Date

2013

Document Type

Dissertation

Degree

Doctor of Philosophy

Department

Economics

First Adviser

Hyclak, Thomas J.

Other advisers/committee members

Taylor, Larry; Forster, William

Abstract

Michael Porter (1990) declared that entrepreneurship is "at the heart of national advantage." Edward Lazear (2002) more recently proclaimed that, "the entrepreneur is the single most important player in a modern economy." Audretsch and Thurik (2001) explain that the shifting emphasis on entrepreneurship can be explained by comparative advantage that now lies in knowledge-based economic activities. This growing literature has presented local, state, and federal policy makers with a compelling way through entrepreneurship programs to gain back jobs lost to globalization and outsourcing (Audretsch et al., 2006). While the effects of entrepreneurs on growth have been studied, the benefits of cities for new firms is less researched. We consider how cities encourage entrepreneurship, support entrepreneur survival, and enhance new firm financing.Chapter 1 analyzes the effect of cities on the individual decision to start a firm. Specifically, we consider how several agglomeration theories may encourage individuals to launch a new firm. We contribute to the expanding literature on entrepreneurship by using the Kauffman Index of Entrepreneurial Activity (KIEA) for 1998-2011, considering individual startup decisions, while controlling for individual motivations, and examining the importance of the local industry conditions to new firm launches across several industries. We find that individuals in regions with entrepreneurial social and institutional structures are more likely to launch a new firm, while industry concentration and diversity are only significant in denser locations. The presence of small and new firms in a region creates an environment conducive to entry and is consistent across industry sectors. Chapter 2 explores the effect of local industrial conditions on a startup's probability of shutdown using the Kauffman Firm Survey (KFS). We contribute to the expanding literature on entrepreneurship by considering shutdowns and positive-exits separately, using a comprehensive model including firm and local industry conditions, and estimating shutdown determinants for high-tech and manufacturing startups. We find strong evidence that the determinants of shutdown are significantly affected along these three dimensions. We test the effect of cluster, Jacobs, and Chinitz agglomerations on new firm shutdowns, but find that new firm shutdowns are not prevented by any source of agglomeration. While concentrated clusters and dense regions promote persistence for manufacturing firms, a regional structure with a large share of small firms (i.e. Chinitz hypothesis) promotes survival for non-manufacturing startups. An environment with a large share of small firms also decreases the risk of shutdown for low-tech startups, while higher industry MES and research expenditures decrease the risk of shutdown. Finally, chapter 3 considers the effects of local industry conditions on external capital acquisition of new firms, using the Kauffman Firm Survey (KFS). While survival and growth has been the predominant measure of performance, Gompers and Lerner (2001) emphasize that access to external finance is necessary for entrepreneurs to establish a competitive advantage. We contribute to the entrepreneurial financing literature by accounting for heterogeneity in financing methods and repeated transactions, exploring how local industry conditions affect new firm financing, and considering how the determinants of financing differ for high-tech and low-tech firms. We find that the region in which a firm operates significantly affects the funding chances of new firms. New firms are at a greater risk of external equity and debt infusions in regions that specialize in certain industries and in industries with lower wages. While the chance of equity financing is greater in regions with an entrepreneurial culture and small supplier network (Landier model and Chinitz hypothesis), the probability of debt financing is greater in regions with concentrated clusters (Porter) and lower university research expenditures. Interestingly, these effects are mirrored for low-tech startups, while high-tech startups are only affected by the industry's wage and region's specialization.

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Economics Commons

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