The Impact of Entrepreneurial Finance, Education, and Religion on Entrepreneurship

Birkbeck University of London

Friday 15th April, 2016, 14:00-17:45
Room B03 (43 Gordon Square)

This workshop is concentrated on the influence that entrepreneurial finance and other mitigating cultural factors such as education and religion may exercise on entrepreneurship in the current economic hardship. In a previous workshop on innovation financing we have stressed that innovation is typically underfinanced. Innovative firms need to invest more in intangible assets than other firms, and intangibles are difficult to evaluate. In some degree, this is also true with young firms in general, which notoriously need to invest heavily in intangible capital assets such as knowledge and business starting up, whose value is aleatory depending mostly on future and uncertain conditions.

The asymmetric information between external investors and young businesses is naturally more severe than that with more mature and successful firms. It determines a higher “financing gap”, which is mainly determined by the asymmetry in information between the external investors and innovators regarding the opportunity value of the firm and the intangible collaterals. In turn, this information gap is usually mitigated in two alternative financing modes: one is the “relationship financing” based on the full transparency of the innovator’s behaviour, and the other is the so-called “arm’s length financing” where such a transparency is absent. These two different approaches have their own costs and benefits, which cannot usually be compared ex ante.

As a consequence of these problems, innovative firms typically suffer from bank credit constraints, whereas the existing specialized sources of financing innovation – venture capital (VC) and angel investors – have proved to be insufficient. VC investments are mainly attracted to participation in equity capital of existing innovative projects rather than in start-ups. Moreover, VC has proved to be negatively affected by financial and economic crises just when innovation is more needed to foster economic growth. Angel investors may be too constrained in supply. Governmental seed capital and subsidy programmes often lead to misallocation of resources, particularly in emerging economies.

The workshop will discuss some of the new developments of financing and a strategic change in government policies which could overcome the drawbacks of the more traditional approaches. Microfinance is a fast growing way to help the financially under-served people who are striving for social emancipation and inclusion. It could be an important source of financing seed programmes leading to innovation in both emerging and developed economies. A second important new source of financing innovation is crowdfunding. This way of financing, which is essentially based on the Web-based technologies, can help the newly-born firms overcome funding difficulties with funds obtained through the Internet with no limited or no loss of control and ownership. A third promising source is the promotion of the public/private partnership in financing high-tech start-ups in a strategically oriented government. This may be an efficient way of financing innovation particularly in emerging countries.

Other channels for mitigating the information gap have been discussed in the recent literature. See for example the OECD report on financing small- and medium-sized enterprises, of which John Potter presents an outline. Non-financial channels or those linked to cultural policies are also important, as for example those based on education and religion. In the presentation of Victor Martin-Sanchez, policies targeting human capital formation and entrepreneurial training are seen relevant not only to enhance opportunity-seeking entrepreneurship, but also to territorial economic performance by enhancing the growth aspirations of entrepreneurs. Policy makers should acknowledge the value of entrepreneurship training, and design specific programmes that help potential entrepreneurs to pursue their projects by identifying and capitalising on their actual resources.

In another contribution to the workshop, Kwame Ohene Djan is inspired by a previous study that investigated the impact of religion on agency costs finding that religion has a significant negative influence on owner-manager agency costs. He points to the mitigation of regulation of religious affiliated firms by the national banking authorities.

You are invited to join the discussions. There is no charge for this workshop. Please confirm your attendance to Ning Baines at email:

Workshop Programme

14.00 – 14.15 Welcome and programme for the day,
Helen Lawton Smith (Director, Centre for Innovation Management Research, Birkbeck)
14.15 – 15.45 Jon Potter (OECD, Paris). The OECD Report on Financing the Small- and Medium-Size Enterprises
16.00 – 16.45 Victor Martin-Sanchez (King’s College, London). Unemployment and Growth Aspirations: The Moderating Role of Education
16.45 – 17.00 coffee/tea break
17.00 – 17.45 Kwame Ohene Djan (University of Agder, Kristiansand, Norway). Does Religious Affiliation Influence the Design of Corporate Governance? Evidence from the Global Microfinance Industry