee units were not owned by young firms: rather, their parents were multi-establishment franchisees, and most of them were mature firms. Among the true newcomers, franchise survival rates are low; among the entrenched multi-establishment franchisees, survival rates were high.
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Survival Patterns Among Newcomers To Franchising
May 1997
Working Paper Number:
CES-97-05
This study analyzes survival patterns among franchisee firms adn establishments that began operations in 1986 and 1987. Differing methodologies and data bases are utilized to demonstrate that 1) franchises have higher survival rates than independents, and 2) franchises have lower survival rates than independent business formations. Analyses of corporate establishment data generate high franchisee survival rates relative to independents, while analyses of young firm data generate the opposite pattern. In either case, the franchise trait is one of several determinants of survival prospects. The larger-scale, more established firms consistently stay in operation more frequently than smaller-scale, younger firms. Analysis of all corporate establishment restaurant units opened in 1986 or 1987 that use paid employees in 1987 helps to reconcile the seeming inconsistencies reported above. Most of the young franchisee units were not owned by young firms: rather, their parents were multi-establishment franchisees, and most of them were mature firms. Among the true newcomers, franchise survival rates are low; among the entrenched multi-establishment franchisees, survival rates were high.
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Bank Crises and Investor Confidence
January 2009
Working Paper Number:
CES-09-02
In addition to their direct effects, episodes of financial instability may decrease investor confidence. Measuring the impact of a crisis on investor confidence is complicated by the fact that it is difficult to disentangle the effect of investor confidence from coincident direct effects of the crisis. In order to isolate the effects of financial crises on investor confidence, we study the investment behavior of immigrants in the U.S. Our findings indicate that systemic banking crises have important effects on investor behavior. Immigrants who have experienced a banking crisis in their countries of origin are significantly less likely to have bank accounts in the U.S. This finding is robust to including important individual controls like wealth, education, income, and age. In addition, the effect of crises is robust to controlling for a variety of country of origin characteristics, including measures of financial and economic development and specifications with country of origin fixed effects.
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Financing Small Business Creation: The Case of Chinese and Korean Immigrant Entrepreneurs
September 1996
Working Paper Number:
CES-96-09
Prevailing scholarly literature misrepresents the realities of how immigrant Korean and Chinese entrepreneurs finance entry into small business. Supportive peer and community subgroups are not major sources of startup capital; the majority of all loan funds are raised by borrowing from financial institutions. The major single funding source is equity capital, which derives almost entirely from family household wealth holdings. Controlling for firm and owner traits, comparison groups of nonminority and Asian American nonimmigrant self-employed borrowers are shown to have greater access to loan sources than Korean and Chinese immigrants. High equity capital investment offsets this disadvantage. Absent rotating credit associations, and other minor debt sources, the average Korean/Chinese startup possesses substantially more financial capital than its nonminority counterparts.
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When Liability Becomes Potential: Intermediary Entrepreneurship in Dynamic Market Contexts
April 2018
Working Paper Number:
CES-18-21
This paper analyzes how entrepreneurs fare in an intermediary market segment when the segment is closely attached to a single supplier market. While focusing on two structural constraints, organizational structure and competitive pressure, I build off of the fact that in the past thirty years in the U.S. beer industry, as the number of beer producers (i.e. brewers) proliferated, their intermediaries (i.e. wholesalers) declined. Using establishment-level restricted-access economic microdata from the Longitudinal Business Database, I examine what happens with intermediaries when (some) producers start competing on product variety instead of competing on scale. Piecewise exponential survival models show that Stinchcombe's 'liability of newness' principle can get suspended and certain newcomers have better survival chances than industry incumbents. I call this effect the potential of newness under which entrepreneurial establishments fare better if they are part of well-resourced multiunit firms. Furthermore, I show that these resource-rich entrepreneurs benefit from the potential of newness especially in areas with competition-laden history and where the industry experiences shakeouts. For market incumbents, the more competition-laden the history of the local market, the higher the hazards of current time establishment failure. For multiunit entrepreneurs, however, a more competition-laden history of the local market is associated with a decrease in the hazards of current time establishment failure. This paper highlights that market structure not only enables but sometimes traps already existing organizations and make them less adaptive to changing logics of competition. The results highlight how organizational factors and geography create inequalities among intermediary organizations.
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Globalization and Price Dispersion: Evidence from U.S. Trade Flows
March 2010
Working Paper Number:
CES-10-07
Historically, the integration of international markets has corresponded with decreasing prices for traded goods due to higher competition among suppliers, scale economies, and consumption demand. In recent years, product differentiation and multinational firm pricing behavior across markets and between suppliers make it difficult to assess the degree to which this still occurs. Using a confidential panel dataset comprising the universe of U.S. import trade transactions between 1992 and 2007, this paper explores the change in prices for imported commodities across American trade partners. Overall price dispersion appears to decline, albeit unevenly, over time; nevertheless, there is considerable heterogeneity within commodity groups, geographic regions, and income levels, which may owe to increased product and quality differentiation within commodity categories. Unusually, after controlling for gravity trade factors, trade openness and extensive measures of globalization are positively associated with price dispersion, which suggests a more disaggregated approach both at the commodity and firm level to account for these differences.
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R&D or R vs. D?
Firm Innovation Strategy and Equity Ownership
April 2020
Working Paper Number:
CES-20-14
We analyze a unique dataset that separately reports research and development expenditures
for a large panel of public and private firms. Definitions of 'research' and 'development' in this dataset, respectively, correspond to definitions of knowledge 'exploration' and 'exploitation' in the innovation theory literature. We can thus test theories of how equity ownership status relates to innovation strategy. We find that public firms have greater research intensity than private firms, inconsistent with theories asserting private ownership is more conducive to exploration. We also find public firms invest more intensely in innovation of all sorts. These results suggest relaxed financing constraints enjoyed by public firms, as well as their diversified shareholder bases, make them more conducive to investing in all types of innovation. Reconciling several seemingly conflicting results in prior research, we find private-equity-owned firms, though not less innovative overall than other private firms, skew their innovation strategies toward development and away from research.
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