nep-sbm New Economics Papers
on Small Business Management
Issue of 2009‒08‒22
eighteen papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Are More Start-Ups Really Better? Quantity and Quality of New Businesses and Their Effect on Regional Development By Michael Fritsch; Alexandra Schroeter
  2. Immigrant Self-Employment: Does Intermarriage Matter? By Georgarakos, Dimitris; Tatsiramos, Konstantinos
  3. Effects of Organizational Change on Firm Productivity By Håkansson, Christina
  4. One-third codetermination at company supervisory boards and firm performance in German manufacturing Industries: First direct evidence from a new type of enterprise data By Joachim Wagner
  5. Financing Constraints and Entrepreneurship By William R. Kerr; Ramana Nanda
  6. Benefiting from Publicly Funded Pre-competitive Research – Differences between Insiders and Outsiders By Verena Eckl; Dirk Engel
  7. ICT, corporate restructuring and productivity By Laura Abramovsky; Rachel Griffith
  8. Financing the German Mittelstand By Hommel, Ulrich; Schneider, Hilmar
  9. Territorial innovation dynamics and integration of SMEs into the collaborative innovation projects of French competitiveness poles: the underlying mechanisms By Rani Jeanne Dang
  10. The determinants of local employment dynamics in Western Germany By Fuchs, Michaela
  11. Private Equity, Investment and Financial Constraints – Firm-Level Evidence for France and the United Kingdom By Dirk Engel; Joel Stiebale
  12. Measuring Total Factor Productivity and Variable Factor Utilisation: Sector Approach, The Case of Latvia By Ludmila Fadejeva; Aleksejs Melihovs
  13. SME finance in Europe: introduction and overview By Wagenvoort, Rien
  14. Learning to Fail? Evidence from Frequent IPO Investors By Chiang, Yao-Min; Hirshleifer, David; Qian, Yiming; Sherman, Ann
  15. On the Relevance and Composition of Gifts within the Firm: Evidence from Field Experiments By Bellemare, Charles; Shearer, Bruce S.
  16. The Challenge of Restoring French Competitiveness By Rafal Kierzenkowski
  17. Trade, Foreign Investment, and Industrial Policy for Developing Countries By Ann Harrison; Andrés Rodríguez-Clare
  18. The Macroeconomic Determinants of Cross Border Mergers and Acquisitions and Greenfield Investments By Paula Neto; António Brandão; António Cerqueira

  1. By: Michael Fritsch (Friedrich Schiller University Jena, School of Economics and Business Administration); Alexandra Schroeter (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: Empirical analyses suggest that the employment creating effect of start-ups is highest in regions with a low level of new business formation and that an increase in the regional start-up rate beyond a certain level may lead to negative employment effect. In explaining these results, we assume that the average quality of regional start-ups decreases with the number of start-ups, while the costs of the induced resource reallocation increase. Our model implies that it is not the number of start-ups but their quality that is decisive for their effect on economic development. Therefore, a policy aiming at stimulating economic growth through entrepreneurship should focus on high-quality start-ups.
    Keywords: Entrepreneurship, new business formation, regional development, entrepreneurship policy
    JEL: L26 M13 O1 O18 R11
    Date: 2009–08–13
  2. By: Georgarakos, Dimitris (Goethe University Frankfurt); Tatsiramos, Konstantinos (IZA)
    Abstract: This paper investigates the effect of a native spouse on the transitions into and out of entrepreneurship of male immigrants in the U.S. We find that those married to a native are less likely to start up a business compared to those married to an immigrant. This finding is robust when the endogeneity of being married to a native is taken into account. We also show that immigrants married to a native are significantly less likely to exit from entrepreneurship compared to their counterparts who are married to an immigrant. Our results point to an interesting asymmetric role of being intermarried in deciding to become an entrepreneur and for survival in entrepreneurship, which is consistent with a network effect. On the one hand, intermarriage reduces the chance of starting up a business possibly because better access to local networks can help transitions into other forms of employment (e.g. paid employment). On the other hand, superior access to local networks through marriage to a native spouse facilitates business survival.
    Keywords: business ownership, migration, native spouse, social networks
    JEL: J12 J15 J61
    Date: 2009–08
  3. By: Håkansson, Christina (Institute for International Economic Studies, IIES.)
    Abstract: An increasing use of IT facilitates firms to use more efficient organiza- tional forms. Significant reorganizations of business processes around IT capital can thereby boost productivity growth. The aim of this study is to empirically examine how …rm productivity growth is affected by orga- nizational changes and investments in IT using a Difference-in-Difference approach on a panel of Swedish firms over the years 1997-2005. The empirical results show a positive and significant effect on total factor pro- ductivity growth for firms that invested above median in IT and at the same time undertook organizational changes.
    Keywords: information technology; productivity; organizational change
    JEL: D24 E22 L22 O33
    Date: 2009–06–01
  4. By: Joachim Wagner (Institute of Economics, University of Lüneburg)
    Abstract: This paper contributes to the empirical literature on the co-determination – firm performance nexus by using a new type of data that combines information on the co-determination status of enterprises from a commercial data base and supplementary information collected from the firms with comprehensive data on the firms from official statistics. The data allow for the first time a direct comparison of enterprises from the same size class with and without codetermination at the supervisory board level. It is shown that one-third codetermination at the supervisory board level in limited-liability companies from West German manufacturing industries seems to be neither positively nor negatively related to two core firm performance indicators, productivity and profitability.
    Keywords: One –third co-determination, firm performance, Germany
    JEL: J50
    Date: 2009–08
  5. By: William R. Kerr (Harvard Business School, Entrepreneurial Management Unit); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: Abstract is not available at this time
    Date: 2009–08
  6. By: Verena Eckl; Dirk Engel
    Abstract: This article contributes to the debate on the systemic effects of technology policy by investigating knowledge spillovers of pre-competitive publicly funded Industrial Collective Research (ICR) in Germany. The ICR aims to compensate for obstacles faced by SME in carrying out research and development (R&D). Using data from 911 firms surveyed in 2006, the results show that non-participants use ICR results to a significant extent. However, almost all users in the group of non-participants are engaged in other publicly funded or non-publicly funded collaborative research projects with research institutes affiliated to ICR.
    Keywords: Technology policy Evaluation, publicR&Dsubsidies, pre-competitive research, spillovers
    JEL: O38 H59 D21 C25
    Date: 2009–07
  7. By: Laura Abramovsky (Institute for Fiscal Studies); Rachel Griffith (Institute for Fiscal Studies and University College London)
    Abstract: <p><p>Stronger productivity growth in the US than the EU over the late 1990s is widely attributed to faster, more widespread adoption of information and communication technology (ICT). The literature has emphasised complementarities in production between ICT and internal restructuring as an important mechanism. We investigate the idea that increased use of ICT has facilitated outsourcing of business services, and that these are complementary activities in production because they allow firms to focus on their core competencies. This is consistent with evidence from the business literature and aggregate trends, and we show evidence from microdata that is consistent with this idea. </p></p>
    JEL: D2 O3 O4
    Date: 2009–04
  8. By: Hommel, Ulrich (European Business School); Schneider, Hilmar (European Business School)
    Abstract: Based on a survey conducted among German Mittelstand firms and capital structure data on the Mittelstand, this paper sheds light on the current and future financing situation of the Mittelstand. The paper documents the equity shortage and dependence on bank debt typically associated with the Mittelstand. It further emphasises that - at present - fears of systematic credit rationing are difficult to substantiate (though a lack of alternative sources of finance can be expected to adversely affect future credit supply) and argues that the consolidation of the German banking sector as well as Basel II should not constitute major obstacles to the future growth of the Mittelstand. Still, the paper concludes that a typical Mittelstand firm's access to external finance will remain a key factor and, against that background, comments on specific measures of improvement from the perspective of regulators, banks, and firms.
    Keywords: Mittelstrand firms; Capital structure data; Financing situation; Equity shortage; Bank debt; Systemic credit rationing
    JEL: G32
    Date: 2009–08–12
  9. By: Rani Jeanne Dang (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR6227 - Université de Nice Sophia-Antipolis)
    Abstract: Geographical clusters are nowadays considered as a relevant factor for competitiveness, thanks to their innovative capabilities. In this context, public policies based on this approach are flourishing all over the world. The French “Pole of competitiveness” (PoC) policy (Politique des pôles de compétitivité) is one of these initiatives. It is the new French industrial policy aiming at reinforcing the specializations of the economy and the attractiveness of territories by fostering the development of R&D projects, bringing together multinationals, universities, and particularly Small-Middle-Sized-Enterprises (SMEs). Precisely, significant research suggests that in order to innovate SMEs need to cooperate and they are also vital for the functioning, and survival of innovative milieux. Consequently, their integration is a key issue for French PoC’ success. However, the call for projects shows that despite their efforts, French Poles of Competitiveness are not totally successful: a gap remains especially between the massive financial investments helping SMEs innovate and the expected results. Yet, this issue is only analysed by focusing on intrinsic weaknesses of SMEs’ management or on the complexities of existing support programmes supporting SMEs’ innovation. This is insufficient. Innovation dynamics are different from a cluster to another and many failures of innovation policies come from the lack of identification of these specificities. Therefore, this paper aims are threefold: it aims at introducing the French PoC, indeed, the French PoC policy is the main new policy gathering all the nation’s innovation programmes. But few papers are explaining how they work. It aims at identifying the territorial innovation dynamics within PoC and how they work, and then combine this analysis with the intrinsic features of SMEs management, to better understand how they get involved in these dynamics. It finally aims at presenting the preliminary results of the first stage of research: the analysis of a specific French PoC, the “Secured Communicating Solutions”(SCS) PoC as well as the further research questions they raise for the next stage of research.
    Keywords: clusters, interaction, knowledge management, SMEs
    Date: 2009–01–30
  10. By: Fuchs, Michaela (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This paper studies the impact of the local industrial structure on employment dynamics in Western Germany. Following an approach of Combes/Magnac/Robin (2004) for France, local employment growth is decomposed into internal growth resulting from employment changes in existing plants and into external growth determined by employment decisions of newly established plants. The dynamics of both components are estimated simultaneously, taking explicitly into account the timing of the impact of specialization, diversity, and competition in a region. The analysis is conducted for 24 sectors in the West German labor market regions from 1993 to 2002. Estimation results emphasize the positive influence of diversity on both internal and external employment growth, whereas there is no clear result on specialization. A high degree of competition fosters external employment, but is detrimental to internal employment. Dynamic panel regressions show that static externalities dominate. Importantly, the impact of the local industrial structure on employment dynamics does not differ between small and larger plants, nor are there fundamental differences between Western Germany and France." (author's abstract, IAB-Doku) ((en))
    Keywords: Beschäftigungsentwicklung - Determinanten, regionale Verteilung, Wirtschaftsstruktur, Wettbewerbsbedingungen, IAB-Betriebs-Historik-Panel, Betriebsgröße, Westdeutschland, Frankreich, Bundesrepublik Deutschland
    JEL: C33 O18 R11
    Date: 2009–08–14
  11. By: Dirk Engel; Joel Stiebale
    Abstract: The welfare effects of private equity transactions are debated controversially. We analyze the impact of expansion financing and buyouts by private equity investors on investment of portfolio firms in the UK and France – two countries with different financial systems. Unobserved heterogeneity and the endogeneity of private equity transactions financed by venture capital companies are addressed using dynamic panel data techniques. In both countries we find that portfolio firms display higher investment levels and a lower dependence on internal funds after expansion financing. Buyouts financed by venture capital companies are neither associated with a decrease in investment spending nor with an increase in the dependence on internal finance. In contrary, private equity based buyouts in the UK outperform non-private equity backed British firms in terms of both indicators. Contrasting the notion of several policy makers,we cannot detect that private equity based buyout financing yields higher financial constraints on average.
    Keywords: Investment, financial constraints, private equity employer-to-employer, linked employer-employee
    JEL: G32 D92 G23
    Date: 2009–07
  12. By: Ludmila Fadejeva; Aleksejs Melihovs
    Abstract: This research constructs estimates of total factor productivity (TFP) growth for six sectors of the Latvian economy for the period 2000-2008, using a sectoral quarterly data set. Estimates are obtained by controlling for qualitative changes in production factors and assuming a mechanism for capturing changes in the utilisation of labour and capital. The paper delivers two main results. First, the use of indicators for labour and capital utilisation intensity allows for minimisation of fluctuations in the TFP measure and makes it less output growth dependent compared with the Solow residual approach. Second, the comparison of both methods shows that the estimate of the TFP growth obtained by the Solow residual approach might be undervalued for manufacturing, electricity, gas and water supply, wholesale and retail trade as well as hotels and restaurants, while overvalued for the growth in the transport, storage and communication sector of the Latvian economy.
    Keywords: Total Factor Productivity, Solow residual, factor utilisation
    JEL: C22 D24
    Date: 2009–08–13
  13. By: Wagenvoort, Rien (European Investment Bank, Economic and Financial Studies)
    Abstract: Introducing the topic of SME finance and summarising the main findings of the contributions to this edition of the EIB Papers, this overview stresses the importance of relationship banking for the supply of SME credit; points out the differences and similarities in the capital structure of firms across size classes and across Europe; observes that while there is little evidence of widespread SME credit rationing, financial market imperfections may nevertheless curb SME growth; and highlights that the changes in Europe's financial landscape - including bank consolidation and Basel II - promise to foster SME finance.
    Keywords: SME finance and credit; relationship banking; Capital structure of firms
    JEL: G30 G32
    Date: 2009–08–12
  14. By: Chiang, Yao-Min; Hirshleifer, David; Qian, Yiming; Sherman, Ann
    Abstract: We examine the effects of bidding experience on two groups of investors – individuals and institutions – in terms of their decisions to bid again and their bidding returns. Bidding histories are tracked for all 31,376 individual investors and 1,232 institutional investors across all 84 IPO auctions during 1995-2000 in Taiwan. For individual bidders: (1) high initial returns in IPO auctions increases the likelihood of participating in future auctions; (2) bidder returns steadily decrease as they participate in more auctions; (3) auction selection ability does not improve (and may get worse) with experience; and (4) greater experience is associated with more aggressive bid prices. These findings are consistent with naïve reinforcement learning wherein individuals become unduly optimistic after receiving good returns. In sharp contrast, there is little sign that institutional investors exhibit such behavior.
    Keywords: IPO; auction; investor behavior; learning; reinforcement learning; institutional investor; individual investor; experience.
    JEL: G15 G32 G24
    Date: 2009–08
  15. By: Bellemare, Charles (Université Laval); Shearer, Bruce S. (Université Laval)
    Abstract: We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers' optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers' outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.
    Keywords: gift giving, structural models, field experiments
    JEL: J33 M52 C93
    Date: 2009–08
  16. By: Rafal Kierzenkowski
    Abstract: Since the beginning of the decade, France has seen a marked decline in its export performance, leading to growing concerns on the part of the authorities and of civil society about the economy’s capacity to adapt to the intensified globalisation of trade and investment in goods and services. The poor foreign trade performance of recent years is related to a series of factors, rather than to any single cause. It cannot be explained by external determinants alone, such as the exchange rate, the trade inroads of emerging countries with strong export potential or the sharp rise in oil prices in 2007-08. Indeed, it is not so much the loss of market share itself that is of concern (many countries have experienced this), but rather the extent of that loss, which reflects problems in responding to the acceleration in global demand earlier this decade, before the apparition of the current crisis. An analysis of the deterioration in competitiveness points to supply-side factors such as the relative inability of French firms to service foreign markets, and the pursuit of industrial strategies of offshoring the entire production process. Restoring competitiveness will require steps to strengthen the country’s growth potential and to address the main long-term determinants of that potential, such as fostering research and development, promoting innovation, reducing the tax burden, boosting competition and creating favourable conditions for businesses to grow rapidly. The lack of competitiveness is more often a symptom than the cause of one or more underlying economic weaknesses. What is called for, then, is a comprehensive policy response that addresses the sources of the competitiveness problem, rather than targeted interventions designed directly to remedy the growing trade deficit. This Working Paper relates to the 2009 OECD Economic Survey of France (
    Keywords: globalisation, OECD, France, firm, innovation, competitiveness, R&D, export performance, growth potential, market share, SMEs, tax burden, trade deficit
    JEL: F10 F14 I23 I28 O31 O38
    Date: 2009–08–06
  17. By: Ann Harrison; Andrés Rodríguez-Clare
    Abstract: In this paper we explore the popular but controversial idea that developing countries benefit from abandoning policy neutrality vis-a-vis trade, FDI and resource allocation across industries. Are developing countries justified in imposing tariffs, subsidies, and tax breaks that imply distortions beyond the ones associated with optimal taxes or revenue constraints? We refer to this set of government interventions as "industrial policy". We explore the theoretical foundation for industrial policy and then review the related empirical literature. We follow this with a broader look at the empirical work on the relationship between trade and FDI and growth. In this review, we find little evidence that countries benefit from "hard" interventions that distort prices to deal with Marshallian externalities, learning-by-exporting, and knowledge spillovers from FDI. We discuss an alternative set of "soft" industrial policies that deal directly with the coordination failures that may arise within the sectors or clusters where the country has a comparative advantage.
    JEL: F0 O0
    Date: 2009–08
  18. By: Paula Neto (ISCA, University of Aveiro); António Brandão (FEP, University of Porto); António Cerqueira (FEP, University of Porto)
    Abstract: When a company decides to invest abroad, it can do it through the establishment of a new firm (greenfield investment) or by the purchase of an already existing firm. Although there is a vast empirical literature on the macroeconomic determinants of aggregate FDI, there are just a few studies examining the location-specific determinants of each entry mode. The aim of this study is to extend the previous work by Globerman and Shapiro (2005) through the analysis of panel data of 53 countries over the period 1996-2006, in order to identify the potential location-specific determinants of both M&A and greenfields. We have found evidence that there is a group of mode-encompassing variables which are common to all entry modes (such as economy’s size, openness, governance and human development index) and mode-specific variables. Investor’s protection and cultural variables seem to play an important role in the explanation of M&A and greenfields, respectively.
    Keywords: Foreign Direct Investment, Cross Border Mergers and Acquisitions, Greenfield Investments.
    JEL: F23 F40 G34
    Date: 2009–08

This nep-sbm issue is ©2009 by Joao Carlos Correia Leitao. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.