CERES :: Browsing by Author "Burke, Andrew"

Browsing by Author "Burke, Andrew"

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Open Access
Bank Interest Margins and Business Start-Up Collateral: Testing for Convexity
(Blackwell Publishing, 2006-07) Burke, Andrew; Hanley, Aoife
The paper investigates the relationship between bank interest rate margins and collateral for loans issued to new ventures. The analysis finds a convex U-shaped relationship. The results indicate that while provision of collateral initially reduces bank exposure to risk (through security, more optimal levels of capital and lower moral hazard among entrepreneurs) that beyond a point its association with higher wealth gives rise to greater risk taking propensity among entrepreneurs and ultimately higher interest rates. This indicates that banks’ pricing policy may even help level the competitive playing field somewhat between ventures launched by higher and moderately lower wealth entrepreneurs.
Open Access
Competition is good for start-ups
(2013-03-01T00:00:00Z) Burke, Andrew; Hussels, Stephanie
Open Access
Do freelance independent contractors promote entrepreneurship?
(Springer, 2019-09-03) Burke, Andrew; Zawwar, Imran; Hussels, Stephanie
We investigate whether or not the level of entrepreneurial activity in an economy is determined by the availability of freelance independent contractors in the workforce. We develop hypotheses and test them through an analysis of 75 countries from 2002 to 2012 using the Global Entrepreneurship Monitor (GEM) database. We find freelance independent contractors promote entrepreneurial activity where typically a 10% rise in the freelance workforce causes about a 1% increase in entrepreneurial activity. The significance of this positive effect is robust for both necessity and opportunity-driven entrepreneurial types and across innovation-driven and efficiency-driven economies—but it is stronger in innovation-driven economies and also for necessity entrepreneurship. It implies that having a flexible workforce is a key ingredient to having an entrepreneurial economy. Furthermore, it indicates that orthodox research and public policy perspectives which overlook the importance of freelance independent contractors for entrepreneurship activity require a re-appraisal.
Open Access
Entry and exit in disequilibrium
(Elsevier Science B.V., Amsterdam., 2014-01-01T00:00:00Z) Burke, Andrew; van Stel, André
Most entrepreneurship theory depicts disequilibrium as the most common state for entrepreneurial activity and yet remarkably very little empirical research investigates the role of entry and exit in this type of external environment. Drawing on economics and organizational ecology we outline reasons why the interrelation between entry, exit and incumbent firms is likely to vary when the actual number of firms is higher or lower than the number that a market can sustain. We also introduce a new empirical methodology to explain entry and exit levels in two different types of disequilibria comprising situations when markets under and over shoot carrying capacity. Using a data set on the retail industry, we find that in undershoots a lack of competition between incumbent firms restores equilibrium by creating room for new-firm entry. In contrast, in overshoots competition induced by new firms (in particular strong displacement) restores equilibrium. We also find that equilibrium-restoring mechanisms are faster in over than undershoots. The results highlight that the behaviour and impact of entry and exit varies depending on the type of disequilibrium.
Open Access
The impact of commercial peer-to-peer lending websites on the finance of small business ventures
(Cranfield University, 2014-02) Kgoroeadira, Reabetswe; Burke, Andrew
In this dissertation, we set out to examine empirically the impact of commercial Peer to Peer (P2P) lending on the finance of small business ventures. Since, this is the first study that looks at the funding of small business ventures by commercial P2P lending website; we have collected and created a new and unique data set taken from Prosper.com, one of the dominating P2P lending websites; which formed the basis of our analysis. These data offer a unique opportunity to test theory - looking at information asymmetry problems and the mechanisms adopted to deal with them within a new context. The thesis comprises of three empirical chapters; we follow entrepreneurial finance literature in raising some of the key questions concerned mainly with: credit extension, the cost of credit and modeling default. We use robust analysis methods specifically: Probit, Tobit and 2-stage Heckman models to check for factors that drive credit allocation, factors driving the cost of credit and determinants driving default for small business loans. General insights from our first empirical study shows that P2P lending depicts a new small business venture loan market, where previously underserved early stage entrepreneurs and those looking for small amounts are able to access unsecured credit through the relaxation of collateral. Although collateral is not required, we find that the supply of loans tends to flow to the least risky entrepreneurs; those who are homeowners, with high credit ratings. In our findings, we also demonstrate that firm level characteristics have little impact on loan supply while reducing information asymmetries through giving volunteering information improves access to loans. In general, our findings are both interesting and important as they suggest that P2P lending is a low risk form of debt finance. In this sense, lenders act like traditional debt financiers. However, the way in which they appraise funding opportunities characterise typical decision making of equity investors such as Business Angels and VC, who tend to focus more on people, rather than the business itself. Findings from the second empirical study suggest that at an average lending of between 18 percent and 20 percent; P2P lending is a very expensive form of debt finance. Banks typically refuse to extend credit given such high interest rates as this tends to alter the borrower pool such that only the riskiest of borrowers have projects that generate returns that are high enough to be able to re-pay these interest rates. In effect, the bank supply curve is backward bending above 10 percent on conventional terms of lending. Consequently, if we were to characterise P2P lending we would effectively conclude that it is typically a high cost finance with required returns expected to be likely in the levels of Business Angels and VC equity investments. Finally, In terms of lender return and default, we find that the expected return to lenders is 3.26 percent, which is above the opportunity cost of capital in the US. Therefore, P2P lending is profitable from the investor point of view, albeit in a narrow sense. In general, the results suggest that average lenders on P2P platforms are amateurs, who actually have a higher risk tolerance. For these lenders, the risk of losing a small proportion (as little as $25) per investment in the overall portfolio of loans is offset by the potential gain from high interest rates charged for loans. Interestingly, our results show that return from the top 5 percent of lenders average at 6.1 percent per annum. Given the fact that P2P lending is generally a young market, and the fact that majority of lenders attracted to P2P lending are relatively uninformed amateurs in making investment decisions, the results suggest that if the amateur lenders do indeed learn, it then becomes plausible that in time the returns in this market may generally converge to be better (and gravitate towards the 6.1 percent achieved by top 5 percent). However, if the P2P lending platforms continue to attract a pool of amateur lenders, the average returns of 3.26 percent may render the market somewhat unsustainable in the long run. Overall, our findings are novel, namely that P2P lending depicts a new venture loan market where previously underserved early stage ventures and those looking for small amounts are able to access credit; with the relaxation of typical collateral requirements. The big lesson however about P2P lending as a form of small business finance is that it really comes down to personal features rather than business features. Put another way, our findings suggests that the decision to extend credit and the pricing of loans in this context may possibly be relatively idiosyncratic - depending more on personal reputation of the small business owner than on the observed characteristics of the firm.
Open Access
The Impact of Foreign Direct Investment on New Firm Survival in the UK: Evidence for Static v. Dynamic Industries
(Springer Science Business Media, 2008-04-01T00:00:00Z) Burke, Andrew; Gorg, H; Hanley, A
The paper examines the impact of Foreign Direct Investment (FDI) on the survival of business start-ups. FDI has potential for both negative displacement/ competition effects as well as positive knowledge spillover and linkage effects on new ventures. We find a net positive effect for the whole dataset. However, a major contribution of the paper is to outline and test an argument that this effect is likely to be comprised of a net negative effect in dynamic industries (high churn: firm entry plus exit relative to the stock of firms) alongside a net positive effect in static (low churn) industries. We find evidence to support this view. The results identify new effects of globalisation on enterprise development with associated challenges for industrial policy.
Open Access
The impact of intellectual property right regimes on self employed entrepreneurship: an international analysis
(Cranfield University School of Management, 2007-10) Burke, Andrew; Fraser, Stuart
The importance of IPR regimes for large firm innovation is well documented but less is known about their impact on self-employed entrepreneurship which is typically less innovative. The paper sets out to estimate the net effect of the various elements that comprise an IPR regime including the political system, the laws, and institutions as well as a general familiarity with and respect for IPR related products. Cumulatively, the analysis indicates that a well developed IPR regime has a net positive effect on the selfemployment activity. Since the self-employed sector is possibly the only segment of the enterprise base where IPRs may be expected to have a negative effect it provides a useful contribution to our empirical understanding of the welfare effects of IPRs on the entrepreneurial economy and economic development more widely. Contrary to some of the most vocal objections to the TRIPS Agreement we find that rather than undermine the self-employed enterprise base it actually boosts it. We find that half-hearted IPR conventions, in this case the Phonograms Convention, designed to accommodate countries with a weak desire to support IPRS undermines this positive effect. We do not find any evidence to suggest that the organizations which tend to be associated with the enforcement of IPR laws such as Interpol, ISO, PCA, UNCTAD, UNESCO, WIPO and the WTO had any effect over and above WIPO and the WTO helping to create TRIPS in the first place. The evidence in the paper indicates that the standard practice of international economic development aid where recipient countries have been encouraged to embrace democracy and IPRs (in particular, the TRIPS Agreement) seems to have been prudent. Most likely these initiatives would act to boost the self-employed enterprise base in developing and transition economies.
Open Access
Is there a North-South divide in self-employment in England?
(2007-07-01T00:00:00Z) Burke, Andrew; FitzRoy, Felix R; Nolan, Michael A
Using decomposition analysis, the paper investigates why Northern England has fewer but higher performing self-employed individuals than the South. We find the causes are mainly structural differences rather than regional variation in individual characteristics. There are more self employed individuals in the South, but on average they create fewer jobs. Post compulsory education has a strong negative effect on the probability of self employment in the South, probably due to better employment opportunities there, but little influence in the North. Education has some positive effects on job creation by entrepreneurs in both regions. Aggregate studies may thus give misleading results.
Open Access
Market concentration, market dynamism and business survival
(Cranfield University School of Management, 2007-09) Burke, Andrew; Gorg, Holger; Hanley, Aoife
The paper uses a unique dataset comprising the population of new ventures that enter the UK market in 1998. We argue that we would expect the effect of market concentration on firm survival to be different according to whether an industry is static (low entry and exit) or dynamic. In our empirical analysis we find support for this hypothesis. Industry concentration rates reduce the survival of new plants but only in markets marked by low entry and exit rates. Specifically, a 10 percent increase in the 5-firm concentration ratio or the Herfindahl index in a dynamic market, raises the survival rate of new ventures by approximately 2 percent. Our results suggest greater leniency towards more dominant firms in industries showing buoyant entry and exit rates.
Open Access
Multiple effects of business plans on new ventures
(Cranfield University School of Management, 2009-02) Burke, Andrew; Fraser, Stuart; Green, Francis
We investigate the impact of writing a business plan prior to start-up on new venture performance. Our analysis makes new contributions by examining multiple effects of business plans. This approach allows the impacts of business plans to be disentangled from selection effects due to differences in the profile and business context of ventures that are more or less likely to write a business plan. We offer an empirical methodology and apply it to UK data where we find that business plans promote employment growth. This is found to be due to the impact of the plan and not selection effects.
Open Access
Promoting entrepreneurship as a means to foster economic development :|ba review of market failure and public policy
(Cranfield University, 2010-08) Kgoroeadira, Reabetswe; Burke, Andrew
Background and Purpose: Governments and policy makers continue to look to entrepreneurship as a vehicle to economic development. This is informed by the perception shared by governments and policy makers that entrepreneurship is a good thing and we ought to have more of it. Thus a wave of policies has emerged in the UK and elsewhere which advocates for an increase in the level of enterprise activity. Our understanding of how and when governments intervene to assist entrepreneurs, and indeed which, if any, specific entrepreneurs should receive assistance in some shape or form, still has substantial knowledge gaps. The review aims to contribute to the building of this knowledge. Methodology: The systematic review methodology was followed to examine the entrepreneurship literature. Quantitatively, the data was examined using basic descriptive statistics and content analysis. Qualitatively, the data was analyzed based on an inductive approach in order to identify emerging, frequent, dominant or significant themes that dominate in understanding entrepreneurship. Findings: This review has identified factors which affect entrepreneurial performance, the market failure that result as well as the policy instruments defined in literature that aim to rectify the perceived market failure. Different typologies were identified which illustrate how the different policy instruments are categorised. Further, this review highlights the complex nature of public policy and entrepreneurship and raises the importance of adopting a more coherent “holistic” approach when advocating for intervention in entrepreneurship and public policy.
Open Access
The role of entrepreneurial activity in economic catch-up.
(2017-12) Zawwar, Imran; Burke, Andrew; Belghitar, Yacine; Hussels, Stephanie
According to an estimate, in the year 1820, the difference in per capita income between the richest and the poorest country was no more than 3:1. However, with the industrial revolution, some countries experienced a significant shift in their economic growth and the gap in per capita income between the countries started to widen up. This process resulted in increasing global inequality as some countries progressed rapidly, while others remained behind and could not catch-up with the developed world. Nevertheless, with the increase in productivity given the rapid advances in technology, the developing countries have started to catch-up and most of them are growing faster than their developed counterparts. The process of catching up by the individual countries implies a reduction in the gap in productivity and per capita income with the developed world and collectively if all the countries start to catch-up it is referred to as convergence. The phenomenon of convergence has received much attention in the literature on economic development and the potential causes of convergence have intrigued several debates. The neoclassical growth theory provides the theoretical construct to explain this process of convergence and the role of capital, labour and technology is argued to be fundamental. In this regard, the basic premise of this research is that although technology is an important determinant for economic convergence, it cannot be implemented without the entrepreneurs in the economy. The role of entrepreneurial activity is considered to be significant in economic growth, but it has not been explored in the models of economic convergence. Utilising the GEM data on total entrepreneurial activity this PhD thesis addresses this gap and building on the economic development and entrepreneurial literature it explores the role of entrepreneurial activity in economic convergence under varying business contexts. More importantly, it tries to ascertain what type of entrepreneurial activity assists the catching up countries to progress and reduce their gap in productivity and income with the developed world. As the first step in this research, a systematic review of the literature was conducted resulting in a theoretical framework which uncovered the gaps in the existing knowledge. This informed the respective research questions and provided the design for the empirical research that followed. The first empirical paper showed that the impact of entrepreneurial activity in catching up economies, is only significant in the presence of a feedback loop, i.e. as improved entrepreneurial activity from one year feeds into another, helping the catching up countries to grow faster and reduce the gap in productivity and income with the higher incumbent economies. The second empirical paper showed that in the presence of a feedback loop it is only the opportunity entrepreneurial activity that has a significant impact in reducing the GDP gap, while necessity entrepreneurial activity is insignificant. In a world which is characterised by resource constraints, the biggest public policy issue is effective utilisation of resources. To this end, this research has great insights for public policymakers who are interested in formulating policies for impactful entrepreneurship which can expedite the process of economic development. It shows the importance of entrepreneurial activity in economic catch-up, provides insights into entrepreneurial motivation and at the same time emphasise the value of a feedback loop.

Browsing by Author "Burke, Andrew"

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