Issue 4

Volume 19 JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Winter 2010

The Old-Boy Network and the Quality of Entrepreneurs

Mehmet Bac and Eren Inci
We study a model of network formation and start-up financing with endogenous entrepreneurial type distribution. A hub firm admits members to its network based on signals about entrepreneurs' types. Network membership is observable, which allows lenders to offer different interest rates to network and stand-alone entrepreneurs.

Group Status and Entrepreneurship

Simon C. Parker and Mirjam Van Praag
Do unfettered markets produce too many or too few entrepreneurs? Two seminal papers [Stiglitz and Weiss (1981) and de Meza and Webb (1987)] obtained ambiguous answers to this question based on different assumptions about the character of information asymmetries in credit markets.

If You Are So Smart, Why Aren’t You an Entrepreneur? Returns to Cognitive and Social Ability: Entrepreneurs Versus Employees

Joop Hartog, Mirjam Van Praag and Justin Van Der Sluis
How valuable are cognitive and social abilities for entrepreneurs’ relative to employees’ earnings? We answer three questions: (1) To what extent does a composite measure of ability affect an entrepreneur's earnings relative to wages earned by employees? (2) Do different cognitive abilities (e.g., math ability, language, or verbal ability) and social ability affect earnings of entrepreneurs and employees differently?, and (3) Does the balance in these measured ability levels affect an individual's earnings?

Interactions between Preemptive Competition and a Financing Constraint

Michi Nishihara and Takashi Shibata
We develop an investment and financing model in which two identical firms compete for first-mover advantage in an opportunity to invest. We investigate the interactions between preemptive competition and a financing constraint. We show that a medium-intensity financing constraint can play a positive role in mitigating the preemptive competition and improving firm value in equilibrium.

Venture Capital Exit Rights

Carsten Bienz and Uwe Walz
We investigate when and how venture capital contracts use exit rights such as drag-along and tag-along rights. Utilizing a data set of venture capital contracts from Germany, we find that almost all contracts allocate exit rights to the venture capitalist (VC) rather than to the entrepreneur. In our data set, the vast majority of exit rights deal with the sale of the entire company to a strategic investors rather than with initial public offerings (IPOs).

Accounting Scandals in IPO Firms: Do Underwriters and VCs Help?

Anup Agrawal and Tommy Cooper
We examine whether underwriter reputation, venture capitalist (VC) backing, and VC reputation are related to the probability that a newly public firm has serious accounting problems. Using a novel data set, we find that the probability of restatement by an initial public offering (IPO) firm is positively related to underwriter reputation and negatively related to VC backing, VC reputation, and VC maturity.