Start-up entry strategies: Employer vs. Nonemployer firms
AbstractFrom 1997 to 2001 we observe in the Usa a faster growth in the number of Nonemploye firms (NF) vis à vis Employer firms (EF). The diverse speed of net entry may be due to particular internal organisation of the two types of firms and the effect that this has on the reactions to market uncertainty. However, the set of internal organizations of firms is larger than that made up simply by EFs and NFs, in particular among newborn firms, since we observe corporate start-ups with employees, firms owned and managed by their founders who are simultaneously the employees and, finally, non corporate enterprises. The second class of firms mostly belongs to the category of NFs, according to US nomenclature, while non corporate firms may belong to either category. Our curiosity is attracted by different entry patterns of NFs and EFs and our aim is to interpret them. According to recent literature, firms carry out an irreversible investment, such as entry, only if market prices are strictly larger than average total costs (Marshallian point). However, the trigger price that makes firms become active is affected by institutional rules, the existence of profit sharing, efficiency wages, exit options - i.e. partial reversibility - financial constraints. Then, the internal organization of a newborn firm may make the difference. In a continuous time stochastic environment, where firms bear a sunk cost, we model entry as a growth option. On the trace of distinct objective functions we show that NFs and EFs have specific entry patterns in terms of output price and/or size. Why? Simply because they react in diverse fashions to market price volatility. In this sense we are able to show that, in most cases, the NF is locally less risky. This makes the NF better suited to enter under conditions of higher volatility. This exactly corresponds to what happened during the years between 1997-2001.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Brescia, Department of Economics in its series Working Papers with number ubs0409.
Date of creation:
Date of revision:
Contact details of provider:
Postal: Via S. Faustino 74/B, 25122 Brescia
Web page: http://www.unibs.it/atp/page.1019.0.0.0.atp?node=224
More information through EDIRC
Other versions of this item:
- Michele Moretto & Gianpaolo Rossini, 2005. "Start-up Entry Strategies: Employer vs. Nonemployer firms," Working Papers 2005.13, Fondazione Eni Enrico Mattei.
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
- J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-05 (All new papers)
- NEP-BEC-2006-03-05 (Business Economics)
- NEP-CSE-2006-03-05 (Economics of Strategic Management)
- NEP-ENT-2006-03-05 (Entrepreneurship)
- NEP-TID-2006-03-05 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
- Ben S. Bernanke, 1980.
"Irreversibility, Uncertainty, and Cyclical Investment,"
NBER Working Papers
0502, National Bureau of Economic Research, Inc.
- Bernanke, Ben S, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 85-106, February.
- Leahy, J.V., 1991. "The Optimality of Myopic Behaviour in a Competitive Model of Entry and Exit," Harvard Institute of Economic Research Working Papers 1566, Harvard - Institute of Economic Research.
- Pencavel, John & Craig, Ben, 1994. "The Empirical Performance of Orthodox Models of the Firm: Conventional Firms and Worker Cooperatives," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 718-44, August.
- Delbono, Flavio & Rossini, Gianpaolo, 1992. "Competition policy vs horizontal merger with public, entrepreneurial, and labor-managed firms," Journal of Comparative Economics, Elsevier, vol. 16(2), pages 226-240, June.
- Pestieau, P. & Thisse, J. -F., 1979. "On market imperfections and labor management," Economics Letters, Elsevier, vol. 3(4), pages 353-356.
- Simon Parker & Tim Barmby & Yacine Belghitar, 2004.
"Wage Uncertainty And The Labour Supply Of Self-Employed Workers,"
Royal Economic Society Annual Conference 2004
67, Royal Economic Society.
- Simon C. Parker & Yacine Belghitar & Tim Barmby, 2005. "Wage Uncertainty and the Labour Supply of Self-Employed Workers," Economic Journal, Royal Economic Society, vol. 115(502), pages C190-C207, 03.
- Taylor, Mark P, 1999. "Survival of the Fittest? An Analysis of Self-Employment Duration in Britain," Economic Journal, Royal Economic Society, vol. 109(454), pages C140-55, March.
- Michele Moretto, 1999. "Optimal Capacity Adjustment by a Multiplant Firm," Working Papers 1999.28, Fondazione Eni Enrico Mattei.
- McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
- Sertel, Murat R., 1991. "Workers' enterprises in imperfect competition," Journal of Comparative Economics, Elsevier, vol. 15(4), pages 698-710, December.
- M. Moretto & G. Rossini, 2007.
"Are Workers' Enterprises entry policies conventional?,"
582, Dipartimento Scienze Economiche, Universita' di Bologna.
- Michele Moretto & Gianpaolo Rossini, 2008. "Are Workers' Enterprises Entry Policies Conventional?," LABOUR, CEIS, vol. 22(2), pages 369-381, 06.
- Michele Moretto & Gianpaolo Rossini, 2008. "Are Workers Enterprises Entry Policies Conventional?," "Marco Fanno" Working Papers 0066, Dipartimento di Scienze Economiche "Marco Fanno".
- Michele Moretto & Gianpaolo Rossini, 2007. "Are Workers. Enterprises Entry Policies Conventional," Working Papers 2007.31, Fondazione Eni Enrico Mattei.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matteo Galizzi).
If references are entirely missing, you can add them using this form.