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Nowcasting and Placecasting Entrepreneurial Quality and Performance

Nowcasting and Placecasting Entrepreneurial Quality and Performance

(p.63) 2 Nowcasting and Placecasting Entrepreneurial Quality and Performance
Measuring Entrepreneurial Businesses
Jorge GuzmanScott Stern
University of Chicago Press

A central challenge of entrepreneurship measurement is accounting for the variation in entrepreneurial quality across firms. We develop a new approach for estimating entrepreneurial quality by linking the probability of a growth outcome (e.g., achieving an IPO or a significant acquisition) as a function of start-up characteristics observable at or near the time of initial business registration (e.g., the firm name or filing for a trademark/patent). Our approach allows us to characterize entrepreneurial quality at an arbitrary level of geographic granularity (placecasting) and in advance of observing the ultimate growth outcomes associated with any cohort of start-ups (nowcasting). We implement this approach in Massachusetts from 1988–2014, yielding several key findings. For example, we find that a small number of observable start-up characteristics allow us to distinguish the potential for a significant growth outcome: in an out-of-sample test, more than 77% of growth outcomes occur in the top 5% of our estimated quality distribution. Also, we propose two new economic statistics for the measurement of entrepreneurship: the Entrepreneurship Quality Index (EQI) and the Regional Entrepreneurship Cohort Potential Index (RECPI). We use these indices to offer a novel characterization of changes in entrepreneurial quality across space and time.

Keywords:   entrepreneurship, measurement, entrepreneurial quality, nowcasting, placecasting

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