Working Paper: NBER ID: w10165
Authors: Mihir Desai; Paul Gompers; Josh Lerner
Abstract: We explore the impact of the institutional environment on the nature of entrepreneurial activity across Europe. Political, legal, and regulatory variables that have been shown to impact capital market development influence entrepreneurial activity in the emerging markets of Europe, but not in the more mature economies of Europe. Greater fairness and greater protection of property rights increase entry rates, reduce exit rates, and lower average firm size. Additionally, these same factors also associated with increased industrial vintage a size-weighted measure of age and reduced skewness in firm-size distributions. The results suggest that capital constraints induced by these institutional factors impact both entry and the ability of firms to transition and grow, particularly in lesser-developed markets.
Keywords: entrepreneurship; capital constraints; institutional environment; firm dynamics; Europe
JEL Codes: L1; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater fairness (D63) | entry rates (J68) |
| stronger protection of property rights (P14) | entry rates (J68) |
| greater fairness (D63) | exit rates (J63) |
| stronger protection of property rights (P14) | exit rates (J63) |
| greater fairness (D63) | industrial vintage (L68) |
| stronger protection of property rights (P14) | industrial vintage (L68) |
| greater fairness (D63) | access to capital (O16) |
| stronger protection of property rights (P14) | access to capital (O16) |
| greater fairness (D63) | reduced operational risks (G32) |
| stronger protection of property rights (P14) | reduced operational risks (G32) |