Entrepreneurship in China
Saturday, Jan. 4, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: Xiaobo Zhang, Peking University and IFPRI
Serial Entrepreneurship in China
AbstractLittle is known is about the role of serial entrepreneurs, which we define as individuals who establish more than one firm. In this paper, we draw on the Business Registry of the Ministry of Industry and Commerce in China to examine the role and contribution of serial entrepreneurship (SE). We first document how important quantitatively SEs is in China. We next develop a simple model to analyze the portfolio choice problem of SE that highlights the role of upstream and downstream linkages, and risk diversification. We then examine regional differences in the rate of new firm start-ups and serial entrepreneurship, with an eye to the link with the local business environment. A simple model helps rationalize role of endowments, ability, and features of the local environment in explaining differences between SE and non-SE. Drawing on Brandt, Kamborouv and Storesletten (2018), we measure differences in the local business environment by differences in the capital and output frictions (wedges) and entry wedges. In the cross-section, new firm entry and SE are positively correlated with lower capital wedges and larger subsidies (larger output wedges), and lower barriers to entry. Finally, drawing on supplementary data on firm output, assets, etc. collected by the Ministry of Industry and Commerce, we examine the relative productivity of serial and non-serial firms by the type of local business environment. Our results suggest that the local business environment greatly influences economic development through selection into entrepreneurship and serial entrepreneurship. In environments with fewer constraints on entrepreneurs, we observe both more entrepreneurs, and more of the “good” entrepreneurs establishing additional firms. Both contribute to higher productivity and growth.
Moving "Umbrella": Bureaucratic Transfers, Collusion, and Rent-seeking in China
AbstractThe collusion between firms and government officials is ubiquitous but hard to empirically assess. This paper studies collusion by tracing the pattern of inter-city investments after political turnovers. Exploring the feature of bureaucratic transfers in China and using a unique firm registry data, this paper documents a significant increase of new investments with a close tie to the moving leaders' previous jurisdiction. Further empirical investigations find evidence consistent with a collusion between leaders and firms: First, new registrations tying to moving leaders concentrate in high-renting sectors. Second, the firms tying to transferred leaders have a higher survival rate provided that their patrons stayed in the same jurisdictions, but those firms are more likely to exit local markets once the patrons left. Thirdly, the connected firms tend to crowd out new entries and dampens innovation. And lastly, career-concerned motives seem to mitigate collusion.
Detecting Shell Companies in China
AbstractAccording to Baumol (1990), there are productive and unproductive entrepreneurs. Compared with the large body of literature on productive entrepreneurs, the studies on unproductive entrepreneurs are much scarcer in large due to lack of data. Unproductive entrepreneurs often use a shell company as a vehicle for various financial maneuvers, such as evading taxes or milking government subsidies. Because of the illicit nature, those who run shell companies attempt not to leave a trail. Consequently, the existing evidence on shell companies is largely anecdotal. This paper aims to fill in the knowledge gap by using Enterprise Survey for Entrepreneurship and Innovation in China (ESEIC). The ESIEC sample was drawn from nationally firm registration database. Enumerators were required to knock doors of all the sampled firms. However, some firms were just on paper and could not be found in the listed or operational addresses. By verifying information from different sources, we are able to identify the shell companies in the sample. In the next step, we combine information from other sources, such as annual firm inspection, telephone use, type of business, online recruitment, and so on, to predict shell companies and infer the prevalence of shell companies across regions and industries. We find that more than 10% of registered companies in China are shell companies. The shell companies exist mainly for the purpose of writing value added tax receipts and extracting government subsidies. The incidence of shell companies is higher in regions with a larger share of government size, measured as the ratio of the number of government employees to local tax revenues.
- D7 - Analysis of Collective Decision-Making
- O1 - Economic Development