Rein Peterson

Entrepreneurship and economic growth: Evidence from emerging and developed countries

This paper presents an extension to the economic growth model developed by Wong, Ho, and Autio (2005), to reflect differences in the economic effects of opportunity and necessity-based entrepreneurship in both emerging and developed countries. Data from 44 countries for the years 2004 and 2005, as collected by Global Entrepreneurship Monitor (GEM) research and Global Competitiveness Report (GCR) research, are used to identify predictors of GDP growth for emerging and developed nations. The GEM data are used to determine the effect of different types of entrepreneurship on GDP growth. The GCR data operationalize additional control variables suggested by three economic growth theories: new economic geography, endogenous growth theory and national systems of innovation. This contribution to the literature suggests that, in developed countries, a significant portion of economic growth rates can be attributed to high-expectation entrepreneurs exploiting national investments in knowledge creation and regulatory freedom. However, in emerging countries this effect is absent. It is hypothesized that a threshold exists for entrepreneurs to gain access to the formal economy, below which entrepreneurial contributions act through informal mechanisms.

Multiproduct Production Scheduling for Style Goods with Limited Capacity, Forecast Revisions and Terminal Delivery

A general mathematical model is formulated for the problem of scheduling production quantities for a group of products with seasonal stochastic demand through a common production facility. It is assumed that revised forecasts of total demand over the season for each product become available as the season progresses; delivery is not required until the end of the selling season. Limited production capacity requires that some production take place early in the season, when forecasts are less accurate. At the end of the season, there are overage costs and underage costs representing costs of producing excess quantities and opportunity costs of not producing enough units. Under certain assumptions concerning the data-generating process for forecast revisions, it is possible to formulate the entire problem as a dynamic programming problem; however, the formulation is not computationally feasible if two or more products are considered. Three heuristic approaches to the multi-product problem are presented, and their cost performance is evaluated in some numerical examples. In these particular examples, more frequent reforecasting and rescheduling produces substantial reduction in costs.

Inflating the bubble: examining dot-com investor behaviour

Findings are presented from a study of the cognitive behaviours of 57 venture capital investors in the early-stage technology sector during the 1998 – 2001 Internet bubble period. The inductive research methodology was based on open-ended qualitative interviews with investment practitioners, conducted by the lead author who was an investment practitioner during the bubble. The data obtained were used to develop a grounded model of how generally accepted venture capital industry decision-making practices were bypassed and modified by investors competing intensively in an unfamiliar sector with unknown success criteria, which contributed to the creation of the bubble. Insights from prospect theory, attribution theory and cognitive dissonance theory were used to identify the cognitive processes that led through groupthink to the development of a conceptual framework in the industry, similar to what organizational theorist Gareth Morgan has called a Psychic Prison. The study identified four positive feedback loops in the environment surrounding the activities of Internet investors that contributed to the bypassing of generally accepted practices by investors who believed they were behaving rationally.

When entrepreneurs choose VCs: Experience, choice criteria and introspection accuracy

Abstract This study examines the criteria by which entrepreneurs choose their venture capital investors, using data from 59 entrepreneurs evaluating the relative importance of seven selection criteria. We divided our sample into three approximately equal subsamples, according to the degree of previous venture capital experience of the entrepreneur. These data suggests that novice entrepreneurs value the seven criteria differently from more experienced entrepreneurs, and in practice value these criteria differently from what they espouse. All groups of entrepreneurs consider valuation to be the primary criterion, and also view the terms and conditions of the investment deal as important. But as entrepreneurs gain experience they increasingly value the personal compatibility of the VC as important in their selection. Other differences between inexperienced and experienced entrepreneurs are reported for secondary selection criteria. These results recommend caution in the use of espoused data for future empirical research in this area, and suggest practical negotiating strategies for participants in this market.

ENTREPRENEURS AND BANK LENDING IN CANADA

ABSTRACT Many Canadian entrepreneurs believe that bank debt is more difficult to obtain, in Canada, compared to other countries, particularly in the early stages of company growth. Research reported upon in this paper indicates that Canadian entrepreneurs, on the average, appear to enjoy equal or better access to bank debt compared to entrepreneurs in at least five other developed countries (including the US).

Venture Capitalist Behaviours: Frameworks for Future Research

Much of traditional investment theory is based on risk taking with known parameters. This article looks at a case where the parameters of the risk function are unknown and investors therefore face uncertainty in risk-taking. We provide a theoretical background to develop alternative cognitive and economic models of investor behaviour. Using a previously developed descriptive model of investor behaviour grounded in interviews with 57 venture capitalists during the internet bubble, we apply theoretical constructs from prospect theory, signalling theory, regret theory, and career concerns and reputation theory to provide deeper insights into different investor behaviours observed empirically. The different perspectives on investor utility offered by the theories developed in this paper serve to explain the unique model components that emerged during the bubble period. No single model or theory was sufficient by itself. Relationships are also suggested between the governance existing with specific investor classes, and the degree to which those investors exhibit the cognitions we model. We conclude that the bubble was a degenerate case that resulted from the failure of VCs with limited experience to follow accepted VC investment practices and governance, and from predictable human nature and weaknesses. This article concludes with theory-based directions for future research.

Preface to Management Science in Canada

Management Science is not unique to any particular country or set of countries. It is comprised of processes, techniques and tools that are potentially applicable to problems found in a wide range of social and economic systems. The scope and style of management science practices vary from country to country. In Canada the community of Operational Research/Management Science (OR/MS) practitioners has grown to approximately 1200, according to the membership lists of professional societies. The time has come to take stock. It is with this goal in mind that we accepted the challenge of editing and contributing to Management Science in Canada.