Contracting is essential for learning

Firms are said to be able to enhance their innovativeness through technology partnering. Technology partnering, however, can take on many shapes and sizes. No two partnerships are alike. A new publication by Toke Reichstein and colleagues provides empirical evidence indicating that contracting is an important factor for securing the right conditions for mutual learning. Introducing the terms “Thin” and “Thick” contracts to the technology licensing literature allow a more fine grained understanding on how to reap the maximum learning benefits of technology licensing. Thick contracts contains clauses that secures a commitment by parties to assist each other for assimilating and integrating the licensed knowledge into their own technological assets while thin contracts tend to be more arms length contracts. The extend to which these clauses are associated with learning depends on how well the partner knows the licensed technology.

Abstract:
This article introduces the distinction between thin and thick contracts to the investigation of licensing-in as a mechanism for technological learning. Thick contracts include a clause specifying that the licensors are obligated to assist the licensees in assimilating and integrating the technology. Drawing on a sample of 133 licensees and an equal number of matched nonlicensees, we present empirical evidence that thick contracts propel the licensees’ likelihood of introducing new inventions. It is also found that thick contracts act as a substitute for licensees’ absorptive capacity. Licensees that are more familiar with the licensed technology are in less need of assistance from the licensors to assimilate and integrate the knowledge. However, this substitution effect is neutralized once the hurdle of invention has been overcome, meaning that the licensees have succeeded to ignite the invention process, suggesting the exploitation of the learning curve, triggered by their mutual understanding.

Publication: Leone, M. I., Reichstein, T., Boccardelli, P. and Magnusson, M. (2015), License to learn: an investigation into thin and thick licensing contracts. R&D Management. doi: 10.1111/radm.12187

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The Impact of Gender Diversity on the Performance of Business Teams: Evidence from a Field Experiment

Teams of employees make important decisions in organizations and are central to many business operations. As teams have become a mainstay in business practices, research has increasingly become focused on what elements make a team most successful. One potential determinant of a team’s effectiveness is its gender diversity, as the gender mix of a team may offer an assortment of knowledge and skills. Previous research has shown that mixed gender teams are more generous and egalitarian, and that teams with a larger percentage of women perform better by building meaningful relationships and creating successful work processes. This paper examines the impact of the share of women in business teams on the team’s performance in terms of sales and profits. Additionally, this study examines support for potential underlying mechanisms to explain the effect of gender diversity on team performance.

Findings

Teams with an equal gender mix perform better than male-dominated teams in terms of sales and profits.

  • Teams with lower percentages of women have lower sales and lower profits than teams with a balanced gender mix.
  • The relation between sales and share of women on a team is inverse U-shaped: for teams with between 20% and 50% women, sales increase as the share of women increases; when the share of women exceeds 50%, sales tend to decrease as the share of women increases.
  • Raising the percentage of women in a group from 30% to 40% increased sales by 225 Euros.
  • Profits increase as the share of women increases up to 50%. For higher shares of women, the relation between profits and the share of women is flat.
  • The study suggests that teams with an equal gender mix perform the same as teams with a majority of females, but the distribution of their data does not allow conclusions about the effect of female-dominated teams.
  • The study finds no evidence to support the underlying mechanisms that improve performance on teams with an equal gender mix. The study found that conflicts, friendships, decision-making, atmosphere, learning, and mutual monitoring were all unrelated to the gender composition of the group.

Business teams with an equal gender mix perform better than male-dominated teams in terms of sales and profits.

Methodology

Students from the Department of International Business Studies of the Amsterdam College of Applied Sciences ran businesses in an entrepreneurship education program as part of this study. 550 students were randomly assigned to 45 groups to start a venture. Students sold stock, elected officers and divided tasks, produced and marketed products or services, kept records, and conducted shareholders’ meetings. 19% of the students dropped out during the course of the study. In addition to administrative data and teams’ annual reports, information was collected through three surveys. The baseline survey included demographic questions such as age, ethnicity, education, and parental background, as well as personality questions. All three surveys included self-assessments of the knowledge students have in business management, entrepreneurship, strategy, organization, administration, and leadership.

Published in: Management Sciences
Authors: Sander Hoogendoorn, Hessel Oosterbeek, and Mirjam van Praag
URL: http://dx.doi.org/10.1287/mnsc.1120.1674

Entrepreneurship and Financial Incentives of Return, Risk and Skew

In this forthcoming article, accepted by Entrepreneurship Theory and Practice, Mirjam van Praag and her co-authors are dealing with the role of expected income as a motivator for entrepreneurs.

The authors focus on the role of the opportunity cost in the choice for entrepreneurship in favor of wage employment, that is, the wages given up as an employee. They argue that just like outside observers, potential entrepreneurs will face great difficulty to predict their earnings from entrepreneurship. The focus on earnings forgone may help to solve the lack of robust empirical support for the effect of financial incentives on the decision to become an entrepreneur. The article states, consistent with standard theory, that a higher mean, lower variance, and higher skew in the relevant wage distribution reduce the likelihood of entrepreneurship.

The Price of a Patent License

Toke Reichstein has an article in Journal of Industrial and Business Economics on patent licensing specifically focusing on the remuneration structure of license agreements. The question is whether flexibility of the contract and the market and technological uncertainty associated with the contract impacts the negotiated price expressed by upfront fee.

As patent licensing has become the prime driver of technology trade, understanding the rationales behind a properly-defined payment structure of the agreements is essential. Specifically, among the other remuneration components, upfront fees are critical in license negotiations since they imply a significant initial investment by the licensee and represent a source of liquidity for the licensor. We investigate how contractual flexibility, market uncertainty and technical uncertainty shape upfront fees from the licensee’s perspective. Upfront fees are shown to be positively associated with contractual flexibility and market uncertainty, while technical uncertainty is positively associated with upfront fees only if the license warrants contractual flexibility to the licensee. Licensees therefore do not necessarily see uncertainty as a negative attribute of a patent license, but rather as a potential value, above all if in presence of contractual flexibility.

The Role of Nature vs. Nurture in the Creation of an Entrepreneur

In a newly published article in Journal of Economics, Mirjam van Praag asks the question Why entrepreneurial parents have entrepreneurial children. The research clearly shows that entrepreneurs often have been inspired by others to become entrepreneurs. More info on the article.

Earlier this year, US Time’s Money took up this issue under the heading Here’s a New Theory About Why People Become Entrepreneurs. Follow the link to read the article.

Serial Entrepreneurship, Learning by Doing and Self-selection

Vera Rocha is co-authoring this article on the lessons learned by serial entrepreneurs.

It remains a question whether serial entrepreneurs typically perform better than their novice counterparts owing to learning by doing effects or mostly because they are a selected sample of higher-than-average ability entrepreneurs. This paper tries to unravel these two effects by exploring a novel empirical strategy based on continuous time duration models with selection. We use a large longitudinal matched employer-employee dataset that allows us to identify about 220,000 individuals who have left their first entrepreneurial experience, out of which over 35,000 became serial entrepreneurs. We evaluate whether entrepreneurial experience acquired in the previous business improves serial entrepreneurs’ survival, after taking into account self-selection issues. Our results show that serial entrepreneurs are not a random sample of ex-business owners. Robustness tests based on the estimation of the person-specific effect, using information on individuals’ past histories in paid employment, confirm that serial entrepreneurs exhibit, on average, a larger person-specific effect than non-serial business owners. Moreover, ignoring serial entrepreneurs’ self-selection overestimates learning by doing effects.

Find the article here.

Entry and exit dynamics of nascent business owners

This paper co-authored by Vera Rocha reports a comprehensive study on the dynamics of nascent business owners using a unique longitudinal matched employer–employee dataset. We follow over 157,000 individuals who leave paid employment and become business owners during the period 1992–2007. The contributions of this paper are twofold. First, we analyze both entry and exit, identifying and characterizing different profiles of individuals leaving paid employment to become business owners, and distinguishing exits by dissolution from exits by ownership transfer. Second, we provide new evidence on how particular experiences in the labor market and entry modes shape the post-entry dynamics of nascent business owners. By differentiating between different entry and exit routes, this paper provides new evidence on different human capital patterns among nascent business owners and on key determinants of entrepreneurial survival. Our results suggest that different exit modes can be predicted by business owners’ entry route. Furthermore, different exit modes exhibit different duration dependence patterns according to the entry mode. Additionally, the paper shows that businesses started after a displacement episode are not necessarily less successful. Those individuals entering entrepreneurship after being displaced due to previous employer closure are found to persist longer.

Find the article here.

 

What Explains the Survival Gap of Pushed and Pulled Corporate Spin-offs?

Based on the PhD thesis of Vera Rocha this article has been published in Economics Letters.

Abstract: Unconditionally, pushed spin-offs are found to survive longer than their pulled counterparts. Using matched employer-employee data and novel multivariate decomposition techniques, we show that pushed spin-offs’ relative survival advantage is mostly explained by their larger human capital endowments at entry.

Find the article here.