nep-sbm New Economics Papers
on Small Business Management
Issue of 2009‒07‒11
nineteen papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Regional Dynamics of Innovation Investigating the Co-Evolution of Patents, R&D, and Employment By Matthias Bürger; Tom Brökel; Alex Coad
  2. The Organization of Firms Across Countries By Bloom, Nicholas; Sadun, Raffaella; Van Reenen, John
  3. Finnish University Technology Transfer in a Whirl of Changes - a Brief Summary By Antti-Jussi Tahvanainen
  4. The evolution of knowledge base in knowledge-intensive sectors: Social Network analysis of Biotechnology By Krafft Jackie; Quatraro Francesco; Saviotti Paolo
  5. Financial Development and TFP Growth: Cross-Country and Industry-Level Evidence By Francisco Arizala; Eduardo Cavallo; Arturo Galindo
  6. Can the threat of costly litigation be incentive enough for companies to engage in CSR? By Dionisia Tzavara
  7. Entrepreneurship: Origins and Returns By Berglann, Helge; Moen, Espen R; Roed, Knut; Skogstrøm, Jens Fredrik
  8. Entrepreneurs' Acceptance of Formal Institutions: A Cross-country Analysis By Andreas Freytag; Florian Noseleit
  9. How do improvements in labour productivity in the Scottish economy affect the UK position on the Environmental Kuznets Curve? By Karen Turner; Nick Hanley
  10. Taxation and Entrepreneurship in a Welfare State By Stenkula, Mikael
  11. The regional public spending for tourism in Italy: An empirical analysis By Cellini, Roberto; Torrisi, Gianpiero
  12. Industry Equilibrium with Open Source and Proprietary Firms By Gastón Llanes; Ramiro de Elejalde
  14. The impact of Dutch works councils according to managers By Annette van den Berg; Yolanda Grift; Arjen van Witteloostuijn
  15. What Governs Firm-Level R&D: Internal or External Factors? By William Griffiths; Elizabeth Webster
  16. Who Values the Status of the Entrepreneur? By van Praag, Mirjam
  17. Intersections of Immigrant status and Gender in the Swedish Entrepreneurial Landscape By Hedberg, Charlotta
  18. Agglomeration externalities and technical efficiency in French pig production By Solène Larue; Laure Latruffe
  19. Competition and Innovation: Evidence from Financial Services By Jaap W.B. Bos; Ryan C.R. van Lamoen; James W. Kolari

  1. By: Matthias Bürger (Friedrich-Schiller-University Jena, RTG 1411 - The Economics of Innovative Change); Tom Brökel (Utrecht University, Urban and Regional Research Centre Utrecht (URU)); Alex Coad (Max Planck Institute of Economics, Jena; Centre d'Economie de la Sorbonne, Univ. Paris 1)
    Abstract: We investigate the lead-lag relationship between growth of patent applications, growth of R&D, and growth of total sectoral employment for 270 German labour market regions over the period 1999-2005. Our unique panel dataset includes information on four two-digit industries, namely Chemistry, Transport equipment, Medical & Optical Equipment as well as Electrics & Electronics. The results obtained from a vector autoregression model show that an increased innovative activity is associated with subsequent growth of employment in the Medical & Optical Equipment industry as well as in the Electrics & Electronics sector. With respect to the latter growth of patent applications is also associated with subsequent growth of R&D employees indicating either a "success-breeds-success" story or benefits due to agglomeration economies at the level of the region. However we do not find those effects for the other industries due to their idiosyncratic innovation and patenting behaviour.
    Keywords: Innovation, Agglomeration, Employment
    JEL: O18 R11
    Date: 2009–06–25
  2. By: Bloom, Nicholas; Sadun, Raffaella; Van Reenen, John
    Abstract: We argue that social capital as proxied by regional trust and the Rule of Law can improve aggregate productivity through facilitating greater firm decentralization. We collect original data on the decentralization of investment, hiring, production and sales decisions from Corporate Head Quarters to local plant managers in almost 4,000 firms in the US, Europe and Asia. We find Anglo-Saxon and Northern European firms are much more decentralized than those from Southern Europe and Asia. Trust and the Rule of Law appear to facilitate delegation by improving co-operation, even when we examine "bilateral trust" between the country of origin and location for affiliates of multinational firms. We show that areas with higher trust and stronger rule of law specialize in industries that rely on decentralization and allow more efficient firms to grow in scale. Furthermore, even for firms of a given size and industry, trust and rule of law are associated with more decentralization which fosters higher returns from information technology (we find IT is complementary with decentralization). Finally, we find that non-hierarchical religions and product market competition are also associated with more decentralization. Together these cultural, legal and economic factors account for four-fifths of the cross-country variation in the decentralization of power within firms.
    Keywords: decentralization; Rule of Law; social capital; theory of the firm; trust
    JEL: L2 M2 O32 O33
    Date: 2009–06
  3. By: Antti-Jussi Tahvanainen
    Abstract: ABSTRACT : Finnish university technology transfer is currently caught in the turbulences of major changes in the national innovation system. Three virtually simultaneous changes are of special importance. The first is the massive on-going renewal of the Universities Act governing the Finnish higher education system in its entirety. It was originally initiated to provide universities with more financial and operational flexibility and autonomy and, thus, with better premises to fulfil the three mandates (i) to educate, (ii) to conduct academic research, and (iii) to impact societal welfare. The second change is the foundation of the so-called Strategic Centres for Science, Technology and Innovation (Finnish acronym : SHOK) that aim at establishing and re-enforcing long-term research cooperation between the academia and the Industry. The final change is the enactment of the new University Inventions Act in early January 2007. The Act provided universities with the rights of ownership to inventions made in sponsored research that, according to the principle of the professor’s privilege, were considered property of the respective academic inventors prior to the change. In the beginning of 2008 Etlatieto Ltd. interviewed 11 of 20 research universities active in Finland to capture the potential impacts the three changes might have on university technology transfer activities. The set of interviewees comprised professionals conducting different tasks in the technology transfer units of universities ranging from research directors to technology transfer officers to lawyers. According to the results, the expected benefits of the renewal of the Universities Act mainly comprise of the increasing financial flexibility of universities hoped to translate into a proliferation of tools available for the transfer of university technology (support of start-ups, investments etc.), and a general increase in the profile of technology transfer functions that should alleviate their current deficiency in resources. Challenges regarding the Universities Act, on the other hand, relate to the lack of administrative and business related expertise in universities required to fulfil the up-coming tasks mandated by the Act, and the lack of commitment on part of universities’ management resulting in insufficient resources. SHOKs, in turn, are expected to enable longer project cycles, to reduce administrative burden, to encourage the setting of scientifically more ambitious research objectives, as well as to increase research collaboration and its efficiency. Challenges were identified to relate to proposed IPR-practices potentially endangering the academic freedom of university research, the incentive schemes of top researchers to participate in SHOK projects, the inefficiencies of a large participant base, and the dangers of a strongly industry driven mode of co-operation to academic values. Finally, the benefits of the University Inventions Act are expected to emerge from the gradual dismantling of the “ivory tower of academe”, an increase in the amount of received invention disclosures, and more efficient administrative practices in university technology transfer functions. Perceived challenges, in turn, include interpretational difficulties of the Act, the modest commitment of university management to university technology transfer in general, increasing administrative burdens, and strong cultural differences between researchers, industry and university administration.
    Keywords: strategic centres for science, technology and innovation, SHOK, Universities Act, University Inventions Act, university technology transfer, national innovation system, technology transfer offices
    JEL: O30 O38 O33 O34
    Date: 2009–06–03
  4. By: Krafft Jackie (GREDEG (Groupe de Recherche en Droit, Economie et Gestion)); Quatraro Francesco (University of Turin); Saviotti Paolo (Unité Mixte de Recherche GAEL (Laboratoire d'Economie Appliquée de Grenoble))
    Abstract: This paper applies the methodological tools typical of social network analysis within an evolutionary framework, to investigate the dynamics of the knowledge base of the biotechnology sector. Knowledge is here considered a collective good represented as a co-relational and a retrieval-interpretative structure. The internal structure of knowledge is described as a network the nodes of which are small units within traces of knowledge, such as patent documents, connected by links determined by their joint utilisation. We used measures referring to the network, like density, and to its nodes, like degree, closeness and betweenness centrality, to provide a synthetic description of the structure of the knowledge base and of its evolution over time.Eventually, we compared such measures with more established properties of the knowledge base calculated on the basis of co-occurrences of technological classes within patent documents. Empirical results show the existence of interesting and meaningful relationships across the different measures, providing support for the use of social network analysis to study the evolution of the knowledge bases of industrial sectors and their lifecycles.
    Date: 2009–07
  5. By: Francisco Arizala; Eduardo Cavallo; Arturo Galindo
    Abstract: This paper estimates the impact of financial development on industry-level total factor productivity (TFP) growth using a largely unexploited panel of 77 countries with data for 26 manufacturing industries for the years 1963 to 2003. A significant relationship is found between financial development and industry-level TFP growth when controlling for country-time and industry-time fixed effects. The results are both statistically and economically significant. TFP growth can accelerate up to 0.6 percent per year, depending on the external finance requirement of industries, following a one standard deviation increase in financial development. The results are robust to different samples and specifications.
    Keywords: Financial development, TFP growth, Volatility
    JEL: D24 E44 O47
    Date: 2009–06
  6. By: Dionisia Tzavara
    Abstract: In 1970 Milton Friedman wrote "[t]he social responsibility of business is to increase profits" (p. 122). Today there are voices advocating that engaging in CSR is in the direction of increasing profits. It is also argued that engaging in CSR helps firms alleviate some of the risks associated with the uncertain environments in which they operate. This research aims to look at the question of whether the threat of costly litigation can provide an incentive to firms to engage in CSR. We built a model where a firm and an interested party engage in litigation. The firm operates in a market and earns profits and can engage in a level of CSR which will determine the probability that damage will be caused by the firm. An interested party affected by the damage claims compensation. The firm and interested party may settle out of court or the plaintiff may bring the case to court. We assume that besides damages, the firm's investment in CSR affects the plaintiff's probability of winning at trial. We find that investment in CSR reduces the amount of cases brought to court and at the same time increases the probability of a case settling out of court. We also find some ambiguity regarding the effect of CSR on settlement offers with the driving forces here being on the one hand the reduction in the probability of the plaintiff winning trial and the increase in the probability of settlement and the level of court costs on the other hand. We conclude that there is incentive for firms to invest in CSR in order to avoid costly litigation.
    Keywords: Corporate Social Responsibility, Litigation, Settlement, Incentives
    Date: 2009–05–28
  7. By: Berglann, Helge; Moen, Espen R; Roed, Knut; Skogstrøm, Jens Fredrik
    Abstract: We examine the origins and outcome of entrepreneurship on the basis of exceptionally comprehensive Norwegian matched worker-firm-owner data. In contrast to most existing studies, our notion of entrepreneurship not only comprises self-employment, but also em-ployment in partly self-owned limited liability firms. Based on this extended entrepre-neurship concept, we find that entrepreneurship tends to be profitable. It also raises in-come uncertainty, but the most successful quartile gains much more than the least suc-cessful quartile loses. Key determinants of the decision to become an entrepreneur are occupational qualifications, family resources, gender, and work environments. Individual unemployment encourages, while aggregate unemployment discourages entrepreneurship.
    Keywords: Entrepreneurship; Self-employment; Spin-offs
    JEL: L26 M13
    Date: 2009–07
  8. By: Andreas Freytag (Friedrich-Schiller-University Jena, School of Economics and Business Administration); Florian Noseleit (European Centre for International Political Economy (ECIPE))
    Abstract: Institutional settings and the resulting incentive structures are crucial for economic development. The type of entrepreneurial activity and the entrepreneurial effort are especially dependent on underlying incentive structures. We argue that institutions with better incentive structures for entrepreneurs are perceived as being of higher quality by this group. We find empirical evidence that high institutional quality increases the willingness of the self-employed to accept these institutions. Furthermore, institutional quality affects the deviation in acceptance of self-employed to non-self-employed such that lower institutional quality is related to less acceptance by entrepreneurs compared to the rest of society.
    Keywords: Entrepreneurship, self-employment, institutions, cross-country study
    JEL: L26 A13 H11 K11 O43 P48
    Date: 2009–07–02
  9. By: Karen Turner (Department of Economics, University of Strathclyde); Nick Hanley (Department of Economics, University of Stirling)
    Abstract: The Environmental Kuznets Curve (EKC) hypothesis focuses on the argument that rising prosperity will eventually be accompanied by falling pollution levels as a result of one or more of three factors: (1) structural change in the economy; (2) demand for environmental quality increasing at a more-than-proportional rate; (3) technological progress. Here, we focus on the third of these. In previous work we have used single region/nation models of the Scottish and UK economies to simulate the impacts of increased labour and energy efficiency on the domestic economy’s position on the EKC, with a specific focus on CO2 emissions. There we find that, while the impacts of an increase in energy efficiency are difficult to predict, mainly due to the potential for ‘rebound’ effects, while increasing CO2 emissions, improved labour productivity is likely to move an economy along its EKC through more rapid GDP growth. However, recent developments in the EKC literature have raised the issue of whether this will still be the case if emissions are accounted for from a consumption rather than a production perspective (the ‘pollution leakage’ hypothesis) – i.e. taking account of indirect pollution generation embodied in trade flows rather than just domestic emissions generation. Here we extend our earlier single region analysis for Scotland by using an interregional CGE model of the UK economy to examine the likely impacts of an increase in Scottish labour productivity on the rest of the UK and on a national EKC through interregional labour migration and trade flows.
    Keywords: computable general equilibrium; technological progress; environmental kuznets curve; pollution leakage
    JEL: D58 F16 F18 O13
    Date: 2009–06
  10. By: Stenkula, Mikael (Research Institute of Industrial Economics (IFN))
    Abstract: Does tax policy affect the rate of self-employment in a modern welfare state? This question is analyzed empirically based on Swedish data for the entire post-war period. Available tax data indicate that payroll taxes have had a negative influence on the unincorporated rate of self-employment, though the effect is modest. No effects from regular labor income taxation or capital gains taxation are found. The paper improves upon earlier studies in that it tries to separate the effects of different taxes, and uses cointegration techniques. A further extension is that it studies a Scandinavian high-tax welfare state. Earlier time-series studies analyzing self-employment and taxation have with few exceptions been based on data from countries with relatively low tax levels and less comprehensive welfare systems, notably the US and the UK.
    Keywords: Entrepreneurship; Self-employment; Taxation; Welfare state
    JEL: H20 J23 L26
    Date: 2009–06–10
  11. By: Cellini, Roberto; Torrisi, Gianpiero
    Abstract: We analyse the effects of public spending for tourism, in Italian regions. The evaluation is permitted by the availability of the databank under the project “Conti Pubblici Territoriali” (“Regional Public Account”) of the Ministry of Economic Development: the spending of all public subjects is aggregated according to the regions of destinations, and classified according to different criteria, including the sectoral criterion. We take a cross-section regression analysis approach. The effects of public spending for tourism on tourism attraction are investigated. Generally speaking, the effectiveness of public spending appears to be really weak.
    Keywords: Tourism; Regions; Public Spending; Regional Public Account.
    JEL: R53 R58 L83 C21
    Date: 2009–07–07
  12. By: Gastón Llanes (Harvard Business School, Entrepreneurial Management Unit); Ramiro de Elejalde (Universidad Carlos III de Madrid)
    Abstract: We present a model of industry equilibrium to study the coexistence of Open Source (OS) and Proprietary (P) firms. Two novel aspects of the model are: (1) participation in OS arises as the optimal decision of profit-maximizing firms, and (2) OS and P firms may (or may not) coexist in equilibrium. Firms decide their type and investment in R&D, and sell packages composed of a primary good (like software) and a complementary private good. The only difference between both kinds of firms is that OS share their technological advances on the primary good, while P keep their innovations private. The main contribution of the paper is to determine conditions under which OS and P coexist in equilibrium. Interestingly, this equilibrium is characterized by an asymmetric market structure, with a few large P firms and many small OS firms.
    Keywords: Industry Equilibrium, Open Source, Innovation, Complementarity, Technology Sharing, Cooperation in R&D
    JEL: O31 L17 D43
    Date: 2009–06
  13. By: Yu, Li; Orazem, Peter; Jolly, Robert W.
    Abstract: This study analyzes whether economic conditions at the time of labor market entry affect entrepreneurship, using difference in business start-ups between cohorts of college students graduating in boom or bust economic conditions. Those graduating during an economic bust tend to delay their business start-ups relative to boom period graduates by about two years. Our results are consistent with additional findings that higher unemployment rates at time of graduation significantly delay the first business start-up across all college graduation cohorts over the 1982-2004 period. The adverse effect of a bust is temporary, delaying but not preventing self-employment over the life-cycle.
    Keywords: boom, bust, entrepreneurship, occupatiopnal choice, survivor analysis, business cycle, cohort
    JEL: J2
    Date: 2009–07–03
  14. By: Annette van den Berg; Yolanda Grift; Arjen van Witteloostuijn
    Abstract: Although works councils have, by and large, equally extensive legal rights in Germany and the Netherlands, this is the first econometric analysis that investigates the influence of Dutch works councils on firm performance. We use a nation-wide Dutch dataset with information on management’s perceptions of the works council’s impact on their firms’ efficiency and innovation. Inspired by the German study of Jirjahn and Smith (2006), we analyze which determinants influence management’s attitude toward employee participation in the Netherlands. We establish a preponderant influence emanating from the works council’s role attitude and management’s leadership style.
    Keywords: works councils, managerial response, effectiveness, efficiency, innovation
    JEL: J53 M54
    Date: 2009–06
  15. By: William Griffiths (Intellectual Property Research Institute of Australia, The University of Melbourne and Department of Economics, The University of Melbourne); Elizabeth Webster (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: Two parallel streams of research investigating the determinants of corporate R&D exist: one from economics and the other from management. The economists’ variables tend to reflect the firm’s external environment while the explanatory variables used by management scientists are commonly internal to the firm. This paper combines both approaches to test for the relative importance of each type of factor using firm-level data on large Australian companies from 1990 to 2005. Our evidence suggests that most of a firm’s R&D activity can be explained by time-invariant factors which we believe relate to internal and specific characteristics such as the firm’s managerial style, competitive strategy and how it communicates with employees. Of the remaining time-varying portion, we find that past profits, the rate of growth of the industry and the level of R&D activity over the firm’s industry is pertinent. These results are suggestive since we cannot clearly identify the extent to which the firm’s internal behaviour is conditioned by its external environment.
    Date: 2009–05
  16. By: van Praag, Mirjam (University of Amsterdam)
    Abstract: Parker and Van Praag (2009) showed, based on theory, that the group status of the profession 'entrepreneurship' shapes people's occupational preferences and thus their choice behavior. The current study focuses on the determinants and consequences of the group status of a profession, entrepreneurship in particular. If the group status of entrepreneurship is related to individual choice behavior, it is policy relevant to better understand this relationship and the determinants of the status of the entrepreneur. For reasons outlined in the introduction, this study focuses on (800) students in the Netherlands. We find that the status of occupations is mostly determined by the required level of education, the income level to be expected and respect. Furthermore, our results imply that entrepreneurship is associated with hard work, high incomes, but little power and education. Moreover, we find evidence that individual characteristics, such as entrepreneurship experience, vary systematically with the perceived status of occupations, thereby contributing ammunition to a fundamental discussion in the literature. Finally, we find a strong association between the perceived status of the entrepreneur and the estimated likelihood and willingness to become an entrepreneur.
    Keywords: entrepreneurship, self-employment, occupational choice, occupational status, group status, peer group effects
    JEL: J22 J24 L26 M13 M59
    Date: 2009–06
  17. By: Hedberg, Charlotta (Stockholm University Linnaeus Center for Integration Studies - SULCIS)
    Abstract: Labour markets in welfare states are structured along the lines of gender and immigrant & minority statuses. This paper brings novel insights into the issue of ethnic entrepreneurship as a means of sustainable inclusion of immigrants into the labour market by adding a gender dimension. Based on unique longitudinal data, the paper analyses the division of labour and the work incomes of female immigrant entrepreneurs in contrast with male immigrants and native-born Swedes. The results indicate that the division of labour is structured along the lines of both gender and immigrant status. At first glance, a gender perspective on ethnic entrepreneurship acknowledges persistent inequalities in the labour market. Analysis of entrepreneurship within niches such as the health care sector, however, indicates greater complexity in the entrepreneurial landscape. The paper identifies implications of a nuanced analysis of entrepreneurial research, which recognises diversity along the axes of both immigrant status and gender. Entrepreneurial processes can lead to both exclusion and inclusion of minority groups in the labour market, depending on the sector concerned.
    Keywords: Entrepreneurship; gender; immigrant status; segmentation; division of labour
    JEL: J15 J16 L26
    Date: 2009–06–29
  18. By: Solène Larue; Laure Latruffe
    Abstract: The objective of the paper is to assess the effects of spatial agglomeration on the technical efficiency of French pig farms. We use a two-stage method with the first stage consisting of calculating the efficiency scores of pig activity with the non-parametric Data Envelopment Analysis (DEA) method, and the second stage being a regression of these scores on agglomeration variables. Data consist of 936 French pig producers in 2004. Results suggest that these farms were as much affected by positive agglomeration externalities (in the form of knowledge spillovers due to the density of farms, and arising from their closeness to downstream markets) as any other businesses. Our analysis also sheds light on the specificity of the sector, namely that environment pressures can force pig farmers to be more efficient, an effect that may be counteracted when legal dispositions relating to manure spreading are too stringent.
    Keywords: technical efficiency, Data Envelopment Analysis, agglomeration, environmental regulation, hog production, France
    JEL: Q12 R3
    Date: 2009
  19. By: Jaap W.B. Bos; Ryan C.R. van Lamoen; James W. Kolari
    Abstract: In this paper we seek to contribute to the literature on competition and innovation by focusing on individual firms within the U.S. banking industry in the period 1984-2004. We measure innovation by estimating technology gaps and find evidence of an inverted-U relationship between competition and the technology gaps in banking. This finding is robust over several different specifications and is consistent with theoretical and empirical work by Aghion, Bloom, Blundell, Griffith, and Howitt (2005b). The optimal amount of innovation requires a slightly positive mark up. Also, we find that the U.S. banking industry as a whole has consolidated beyond this optimal innovation level and that state-level interstate banking deregulation has lowered innovation.
    Keywords: competition, innovation, stochastic frontier analysis, technology gap ratio, banking
    JEL: D21 G21 L10 O30
    Date: 2009–06

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