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Analysis of Young Small Firms That Have Closed: Delineating Successful from Unsuccessful Closures
October 2002
Working Paper Number:
CES-02-24
This study of small businesses created between 1989 and 1992, and then closed down between 1993 and 1996, reveals that owners often described their firms as 'successful' when the disclosure decision was made. . Theoretical explanations consistent with this pattern are explored in this study. One view describes successful closures as rational outcomes of learning processes undertaken by entrepreneurs opening firms amidst considerable uncertainty. Another approach sees the seeming paradox of successful closure in terms of alternative opportunities: if something better comes along, the entrepreneur may close down. Empirically, successful closure owners are found to be moving on to more attractive alternatives.
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The Winner's Curse of Human Capital
February 1999
Working Paper Number:
CES-99-05
We extend a model developed by Evans) to explain when start-ups are credit constrained. We show that the magnitude of the credit constraint is conditioned by the relative productivity of human capital in both wage work and self employment. Empirical analysis reveals that entrepreneurs with greater levels of human capital and entrepreneurial abilities have both greater financial wealth and greater levels of start-up capital pointing to the endogenous nature of credit constraints. Start-ups are generally financially constrained when measured by the impact on start-up capital of predicted household income. Greater levels of human capital relaxes financial constraints, apparently due to greater productivity of human capital in wage work than in self-employment. Paradoxically, then, those who are the least likely to be credit constrained in self-employment are those that are least likely to switch into self-employment, and vice versa.
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GOVERNMENT TECHNICAL ASSISTANCE PROGRAMS* AND PLANT SURVIVAL: THE ROLE OF PLANT OWNERSHIP TYPE
February 1999
Working Paper Number:
CES-99-02
This paper compares the survival rates of plants participating in manufacturing extension programs to nonparticipating plants. Participating plants receive technical and business assistance from one of a nationwide network of extension centers intended to assist smaller manufacturers. Results suggest that plant survival is related to plant size, age, productivity, capital intensity and ownership type. Importantly, the impact of extension services differs across ownership types. Participating in extension increases the probability of survival for single unit plants, but not for multi units. This result is consistent with the notion that single unit plants have less access to information on new technologies and would, therefore, benefit more from technical assistance programs such as manufacturing extension.
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MICROENTERPRISE AS AN EXIT ROUTE FROM POVERTY:* RECOMMENDATIONS FOR PROGRAMS AND POLICY MAKERS
November 1998
Working Paper Number:
CES-98-17
The objective of this study is to shed light on whether and how microenterprise programs can be used as an economic development strategy to enable low-income people to achieve self-sufficiency through self-employment. Our findings provide little support for the notion that hard work and a small loan are sufficient ingredients for business success. Viable small firms are usually headed by well-educated owners and/or those possessing specific skills that serve as a basis for successful business creation and operation. Potential entrepreneurs lacking assets, skills, and support networks are unlikely to support themselves through self-employment earnings alone. As a poverty alleviation strategy, microenterprise is not a panacea. Nevertheless, programs targeting the poor who do have skills, resources, and support networks can be useful vehicles for helping some to escape poverty.
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Exiting Self-Employment: An Analysis of Asian Immigrant-Owned Small Businesses
November 1998
Working Paper Number:
CES-98-13
Part of the uniqueness of the immigrant Asian business community in the U.S. lies in the fact that many among the highly educated pursue self-employment in small-scale, low-yielding retail and personal service fields. This study analyzes owner departure for a nationwide sample of small businesses owned by Asian Indian and Filipino immigrants and a comparison group of Asian nonimmigrant firm owners. Controlling for firm and owner traits, highly educated Asian immigrant owners are more likely than others to exit self-employment over the 1987-1991 period; exit from traditional fields (retail and personal services) is pronounced. These exit patterns do not typify the comparison group. Findings are consistent with the hypothesis that self-employment is often a form of underemployment among Asian immigrants.
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Aggregate Productivity Growth: Lessons From Microeconomic Evidence
September 1998
Working Paper Number:
CES-98-12
In this study we focus on the role of the reallocation of activity across individual producers for aggregate productivity growth. A growing body of empirical analysis yields striking patterns in the behavior of establishment-level reallocation and productivity. Nevertheless, a review of existing studies yields a wide range of findings regarding the contribution of reallocation to aggregate productivity growth. Through our review of existing studies and our own sensitivity analysis, we find that reallocation plays a significant role in the changes in productivity growth at the industry level and that the impact of net entry is disproportionate since entering plants tend to displace less productive exiting plants, even after controlling for overall average growth in productivity. However, an important conclusion of our sensitivity analysis is that the quantitative contribution of reallocation to the aggregate change in productivity is sensitive to the decomposition methodology employed. Our findings also confirm and extend others in the literature that indicate that both learning and selection effects are important in this context. A novel aspect of our analysis is that we have examined the role of reallocation for aggregate productivity growth to a selected set of service sector industries. Our analysis considers the 4-digit industries that form the 3-digit industry automobile repair shops. We found tremendous churning in this industry with extremely large rates of entry and exit. Moreover, we found that productivity growth in the industry is dominated establishment data at Census, the results are quite striking and clearly call for further analysis.
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Counting The Self-Employed From Two Perspectives: Household Vs. Business Sample Data
August 1995
Working Paper Number:
CES-95-11
This study compares the number and attributes of self-employed workers using the Characteristics of Business Owners and Current Population Survey data series. Both sources of data have been widely used in empirical studies of entrepreneurship/self-employment. Substantial and inexplicable differences were found in the two data series' estimates of the number of self-employed men and women for both reference years. In terms of individual attributes, the CBO and CPS appear to report reasonably similar profiles of self-employed individuals in terms of marital status and geographic location, and similar systematic gender differences in the industrial distributions of these individuals. However, in terms of other attributes captured by both data series, including age, the two series exhibit notable dissimilarities.
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Small Businesses Do Appear To Benefit From State/Local Government Economic Development Assistance
February 1995
Working Paper Number:
CES-95-02
This study analyzes traits of small businesses that received state/local government aid in such forms as managerial, technical assistance, help in obtaining loans or bonding, and procurement assistance. Over 13 percent of small firms nationwide were found to be involved in selling goods/services to state/local government. Among firms owned by nonminorities, aid recipients tend to be the larger small businesses, but this pattern did not typify minority-owned firms. Among the nonminority businesses, furthermore, those aided by state/local government are more likely than nonassisted firms to remain in operation, even when various form and owner characteristics are controlled for statistically; this pattern did not typify minority-owned firms. State/local government aid flows disproportionately to women- owned businesses and to firm owners who lack managerial experience. No evidence was found indicating targeting of assistance to specific industry groups.
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On The Turnover of Business Firms and Business Managers
April 1994
Working Paper Number:
CES-92-06
The success of a business depends in part on whether or not the manager and the business make a good "fit" or "match." Success also depends upon characteristics of the business that are distinct from the manager, for example, the convenience of the business location to customers. Variations across firms in "match quality" and in "business quality" account, in part, for why some businesses survive and others are discontinued. This paper is a first attempt at assessing the relative importance of variation in match quality and variation in business quality in accounting for the turnover dynamics of the U.S. small business sector. An evolutionary model is developed in which a selection process tends to eliminate both "unfit" business as well as "unfit" pairings between businesses and managers. We estimated this model with the Characteristics of Business Owners Survey. Our estimates suggest that variations in match quality play a more significant role than variations in business, or general, quality in accounting for turnover behavior of U.S. of small businesses. We discuss the implications of this finding and demonstrate its importance in the context of an experiment conducted in the estimated model economy.
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Commercial Bank Lending Practices And The Development Of Black-Owned Construction Companies
December 1991
Working Paper Number:
CES-91-09
Although the construction industry has been a tremendous growth industry for black entrepreneurs in recent years, black-owned construction firms, on average, are less than half the size of those owned by nonminorities. Previous findings suggest that limited access to financial capital, particularly bank loans, has restricted the size of black-owned businesses. Examination of nationwide random samples of construction companies reveals that black firms are treated differently than nonminorities when they borrow from commercial banks: they get smaller loans than nonminorities who have otherwise identical traits. Undercapitalization, in turn, is shown to increase the likelihood of firm discontinuance. Alleviation of undercapitalization problems would help promote the development of black-owned businesses in the construction industry.
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