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Boon or Boondoggle? Business
Incubation as Entrepreneurship Policy:
 A Report from the National Census of
Business Incubators and their Tenants

         Alejandro S. Amezcua, Ph.D.
                Post-Doctoral Fellow
           Whitman School of Management
                Syracuse University
                 aamezcua@syr.edu
Outline
 Why Business Incubation?
 Research Question
 Data Collection
 Findings
 Discussion and Questions




                             2
Business Incubator Definition
 An organization that provides free or below market
  operating space to young businesses
 Often provide one or more of the following: shared
  administrative services, access to capital and financing,
  networks, and assistance with legal, technology transfer,
  and export procedures
 Motivated by the opportunity to create economic value by
  helping reduce the rate of failure of young businesses



                                                              3
Why Incubators?
                           Total Incubator Births By Year
         150
         125100
  Frequency
     75  50
         25
         0




                   1960   1970      1980          1990      2000   2010
                                           Year
                  N=947
                                                                          4
Incubators Cost Money
 Economic Development Administration
   − 30 construction grants in 2010 with matching requirements
   − Average grant size $1.5m
   − $3 million to build an incubator on average

 Other Federal Funding Sources
   − US Departments of Agriculture, Commerce, Energy, Health
     & Human Services, and Housing & Urban Development

 Average Operating Budget of an Incubator
   − $500,000
   − $475 million annually
   − Paid primarily by state and local government sources
                                                                 5
Research Question
 Is this a good investment?
 Do incubated businesses outperform their
  unincubated peers?
 Performance measures
  − Survival
  − Employment Growth
  − Sales Growth




                                             6   6
Organizational Evolutionary Theory
 Emergence and survival of new organizations
 Liability of Newness
   − Market
   − Production
   − Management

 Selection
   − Organizations that can cover underneath the structure of
     larger organizations face different selection pressures
   − Organizations that stand-alone must rely on their own
     competencies to survive


                                                                7
Hypotheses
H1.   Incubated new businesses will perform at higher levels
      than their non-unincubated counterparts,
      indicating incubation helps overcome the liability of
      newness.
H2.   Incubated firms will outperform their non-incubated
      counterparts post-incubation, indicating incubation
      helps firms adapt to the external environment.




                                                               8
Data Collection
 National Census of Business Incubators
 National Database of Incubated Businesses
 Matched Control Group of Unincubated Businesses




                                                    9
National Census of Business Incubators
 950 business incubators
   − 1,121 unique locations

 Sources
   − National Business Incubator Association
   − State associations of business incubators
   − Economic development departments of all 50 states

 Useful data archives
   − Internet Archive, Dun & Bradstreet, National Center for
     Charitable Statistics, Lexis-Nexis

 Collected data on incorporation, founding year, university
  affiliation, and physical addresses
                                                               10
Data on Incubated Businesses
 National Establishment Time Series Database (NETS)
   − Annual snapshot of Dunn & Bradstreet databases

 Incubated firms identified through address matching
   − Approximately 19,000
   − Observations span from 1990 to 2008

 Verification process
 Key variables: survival, sales, employment, industry, gender,
  racial/ethnic identity, history of relocations


                                                                  11
Data on Non-Incubated Businesses
 Challenge: Creating a valid comparison group without full
  access to the NETS
 Stage 1: Extract from NETS based on strata matching
   − 420 strata representing year founded, industry, county, &
     gender of the entrepreneur

 Stage 2: Propensity Score Matching
   − Measures the likelihood of incubation based on observed
     characteristics
   − Matched based on year founded, industry, county, and
     gender & ethnic/racial identity of the entrepreneur
   − Weighted data: 3 to 1
   − Nearest neighbor selection method
                                                                 12
Identification of Common Support
               Propensity Score Histogram
               Common Support when P-score<.5




    0     .2           .4              .6             .8   1
                        Propensity Score

                     Untreated              Treated
                           Figure 1

                                                               13
Incubated Firms Descriptive Statistics
                                                  N       Average or %   Min        Max
*   Founding Year (ave)                           18426   2000           1990       2006
    Firm Failure (%)                              18426   42%            0          1
    Age (ave)                                     18426   5.03           1          18
    Age of Surviving Firms (ave)                  10761   6.03           2          18
    Age of Failed Firms (ave)                     7665    3.63           1          17
    Years Spent in Incubator (ave)                18426   4.55           0          18
                                      Graduates 655       4%             0          1
                                Failed Graduates 193      29%            0          1
                   Years Spent in Incubator (ave) 657     3.84           0          17
                         Age at Graduation (ave) 657      4.51           0          17
    Initial Sales (ave)                           18397    $   692,783    $     307 $ 805,000,000
    Latest Sales (ave)                            18397    $   695,305    $     500 $ 304,000,000
    Initial Employment (ave)                      18426   4.43           1          100
    Latests Employment (ave)                      18426   5.81           1          2500
*   Minority Owned (%)                            18426   0.5%           0          1
*   Women Owned (%)                               18426   6.1%           0          1
*   Finance & Insurance                           18426   11%            0          1
*   Services                                      18426   59%            0          1
                                                                                                    14
Incubated Firms Descriptive Statistics
                                                  N       Average or %   Min        Max
*   Founding Year (ave)                           18426   2000           1990       2006
    Firm Failure (%)                              18426   42%            0          1
    Age (ave)                                     18426   5.03           1          18
    Age of Surviving Firms (ave)                  10761   6.03           2          18
    Age of Failed Firms (ave)                     7665    3.63           1          17
    Years Spent in Incubator (ave)                18426   4.55           0          18
                                      Graduates 655       4%             0          1
                                Failed Graduates 193      29%            0          1
                   Years Spent in Incubator (ave) 657     3.84           0          17
                         Age at Graduation (ave) 657      4.51           0          17
    Initial Sales (ave)                           18397    $   692,783    $     307 $ 805,000,000
    Latest Sales (ave)                            18397    $   695,305    $     500 $ 304,000,000
    Initial Employment (ave)                      18426   4.43           1          100
    Latests Employment (ave)                      18426   5.81           1          2500
*   Minority Owned (%)                            18426   0.5%           0          1
*   Women Owned (%)                               18426   6.1%           0          1
*   Finance & Insurance                           18426   11%            0          1
*   Services                                      18426   59%            0          1
                                                                                                    15
Incubated Firms Descriptive Statistics
                                                  N       Average or %   Min        Max
*   Founding Year (ave)                           18426   2000           1990       2006
    Firm Failure (%)                              18426   42%            0          1
    Age (ave)                                     18426   5.03           1          18
    Age of Surviving Firms (ave)                  10761   6.03           2          18
    Age of Failed Firms (ave)                     7665    3.63           1          17
    Years Spent in Incubator (ave)                18426   4.55           0          18
                                      Graduates 655       4%             0          1
                                Failed Graduates 193      29%            0          1
                   Years Spent in Incubator (ave) 657     3.84           0          17
                         Age at Graduation (ave) 657      4.51           0          17
    Initial Sales (ave)                           18397    $   692,783    $     307 $ 805,000,000
    Latest Sales (ave)                            18397    $   695,305    $     500 $ 304,000,000
    Initial Employment (ave)                      18426   4.43           1          100
    Latests Employment (ave)                      18426   5.81           1          2500
*   Minority Owned (%)                            18426   0.5%           0          1
*   Women Owned (%)                               18426   6.1%           0          1
*   Finance & Insurance                           18426   11%            0          1
*   Services                                      18426   59%            0          1
                                                                                                    16
Incubated Firms Descriptive Statistics
                                                  N       Average or %   Min        Max
*   Founding Year (ave)                           18426   2000           1990       2006
    Firm Failure (%)                              18426   42%            0          1
    Age (ave)                                     18426   5.03           1          18
    Age of Surviving Firms (ave)                  10761   6.03           2          18
    Age of Failed Firms (ave)                     7665    3.63           1          17
    Years Spent in Incubator (ave)                18426   4.55           0          18
                                      Graduates 655       4%             0          1
                                Failed Graduates 193      29%            0          1
                   Years Spent in Incubator (ave) 657     3.84           0          17
                         Age at Graduation (ave) 657      4.51           0          17
    Initial Sales (ave)                           18397    $   692,783    $     307 $ 805,000,000
    Latest Sales (ave)                            18397    $   695,305    $     500 $ 304,000,000
    Initial Employment (ave)                      18426   4.43           1          100
    Latests Employment (ave)                      18426   5.81           1          2500
*   Minority Owned (%)                            18426   0.5%           0          1
*   Women Owned (%)                               18426   6.1%           0          1
*   Finance & Insurance                           18426   11%            0          1
*   Services                                      18426   59%            0          1
                                                                                                    17
Incubated Firms Descriptive Statistics
                                                  N       Average or %   Min        Max
*   Founding Year (ave)                           18426   2000           1990       2006
    Firm Failure (%)                              18426   42%            0          1
    Age (ave)                                     18426   5.03           1          18
    Age of Surviving Firms (ave)                  10761   6.03           2          18
    Age of Failed Firms (ave)                     7665    3.63           1          17
    Years Spent in Incubator (ave)                18426   4.55           0          18
                                      Graduates 655       4%             0          1
                                Failed Graduates 193      29%            0          1
                   Years Spent in Incubator (ave) 657     3.84           0          17
                         Age at Graduation (ave) 657      4.51           0          17
    Initial Sales (ave)                           18397    $   692,783    $     307 $ 805,000,000
    Latest Sales (ave)                            18397    $   695,305    $     500 $ 304,000,000
    Initial Employment (ave)                      18426   4.43           1          100
    Latests Employment (ave)                      18426   5.81           1          2500
*   Minority Owned (%)                            18426   0.5%           0          1
*   Women Owned (%)                               18426   6.1%           0          1
*   Finance & Insurance                           18426   11%            0          1
*   Services                                      18426   59%            0          1
                                                                                                    18
Estimating Model I
 Sales and Employment Growth
  Δgrowth ratei,t = β0i,t + γ1Δgrowth ratei,t-1 + β2Δincubation i,t +
  β3Δpost-incubationi,t + β4Δlag_sizei,t + β5Δfirm_agei,t + Δεi,t
 Double-difference model controls for the existence of
  unobserved heterogeneity
 Arellano-Bond system GMM estimator
   − Used to control for autocorrelation and endogeneity




                                                                        19
Estimating Model II
 Survival
   Sθ(ti|xi) = [1+{exp(-β0 - xi βx) ti}1/γ]-θi

 Log-logistic distribution
 Frailty model
   − To control for firm level fixed effects
   − θI is defined as an unobserved observation-specific
     effect




                                                           20
Measurement 1: Employment Growth
                                          Model 1        Model 2
        Incubation                                      0.0355***
                                                        (0.0023)
        Post-incubation                                 0.0665***
                                                        (0.0122)
        Employment growth lag             -0.0077       -0.0073
                                          (0.0071)      (0.0071)
        Sales lag                         -0.0470***    -0.0498***
                                          ( 0.0017)     (0.0018)
        Firm age                          0.0002        0.0004
                                          (0.0003)      (0.0003)
        Constant                          0.6321***     0.6553***
                                          (0.0240)      (0.0243)
        Number_obs.                       147483        147483
        Number_firms                      35282         35282
        Instruments                       41            43
        Model degrees of freedom          25            27
        Wald chi-squared                  995.3589      1068.9515
        Wald chi-squared p-value          <0.0001       <0.0001
        AR(1) test statistic              -27.5777      -27.5802
        AR(1) p-value                     <0.0001       <0.0001
        AR(2) Test Statistic              -0.5786       -0.5104
        AR(2) p-value                     0.5629        0.6098
        Hansen J statistic                20.6210       20.6767
        Hansen J p-value                  0.1117        0.1102
        NOTES: Robust standard errors in parentheses.                21
         * p<0.1, ** p<0.05, *** p<0.01
Measurement 1: Employment Growth
                                          Model 1        Model 2
        Incubation                                      0.0355***
                                                        (0.0023)
        Post-incubation                                 0.0665***
                                                        (0.0122)
        Employment growth lag             -0.0077       -0.0073
                                          (0.0071)      (0.0071)
        Sales lag                         -0.0470***    -0.0498***
                                          ( 0.0017)     (0.0018)
        Firm age                          0.0002        0.0004
                                          (0.0003)      (0.0003)
        Constant                          0.6321***     0.6553***
                                          (0.0240)      (0.0243)
        Number_obs.                       147483        147483
        Number_firms                      35282         35282
        Instruments                       41            43
        Model degrees of freedom          25            27
        Wald chi-squared                  995.3589      1068.9515
        Wald chi-squared p-value          <0.0001       <0.0001
        AR(1) test statistic              -27.5777      -27.5802
        AR(1) p-value                     <0.0001       <0.0001
        AR(2) Test Statistic              -0.5786       -0.5104
        AR(2) p-value                     0.5629        0.6098
        Hansen J statistic                20.6210       20.6767
        Hansen J p-value                  0.1117        0.1102
        NOTES: Robust standard errors in parentheses.                22
         * p<0.1, ** p<0.05, *** p<0.01
Measurement 2: Sales Growth
                                          Model 1        Model 2
        Incubation                                      0.0215***
                                                        (0.0025)
        Post-incubation                                 0.0513***
                                                        (0.0147)
        Sales growth lag                  -0.0527***    -0.0526***
                                          (0.0181)      (0.0181)
        Employment lag                    -0.0017***    -0.0017***
                                          (0.0004)      (0.0004)
        Firm age                          -0.0002       -0.0002
                                          (0.0004)      (0.0004)
        Constant                          -0.0131*      -0.0239***
                                          (0.0074)      (0.0075)
        Number_obs.                       147478        147478
        Number_firms                      35280         35280
        Instruments                       41            43
        Model degrees of freedom          24            26
        Wald chi-squared                  1443.9119     1523.4264
        Wald chi-squared p-value          <0.0000       <0.0000
        AR(1) test statistic              -15.5638      -15.5634
        AR(1) p-value                     <0.0000       <0.0000
        AR(2) Test Statistic              -0.9801       -0.9634
        AR(2) p-value                     0.3271        0.3353
        Hansen J statistic                17.5076       17.4320
        Hansen J p-value                  0.2894        0.2937
        NOTES: Robust standard errors in parentheses.                23
         * p<0.1, ** p<0.05, *** p<0.01
Measurement 2: Sales Growth
                                          Model 1        Model 2
        Incubation                                      0.0215***
                                                        (0.0025)
        Post-incubation                                 0.0513***
                                                        (0.0147)
        Sales growth lag                  -0.0527***    -0.0526***
                                          (0.0181)      (0.0181)
        Employment lag                    -0.0017***    -0.0017***
                                          (0.0004)      (0.0004)
        Firm age                          -0.0002       -0.0002
                                          (0.0004)      (0.0004)
        Constant                          -0.0131*      -0.0239***
                                          (0.0074)      (0.0075)
        Number_obs.                       147478        147478
        Number_firms                      35280         35280
        Instruments                       41            43
        Model degrees of freedom          24            26
        Wald chi-squared                  1443.9119     1523.4264
        Wald chi-squared p-value          <0.0000       <0.0000
        AR(1) test statistic              -15.5638      -15.5634
        AR(1) p-value                     <0.0000       <0.0000
        AR(2) Test Statistic              -0.9801       -0.9634
        AR(2) p-value                     0.3271        0.3353
        Hansen J statistic                17.5076       17.4320
        Hansen J p-value                  0.2894        0.2937
        NOTES: Robust standard errors in parentheses.                24
         * p<0.1, ** p<0.05, *** p<0.01
Measurement 3: Firm Survival
                         Survival 1(a)Survival 2(a)(b) Logit
         Incubation                   0.9812*** 1.0616***
                                      (0.0045)         (0.0164)
         Post-Incubation              0.9070*** 1.2198**
                                      (0.0193)         (0.1052)
         Employment lag 1.0024*** 1.0025*** 0.9997
                         (0.0006)     (0.0006)         (0.0006)
         Firm age        1.2850*** 1.2854*** 0.9223***
                         (0.0032)     (0.0032)         (0.0025)
         Women owned 1.1288*** 1.1282*** 0.5734***
                         (0.0104)     (0.0104)         (0.0186)
         Minority owned 0.9648*       0.9654*          1.2251**
                         (0.0187)     (0.0186)         (0.1099)
         Constant        1.9668*** 1.9802*** 0.1437***
                         (0.0997)     (0.0989)         (0.0164)
         Gamma           0.2208*** 0.2207***
                         (0.0040)     (0.0040)
         Rho                                           .0000303
         Frailty (theta)              0.000
         Number_obs. 237274           237274           237274
         Number_firms 36859.667 36859.667 46772.000
         Log-likelihood -3.10e+04 -3.10e+04 -6.74e+04
         AIC             62133.605 62098.600 1.35e+05
          NOTES: (a)Weighted results (b)Robust standard errors in parentheses.   25
         * p<0.1, ** p<0.05, *** p<0.01
Measurement 3: Firm Survival
                         Survival 1(a)Survival 2(a)(b) Logit
         Incubation                   0.9812*** 1.0616***
                                      (0.0045)         (0.0164)
         Post-Incubation              0.9070*** 1.2198**
                                      (0.0193)         (0.1052)
         Employment lag 1.0024*** 1.0025*** 0.9997
                         (0.0006)     (0.0006)         (0.0006)
         Firm age        1.2850*** 1.2854*** 0.9223***
                         (0.0032)     (0.0032)         (0.0025)
         Women owned 1.1288*** 1.1282*** 0.5734***
                         (0.0104)     (0.0104)         (0.0186)
         Minority owned 0.9648*       0.9654*          1.2251**
                         (0.0187)     (0.0186)         (0.1099)
         Constant        1.9668*** 1.9802*** 0.1437***
                         (0.0997)     (0.0989)         (0.0164)
         Gamma           0.2208*** 0.2207***
                         (0.0040)     (0.0040)
         Rho                                           .0000303
         Frailty (theta)              0.000
         Number_obs. 237274           237274           237274
         Number_firms 36859.667 36859.667 46772.000
         Log-likelihood -3.10e+04 -3.10e+04 -6.74e+04
         AIC             62133.605 62098.600 1.35e+05
           NOTES: (a)Weighted results (b)Robust standard errors in parentheses.   26
         * p<0.1, ** p<0.05, *** p<0.01
Survival Curves
                             Loglogistic regression
               1
              .8
              .6
Survival




              .4
              .2
               0




                   0    5                  10               15        20
                                      analysis time

                            Control Group             Non-Graduates
                            Graduates
                                                                           27
Summary
 Employment Growth
  −   Incubation is associated with an increase of 3.5 percentage
      points in employment growth
  −   Exiting the incubator is associated with an increase of 6.6%

 Sales Growth
  −   Incubation is associated with an increase of 2.2 percentage
      points in sales growth
  −   Exiting the incubator is associated with an increase of 5.13%

 Survival Analysis
   − Incubation is associated with a decrease of 2% in expected time
     to failure
   − Exiting the incubator is associated with a decrease of 10% in
     expected time to failure
                                                                       28
Thanks and Questions
 Thanks to Professors Stuart Bretschneider, Bruce Kingma,
  David Popp, Johan Wiklund, and Peter Wilcoxen
 Thanks to the Kaufman Foundation
 Questions




                                                             29

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Boon or Boondoggle? Business Incubation as Entrepreneurship Policy: A Report from the National Census of Business Incubators and their Tenants

  • 1. Boon or Boondoggle? Business Incubation as Entrepreneurship Policy: A Report from the National Census of Business Incubators and their Tenants Alejandro S. Amezcua, Ph.D. Post-Doctoral Fellow Whitman School of Management Syracuse University aamezcua@syr.edu
  • 2. Outline  Why Business Incubation?  Research Question  Data Collection  Findings  Discussion and Questions 2
  • 3. Business Incubator Definition  An organization that provides free or below market operating space to young businesses  Often provide one or more of the following: shared administrative services, access to capital and financing, networks, and assistance with legal, technology transfer, and export procedures  Motivated by the opportunity to create economic value by helping reduce the rate of failure of young businesses 3
  • 4. Why Incubators? Total Incubator Births By Year 150 125100 Frequency 75 50 25 0 1960 1970 1980 1990 2000 2010 Year N=947 4
  • 5. Incubators Cost Money  Economic Development Administration − 30 construction grants in 2010 with matching requirements − Average grant size $1.5m − $3 million to build an incubator on average  Other Federal Funding Sources − US Departments of Agriculture, Commerce, Energy, Health & Human Services, and Housing & Urban Development  Average Operating Budget of an Incubator − $500,000 − $475 million annually − Paid primarily by state and local government sources 5
  • 6. Research Question  Is this a good investment?  Do incubated businesses outperform their unincubated peers?  Performance measures − Survival − Employment Growth − Sales Growth 6 6
  • 7. Organizational Evolutionary Theory  Emergence and survival of new organizations  Liability of Newness − Market − Production − Management  Selection − Organizations that can cover underneath the structure of larger organizations face different selection pressures − Organizations that stand-alone must rely on their own competencies to survive 7
  • 8. Hypotheses H1. Incubated new businesses will perform at higher levels than their non-unincubated counterparts, indicating incubation helps overcome the liability of newness. H2. Incubated firms will outperform their non-incubated counterparts post-incubation, indicating incubation helps firms adapt to the external environment. 8
  • 9. Data Collection  National Census of Business Incubators  National Database of Incubated Businesses  Matched Control Group of Unincubated Businesses 9
  • 10. National Census of Business Incubators  950 business incubators − 1,121 unique locations  Sources − National Business Incubator Association − State associations of business incubators − Economic development departments of all 50 states  Useful data archives − Internet Archive, Dun & Bradstreet, National Center for Charitable Statistics, Lexis-Nexis  Collected data on incorporation, founding year, university affiliation, and physical addresses 10
  • 11. Data on Incubated Businesses  National Establishment Time Series Database (NETS) − Annual snapshot of Dunn & Bradstreet databases  Incubated firms identified through address matching − Approximately 19,000 − Observations span from 1990 to 2008  Verification process  Key variables: survival, sales, employment, industry, gender, racial/ethnic identity, history of relocations 11
  • 12. Data on Non-Incubated Businesses  Challenge: Creating a valid comparison group without full access to the NETS  Stage 1: Extract from NETS based on strata matching − 420 strata representing year founded, industry, county, & gender of the entrepreneur  Stage 2: Propensity Score Matching − Measures the likelihood of incubation based on observed characteristics − Matched based on year founded, industry, county, and gender & ethnic/racial identity of the entrepreneur − Weighted data: 3 to 1 − Nearest neighbor selection method 12
  • 13. Identification of Common Support Propensity Score Histogram Common Support when P-score<.5 0 .2 .4 .6 .8 1 Propensity Score Untreated Treated Figure 1 13
  • 14. Incubated Firms Descriptive Statistics N Average or % Min Max * Founding Year (ave) 18426 2000 1990 2006 Firm Failure (%) 18426 42% 0 1 Age (ave) 18426 5.03 1 18 Age of Surviving Firms (ave) 10761 6.03 2 18 Age of Failed Firms (ave) 7665 3.63 1 17 Years Spent in Incubator (ave) 18426 4.55 0 18 Graduates 655 4% 0 1 Failed Graduates 193 29% 0 1 Years Spent in Incubator (ave) 657 3.84 0 17 Age at Graduation (ave) 657 4.51 0 17 Initial Sales (ave) 18397 $ 692,783 $ 307 $ 805,000,000 Latest Sales (ave) 18397 $ 695,305 $ 500 $ 304,000,000 Initial Employment (ave) 18426 4.43 1 100 Latests Employment (ave) 18426 5.81 1 2500 * Minority Owned (%) 18426 0.5% 0 1 * Women Owned (%) 18426 6.1% 0 1 * Finance & Insurance 18426 11% 0 1 * Services 18426 59% 0 1 14
  • 15. Incubated Firms Descriptive Statistics N Average or % Min Max * Founding Year (ave) 18426 2000 1990 2006 Firm Failure (%) 18426 42% 0 1 Age (ave) 18426 5.03 1 18 Age of Surviving Firms (ave) 10761 6.03 2 18 Age of Failed Firms (ave) 7665 3.63 1 17 Years Spent in Incubator (ave) 18426 4.55 0 18 Graduates 655 4% 0 1 Failed Graduates 193 29% 0 1 Years Spent in Incubator (ave) 657 3.84 0 17 Age at Graduation (ave) 657 4.51 0 17 Initial Sales (ave) 18397 $ 692,783 $ 307 $ 805,000,000 Latest Sales (ave) 18397 $ 695,305 $ 500 $ 304,000,000 Initial Employment (ave) 18426 4.43 1 100 Latests Employment (ave) 18426 5.81 1 2500 * Minority Owned (%) 18426 0.5% 0 1 * Women Owned (%) 18426 6.1% 0 1 * Finance & Insurance 18426 11% 0 1 * Services 18426 59% 0 1 15
  • 16. Incubated Firms Descriptive Statistics N Average or % Min Max * Founding Year (ave) 18426 2000 1990 2006 Firm Failure (%) 18426 42% 0 1 Age (ave) 18426 5.03 1 18 Age of Surviving Firms (ave) 10761 6.03 2 18 Age of Failed Firms (ave) 7665 3.63 1 17 Years Spent in Incubator (ave) 18426 4.55 0 18 Graduates 655 4% 0 1 Failed Graduates 193 29% 0 1 Years Spent in Incubator (ave) 657 3.84 0 17 Age at Graduation (ave) 657 4.51 0 17 Initial Sales (ave) 18397 $ 692,783 $ 307 $ 805,000,000 Latest Sales (ave) 18397 $ 695,305 $ 500 $ 304,000,000 Initial Employment (ave) 18426 4.43 1 100 Latests Employment (ave) 18426 5.81 1 2500 * Minority Owned (%) 18426 0.5% 0 1 * Women Owned (%) 18426 6.1% 0 1 * Finance & Insurance 18426 11% 0 1 * Services 18426 59% 0 1 16
  • 17. Incubated Firms Descriptive Statistics N Average or % Min Max * Founding Year (ave) 18426 2000 1990 2006 Firm Failure (%) 18426 42% 0 1 Age (ave) 18426 5.03 1 18 Age of Surviving Firms (ave) 10761 6.03 2 18 Age of Failed Firms (ave) 7665 3.63 1 17 Years Spent in Incubator (ave) 18426 4.55 0 18 Graduates 655 4% 0 1 Failed Graduates 193 29% 0 1 Years Spent in Incubator (ave) 657 3.84 0 17 Age at Graduation (ave) 657 4.51 0 17 Initial Sales (ave) 18397 $ 692,783 $ 307 $ 805,000,000 Latest Sales (ave) 18397 $ 695,305 $ 500 $ 304,000,000 Initial Employment (ave) 18426 4.43 1 100 Latests Employment (ave) 18426 5.81 1 2500 * Minority Owned (%) 18426 0.5% 0 1 * Women Owned (%) 18426 6.1% 0 1 * Finance & Insurance 18426 11% 0 1 * Services 18426 59% 0 1 17
  • 18. Incubated Firms Descriptive Statistics N Average or % Min Max * Founding Year (ave) 18426 2000 1990 2006 Firm Failure (%) 18426 42% 0 1 Age (ave) 18426 5.03 1 18 Age of Surviving Firms (ave) 10761 6.03 2 18 Age of Failed Firms (ave) 7665 3.63 1 17 Years Spent in Incubator (ave) 18426 4.55 0 18 Graduates 655 4% 0 1 Failed Graduates 193 29% 0 1 Years Spent in Incubator (ave) 657 3.84 0 17 Age at Graduation (ave) 657 4.51 0 17 Initial Sales (ave) 18397 $ 692,783 $ 307 $ 805,000,000 Latest Sales (ave) 18397 $ 695,305 $ 500 $ 304,000,000 Initial Employment (ave) 18426 4.43 1 100 Latests Employment (ave) 18426 5.81 1 2500 * Minority Owned (%) 18426 0.5% 0 1 * Women Owned (%) 18426 6.1% 0 1 * Finance & Insurance 18426 11% 0 1 * Services 18426 59% 0 1 18
  • 19. Estimating Model I  Sales and Employment Growth Δgrowth ratei,t = β0i,t + γ1Δgrowth ratei,t-1 + β2Δincubation i,t + β3Δpost-incubationi,t + β4Δlag_sizei,t + β5Δfirm_agei,t + Δεi,t  Double-difference model controls for the existence of unobserved heterogeneity  Arellano-Bond system GMM estimator − Used to control for autocorrelation and endogeneity 19
  • 20. Estimating Model II  Survival Sθ(ti|xi) = [1+{exp(-β0 - xi βx) ti}1/γ]-θi  Log-logistic distribution  Frailty model − To control for firm level fixed effects − θI is defined as an unobserved observation-specific effect 20
  • 21. Measurement 1: Employment Growth Model 1 Model 2 Incubation 0.0355*** (0.0023) Post-incubation 0.0665*** (0.0122) Employment growth lag -0.0077 -0.0073 (0.0071) (0.0071) Sales lag -0.0470*** -0.0498*** ( 0.0017) (0.0018) Firm age 0.0002 0.0004 (0.0003) (0.0003) Constant 0.6321*** 0.6553*** (0.0240) (0.0243) Number_obs. 147483 147483 Number_firms 35282 35282 Instruments 41 43 Model degrees of freedom 25 27 Wald chi-squared 995.3589 1068.9515 Wald chi-squared p-value <0.0001 <0.0001 AR(1) test statistic -27.5777 -27.5802 AR(1) p-value <0.0001 <0.0001 AR(2) Test Statistic -0.5786 -0.5104 AR(2) p-value 0.5629 0.6098 Hansen J statistic 20.6210 20.6767 Hansen J p-value 0.1117 0.1102 NOTES: Robust standard errors in parentheses. 21 * p<0.1, ** p<0.05, *** p<0.01
  • 22. Measurement 1: Employment Growth Model 1 Model 2 Incubation 0.0355*** (0.0023) Post-incubation 0.0665*** (0.0122) Employment growth lag -0.0077 -0.0073 (0.0071) (0.0071) Sales lag -0.0470*** -0.0498*** ( 0.0017) (0.0018) Firm age 0.0002 0.0004 (0.0003) (0.0003) Constant 0.6321*** 0.6553*** (0.0240) (0.0243) Number_obs. 147483 147483 Number_firms 35282 35282 Instruments 41 43 Model degrees of freedom 25 27 Wald chi-squared 995.3589 1068.9515 Wald chi-squared p-value <0.0001 <0.0001 AR(1) test statistic -27.5777 -27.5802 AR(1) p-value <0.0001 <0.0001 AR(2) Test Statistic -0.5786 -0.5104 AR(2) p-value 0.5629 0.6098 Hansen J statistic 20.6210 20.6767 Hansen J p-value 0.1117 0.1102 NOTES: Robust standard errors in parentheses. 22 * p<0.1, ** p<0.05, *** p<0.01
  • 23. Measurement 2: Sales Growth Model 1 Model 2 Incubation 0.0215*** (0.0025) Post-incubation 0.0513*** (0.0147) Sales growth lag -0.0527*** -0.0526*** (0.0181) (0.0181) Employment lag -0.0017*** -0.0017*** (0.0004) (0.0004) Firm age -0.0002 -0.0002 (0.0004) (0.0004) Constant -0.0131* -0.0239*** (0.0074) (0.0075) Number_obs. 147478 147478 Number_firms 35280 35280 Instruments 41 43 Model degrees of freedom 24 26 Wald chi-squared 1443.9119 1523.4264 Wald chi-squared p-value <0.0000 <0.0000 AR(1) test statistic -15.5638 -15.5634 AR(1) p-value <0.0000 <0.0000 AR(2) Test Statistic -0.9801 -0.9634 AR(2) p-value 0.3271 0.3353 Hansen J statistic 17.5076 17.4320 Hansen J p-value 0.2894 0.2937 NOTES: Robust standard errors in parentheses. 23 * p<0.1, ** p<0.05, *** p<0.01
  • 24. Measurement 2: Sales Growth Model 1 Model 2 Incubation 0.0215*** (0.0025) Post-incubation 0.0513*** (0.0147) Sales growth lag -0.0527*** -0.0526*** (0.0181) (0.0181) Employment lag -0.0017*** -0.0017*** (0.0004) (0.0004) Firm age -0.0002 -0.0002 (0.0004) (0.0004) Constant -0.0131* -0.0239*** (0.0074) (0.0075) Number_obs. 147478 147478 Number_firms 35280 35280 Instruments 41 43 Model degrees of freedom 24 26 Wald chi-squared 1443.9119 1523.4264 Wald chi-squared p-value <0.0000 <0.0000 AR(1) test statistic -15.5638 -15.5634 AR(1) p-value <0.0000 <0.0000 AR(2) Test Statistic -0.9801 -0.9634 AR(2) p-value 0.3271 0.3353 Hansen J statistic 17.5076 17.4320 Hansen J p-value 0.2894 0.2937 NOTES: Robust standard errors in parentheses. 24 * p<0.1, ** p<0.05, *** p<0.01
  • 25. Measurement 3: Firm Survival Survival 1(a)Survival 2(a)(b) Logit Incubation 0.9812*** 1.0616*** (0.0045) (0.0164) Post-Incubation 0.9070*** 1.2198** (0.0193) (0.1052) Employment lag 1.0024*** 1.0025*** 0.9997 (0.0006) (0.0006) (0.0006) Firm age 1.2850*** 1.2854*** 0.9223*** (0.0032) (0.0032) (0.0025) Women owned 1.1288*** 1.1282*** 0.5734*** (0.0104) (0.0104) (0.0186) Minority owned 0.9648* 0.9654* 1.2251** (0.0187) (0.0186) (0.1099) Constant 1.9668*** 1.9802*** 0.1437*** (0.0997) (0.0989) (0.0164) Gamma 0.2208*** 0.2207*** (0.0040) (0.0040) Rho .0000303 Frailty (theta) 0.000 Number_obs. 237274 237274 237274 Number_firms 36859.667 36859.667 46772.000 Log-likelihood -3.10e+04 -3.10e+04 -6.74e+04 AIC 62133.605 62098.600 1.35e+05 NOTES: (a)Weighted results (b)Robust standard errors in parentheses. 25 * p<0.1, ** p<0.05, *** p<0.01
  • 26. Measurement 3: Firm Survival Survival 1(a)Survival 2(a)(b) Logit Incubation 0.9812*** 1.0616*** (0.0045) (0.0164) Post-Incubation 0.9070*** 1.2198** (0.0193) (0.1052) Employment lag 1.0024*** 1.0025*** 0.9997 (0.0006) (0.0006) (0.0006) Firm age 1.2850*** 1.2854*** 0.9223*** (0.0032) (0.0032) (0.0025) Women owned 1.1288*** 1.1282*** 0.5734*** (0.0104) (0.0104) (0.0186) Minority owned 0.9648* 0.9654* 1.2251** (0.0187) (0.0186) (0.1099) Constant 1.9668*** 1.9802*** 0.1437*** (0.0997) (0.0989) (0.0164) Gamma 0.2208*** 0.2207*** (0.0040) (0.0040) Rho .0000303 Frailty (theta) 0.000 Number_obs. 237274 237274 237274 Number_firms 36859.667 36859.667 46772.000 Log-likelihood -3.10e+04 -3.10e+04 -6.74e+04 AIC 62133.605 62098.600 1.35e+05 NOTES: (a)Weighted results (b)Robust standard errors in parentheses. 26 * p<0.1, ** p<0.05, *** p<0.01
  • 27. Survival Curves Loglogistic regression 1 .8 .6 Survival .4 .2 0 0 5 10 15 20 analysis time Control Group Non-Graduates Graduates 27
  • 28. Summary  Employment Growth − Incubation is associated with an increase of 3.5 percentage points in employment growth − Exiting the incubator is associated with an increase of 6.6%  Sales Growth − Incubation is associated with an increase of 2.2 percentage points in sales growth − Exiting the incubator is associated with an increase of 5.13%  Survival Analysis − Incubation is associated with a decrease of 2% in expected time to failure − Exiting the incubator is associated with a decrease of 10% in expected time to failure 28
  • 29. Thanks and Questions  Thanks to Professors Stuart Bretschneider, Bruce Kingma, David Popp, Johan Wiklund, and Peter Wilcoxen  Thanks to the Kaufman Foundation  Questions 29