Entrepreneurial Quality And Growth Potential In Singapore

This study aims to further our understanding of Singapore’s entrepreneurial landscape through the construction of two measures of entrepreneurial quality and growth potential.

First, using a dataset containing firm-level characteristics, we apply machine learning techniques to predict the probability that a new firm will succeed, with success defined narrowly as being acquired or obtaining a listing on a public stock exchange. We also examine the characteristics (or features) of the new firms that are associated with success. In this regard, we find that features such as the cumulative number of years of experience that the founders of the new firm had in managing firms they previously founded, the exporting activity of the new firm, and the Intellectual Property (IP) ownership of the new firm are key features associated with success.

Second, we average the predicted success probabilities of all new firms in a cohort (i.e., the new firms formed in a particular year) to derive the Entrepreneurial Quality Index (EQI) for the cohort. Doing so for every cohort of new firms since 1998, we find that the EQI and hence entrepreneurial quality has remained broadly stable in recent years. By multiplying the EQI of a cohort with the number of new firms in the cohort, we obtain the Entrepreneurial Cohort Potential Index (ECPI), which reflects the growth potential of each cohort of new firms. We find that the ECPI has shown an upward trend over the years, driven largely by an increase in the number of new firms formed every year. This suggests a steady increase in the growth potential of each cohort of new firms entering the market.

We also find that growth in the ECPI has a positive correlation with GDP growth. This could be due to the positive signal that higher GDP growth conveys to entrepreneurs about the business environment, thereby encouraging more new firms to enter the market; and/or the increase in economic activity arising from the entry of new firms with growth potential.

The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the Ministry of Trade and Industry or the Government of Singapore.

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