Entrepreneurship and Philanthropy in American Capitalism

American capitalism differs from all other forms of industrial capitalism is its historical focus on both the creation of wealth (entrepreneurship) and the reconstitution of wealth (philanthropy). Philanthropy is part of the implicit social contract that continuously nurtures and revitalizes economic prosperity. Much of the new wealth created historically has been given back to the community, to build up the great social institutions that have a positive feedback on future economic growth. This entrepreneurship-philanthropy nexus has not been fully explored by either economists or the general public. The purpose of this paper is to suggest that American philanthropists – especially those who have made their own fortunes – create foundations that, in turn, contribute to greater and more widespread economic prosperity through knowledge creation. If we do not analyze philanthropy we can understand neither how economic development occurred nor what accounts for American economic dominance.     

What is an Entrepreneurial Opportunity?

The nature and source of entrepreneurial opportunity are important issues for understanding how markets function and come into being. In addition to describing the forum held on the topic and summarizing the contributions of the articles that appear in the special issue, this article shares a number of lessons learned during the workshop and the editorial process. We explore three of the most important reasons for confusion about the opportunity construct: (1) the “objectivity” of opportunity, (2) the perceived importance of one particular individual in determining the direction of the social world and (3) what distinguishes the sub-class of “entrepreneurial” opportunity from the broader category of opportunity in general. Finally, we offer some directions for future research by illuminating important issues that emerged from the workshop but that remain largely unanswered by the papers of this special issue.      

Innovation of entrepreneurial firms

An empirical test is provided of the effect of the degree of obsolescence on the effect of firm size and monopoly profits on a firm's ability to innovate. Recent theory suggests that innovation depends on firm size and monopoly profits only if the firm conducts product improvement as well as new product innovation. This is due to the allocation of limited entrepreneurial attention between improving current products and innovating new products. Current products are subject to obsolescence and innovation requires technological opportunities. The firm conducts product improvement as well as new product innovation only if the degree of obsolescence is sufficiently low relative to the level of technological opportunity. This theory provides an explanation for previously unexplained empirical observations. We find preliminary support for the hypothesis that product improvement reduces the positive effect of firm size on new product innovation and sufficient product improvement may reverse the negative effect of monopoly profits on new product innovations. In addition, product improvement reduces the positive effect of technological opportunity on new product innovation.     

Entrepreneurship and competitiveness dynamics in Latin America

This study analyses the relationship between entrepreneurial dynamics and the level of competitiveness in Latin American countries. Based on a stage of economic development model, we demonstrate that Latin American countries under the model followed different paths related to competitiveness. These different paths can explain the effect of specific competitiveness conditions on entrepreneurial dynamics in Latin America.

Patents, knowledge spillovers, and entrepreneurship

We develop an endogenous-growth model in which we distinguish between inventors and innovators. This distinction implies that stronger protection of intellectual property rights has an inverted U-shaped effect on economic growth. Intellectual property rights protection attributes part of the rents of commercial exploitation to the inventor that would otherwise accrue to the entrepreneur. Stronger patent protection will therefore increase the incentive to do research and development (R&D) and generate new knowledge. This new knowledge has a positive effect on entrepreneurship, innovation, and growth. However, after some point, further strengthening of patent protection will reduce the returns to entrepreneurship sufficiently to reduce the overall growth rate.     

Entrepreneurship,institutional economics,and economic growth: an ecosystem perspective

We analyze conceptually and in an empirical counterpart the relationship between economic growth, factor inputs, institutions, and entrepreneurship. In particular, we investigate whether entrepreneurship and institutions, in combination in an ecosystem, can be viewed as a “missing link” in an aggregate production function analysis of cross-country differences in economic growth. To do this, we build on the concept of National Systems of Entrepreneurship (NSE) as resource allocation systems that combine institutions and human agency into an interdependent system of complementarities. We explore the empirical relevance of these ideas using data from a representative global survey and institutional sources for 46 countries over the period 2002–2011. We find support for the role of the entrepreneurial ecosystem in economic growth.     

Do Independent Directors Add Value?

The Australian Stock Exchange's Principles of Good Corporate Governance and Best Practice Recommendations require all listed companies that do not have a majority of independent directors to explain their reasons. We show that independent (outside) directors seem to add value only where their firms have substantial amounts invested in growth options. In these circumstances, outside directors add significant value in their first year on the board and where they have at least three other board positions.     

Editors' introduction

Small Business Economics -     

Venture capital‐backed and commitments test entity initial public offerings on the ASX

This paper examines initial returns to venture capital (VC) backed and non‐VC‐backed IPO companies on the Australian Securities Exchange (ASX). We find support for the theoretical predictions of Rossetto (2008), by providing empirical evidence that VC‐backed CTE IPOs exhibit greater wealth losses to pre‐IPO investors compared to non‐VC‐backed CTE IPOs during hot issue markets. We also find that greater retained ownership increases IPO underpricing. In the subsample of IPOs with below the median level of retained ownership IPOs, VC‐backed CTE IPOs and VC‐backed, non‐CTE IPOs have significantly higher levels of underpricing and wealth loss compared to non‐VC‐backed, non‐CTE IPOs.