nep-sbm New Economics Papers
on Small Business Management
Issue of 2013‒06‒24
eighteen papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Innovation for economic performance: The case of Latin American firms By Arias Ortiz, Elena; Crespi, Gustavo; Tacsir, Ezequiel; Vargas, Fernando; Zuniga, Pluvia
  2. Firms’ innovation across regions: an exploratory study By Ana Paula Faria; Natália Barbosa; Vasco Eiriz
  3. The Effects of Production Offshoring on R&D and Innovation in the Home Country By Bernhard Dachs; Bernd Ebersberger
  4. Drivers of Entrepreneurship and Post-Entry Performance of Newborn Firms in Developing Countries By Quatraro, Francesco; Vivarelli, Marco
  5. Is money all? Financing versus knowledge and demand constraints to innovation By Pellegrino, Gabriele; Savona, Maria
  6. Firm size and judicial efficacy: Evidence for the civil procedures in Spain By Miguel García-Posada; Juan S. Mora-Sanguinetti
  7. Microeconometric evidence of financing frictions and innovative activity - a revision By Tiwari, Amaresh K.; Mohnen, Pierre; Palm, Franz; Schim van der Loeff, Sybrand
  8. External vs Internal Determinants of Firm Technology Strategy:Evidence from the Polish Services Sector By Krzysztof Szczygielski; Wojciech Grabowski; Richard Woodward
  9. How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size By Teresa C. Fort; John Haltiwanger; Ron S. Jarmin; Javier Miranda
  10. Innovation and the Growth of Service Firms:The Polish Case By Krzysztof Szczygielski; Wojciech Grabowski; Richard Woodward
  11. R&D and Non-R&D Innovators in the Financial Crisis: the Role of Binding Credit Constraints By Sandra M. Leitner; Robert Stehrer
  12. Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms By Degryse, H.A.; Lu, L.; Ongena, S.
  13. Inter-firm R&D networks in pharmaceutical biotechnology: What determines firm's centrality-based partnering capability By Krogmann, Yin; Riedel, Nadine; Schwalbe, Ulrich
  14. How Market Structure Affects Firm Entry in Rural and Urban Communities: Evidence from Rural Iowa By Artz, Georgeanne M.; Kim, Younjun; Orazem, Peter F.
  15. New firms and labor market entrants: Is there a wage penalty for employment in new firms? By Nyström, Kristina; Elvung, Gulzat Zhetibaeva
  16. R&D, innovation and knowledge spillovers: An empirical reappraisal based on cross sectional dependence By Anna Bottasso; Carolina Castagnetti; Maurizio Conti
  17. Entrepreneurship Dynamics: Entry Routes, Business-Owner's Persistence and Exit Modes By Vera Rocha; Anabela Carneiro; Celeste Amorim Varum
  18. The Joint Dynamics of Internal and External Finance By Tyler Muir; Andrea Eisfeldt

  1. By: Arias Ortiz, Elena (Education Division, Inter-American Development Bank); Crespi, Gustavo (Competitiveness and Innovation Division, Inter-American Development Bank); Tacsir, Ezequiel (UNU-MERIT / MGSoG, and Competitiveness and Innovation Division, Inter-American Development Bank); Vargas, Fernando (Competitiveness and Innovation Division, Inter-American Development Bank); Zuniga, Pluvia (UNU-MERIT / MGSoG)
    Abstract: In this paper, a wide range of innovation indicators are analysed in order to describe the innovation behaviour of manufacturing firms in LAC using the recently released Enterprise Surveys 2010. The Enterprise Surveys define innovation rates as the share of firms introducing product and process innovations. The survey also measures the proportion of firms investing in research and development (R&D) and filing for intellectual property rights (IPRs). The aim of this note is to understand the main characteristics of innovative firms and to gather new evidence with regard to the nature of the innovation process in the region. Statistics about the performance of LAC firms are provided using different types of indicators to measure firms' innovative behaviour. In particular, differences in innovation performance and effort by country, sector, and key firm characteristics, such as being a multinational or exporter, are explored. Those firms in LAC that are top R&D performers are identified, and the analysis closes with an exploration of firm characteristics that strongly correlate with the probability of being a top R&D performer in the region.
    Keywords: innovation, research and development, Latin America, enterprise surveys
    JEL: D22 O31 O33 O34
    Date: 2013
  2. By: Ana Paula Faria (Universidade do Minho - NIPE); Natália Barbosa (Universidade do Minho - NIPE); Vasco Eiriz (Universidade do Minho - Departamento de Gestão)
    Abstract: This paper investigates the geographical distribution and concentration of firms’ innovation persistence and innovation type - product and process - based upon three waves of the Community Innovation Survey data covering the period 1998-2006. The main findings are: (i) both innovation persistence and innovation type are asymmetrically distributed across Portuguese regions; (ii) the degree of correlation between geographical location and innovative output varies with the innovation type; and (iii); the correlation between geographical unit and innovation increases when the spatial unit of analysis is narrower. Overall, results indicate that firm’s choice of geographical location have a long-lasting effect, engendering no equal probabilities of being persistently innovator.
    Keywords: product innovation, process innovation, persistence, location
    JEL: O31 L25 R11
    Date: 2013
  3. By: Bernhard Dachs; Bernd Ebersberger
    Abstract: A strong innovation performance based on R&D, product development and the implementation of advanced production technologies is key for the long-term competitiveness of European economies. This study investigates the effects of production offshoring on R&D and innovation activities of the firm in the home country. The analysis is based on a dataset of more than 3000 manufacturing firms from seven European countries. We employ propensity score matching to compare R&D and innovation activities of firms which have offshored production activities in a previous period to a control group of non-offshoring firms. The analysis finds no negative effect of production offshoring on innovation and technological capabilities of firms in the home country. On contrary, offshoring firms spend significantly more on R&D or product design, and invest more in process innovation than non-offshoring firms. These results support a view on internationalisation of firms that regards offshoring as a strategy of international expansion, and not a passive reaction of firms to a loss of their competitiveness. Our results indicate that this expansion goes hand in hand with innovation and process modernization at home.
    Keywords: offshoring, innovation, R&D, home country effects, investment
    JEL: F23 O31 O33
    Date: 2013–06
  4. By: Quatraro, Francesco (University of Nice Sophia-Antipolis); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: The aim of this paper is to provide an updated survey of the "state of the art" in entrepreneurial studies, with a particular focus on developing countries (DCs). In particular, the same concept of "entrepreneurship" will be critically discussed, then moving to the institutional, macroeconomic and microeconomic conditions affecting the entry of new firms and the post-entry performance of newborn firms.
    Keywords: entrepreneurship, new firm, innovation, development
    JEL: L26 O12
    Date: 2013–05
  5. By: Pellegrino, Gabriele (University of Barcelona, and Università Cattolica del Sacro Cuore, Piacenza and Milano); Savona, Maria (SPRU, University of Sussex,)
    Abstract: The paper adds to the scattered empirical evidence on the role of obstacles to innovation in a three-fold way. First, we correct for the usual sample selection bias by filtering out firms not interested in innovation from 'potential innovators'. We then analyse the impact of obstacles on the translation of firms' engagement in innovative activities onto actual innovative outputs. Second, we assess what mostly affects firms' rate of failure in this process, whether finance or, rather, knowledge or demand-related constraints. Third, we do so in a panel framework, which allows to account for endogeneity and firms' unobserved heterogeneity through individual effects. We find that demand- and market-related factors are as important as financing conditions in determining firms' innovation failures. This evidence puts much of the latest hype on finance in perspective and brings back into the picture traditional demand and market structure arguments of why firms fail to innovate. The empirical analysis is based on an unbalanced panel of firm data from four waves of the UK Community Innovation Survey (CIS) between 2002 and 2010 merged with the UK Business Structure Database.
    Keywords: Barriers to innovation, Innovative firms, Potential Innovators, Failed Innovators, Panel data
    JEL: C23 O31
    Date: 2013
  6. By: Miguel García-Posada (Banco de España and Universidad Carlos III de Madrid); Juan S. Mora-Sanguinetti (Banco de España)
    Abstract: The literature has found that the size of firms matters for innovation and productivity and, thus, for economic performance. It is therefore worth explaining why enterprises in Spain are small in international terms. Our findings indicate that the quality of the institutional environment plays a role. Specifically, this paper analyses the different channels through which the efficacy of Spanish courts may affect the size of the companies at the provincial level. Regarding the existing literature, this paper is innovative in several important respects. First, we disentangle the impact of judicial efficacy on average firm size by differentiating between the effect on the growth of incumbent firms (intensive margin) and the effect on entry and exit rates (extensive margin), finding clear evidence of the former but not of the latter. We do so by using a firm-level database of more than half a million companies and real data (not estimates) on judicial efficacy at the local level. Second, this paper is the first to analyse the relationship between firm size and the effectiveness of justice after the reform of the civil procedures in 2000. Finally, and most significantly, it is the first paper in the literature to analyse the specific impact of the various civil procedures, both at the declaratory and the executory stage. In general, we find that judicial efficacy has a positive effect on firm size, but it critically depends on the type of the procedure, something that the previous literature has overlooked. More specifically, judicial efficacy matters at the declaratory stage (e.g. when a debt is declared and recognised by a judge), while it does not have a significant impact on size at the executory stage.
    Keywords: firm size, judicial efficacy
    JEL: L25 K40 R12
    Date: 2013–02
  7. By: Tiwari, Amaresh K. (University of Liege); Mohnen, Pierre (UNU-MERIT / MGSoG, SBE, Maastricht University, and CIRANO); Palm, Franz (SBE, Maastricht University and CESifo); Schim van der Loeff, Sybrand (SBE, Maastricht University)
    Abstract: Using Dutch data we empirically investigate how financing and innovation vary across firm characteristics. We find that when firms face financial constraints, debt financing and innovation choices are not independent of firm characteristics, and R&D slows down. In the absence of financial constraints, however, as they raise debt, firms become less inclined to innovate and the change in the propensity to innovate no longer varies with firm characteristics. We find that financing constraints faced, propensity to innovate, and R&D intensity are not uniform across firm characteristics. A new 'Control Function' estimator to account for heterogeneity and endogeneity has been developed.
    Keywords: Innovation, R&D, Capital Structure, Financial Constraints, Firm Characteristics, Correlated Random Effects, Control Function, Expected a Posteriori
    JEL: G30 O30 C30
    Date: 2013
  8. By: Krzysztof Szczygielski; Wojciech Grabowski; Richard Woodward
    Abstract: Differences in the growth of firms remain a major topic in economics and strategy research.In this paper we investigated the link between innovation performance and employment growth. First we discuss the problem from the theoretical point of view and then we analyze the relationship between innovation performance and the dynamics of employment in the Polish service firms in 2004-2009. Firms that introduced new services or marketing techniques experienced stronger growth. Process innovations contributed to employment reduction. Tellingly, this effect could only be observed in 2008-2009, a subperiod which saw the lowest levels of aggregate demand. This conclusion yields support to the presumption formulated by Pianta (2005) that the impact of innovation on employment growth depends on the macroeconomic situation.
    Keywords: Technology Strategy, Poland, Services, Innovation
    JEL: L21 L8 O32
    Date: 2013–06
  9. By: Teresa C. Fort; John Haltiwanger; Ron S. Jarmin; Javier Miranda
    Abstract: There remains considerable debate in the theoretical and empirical literature about the differences in the cyclical dynamics of firms by firm size. This paper contributes to the debate in two ways. First, the key distinction between firm size and firm age is introduced. The evidence presented in this paper shows that young businesses (that are typically small) exhibit very different cyclical dynamics than small/older businesses. The second contribution is to present evidence and explore explanations for the finding that young/small businesses were hit especially hard in the Great Recession. The collapse in housing prices accounts for a significant part of the large decline of young/small businesses in the Great Recession.
    Date: 2013–06
  10. By: Krzysztof Szczygielski; Wojciech Grabowski; Richard Woodward
    Abstract: Differences in the growth of firms remain a major topic in economics and strategy research.In this paper we investigated the link between innovation performance and employment growth. First we discuss the problem from the theoretical point of view and then we analyze the relationship between innovation performance and the dynamics of employment in the Polish service firms in 2004-2009. Firms that introduced new services or marketing techniques experienced stronger growth. Process innovations contributed to employment reduction. Tellingly, this effect could only be observed in 2008-2009, a subperiod which saw the lowest levels of aggregate demand. This conclusion yields support to the presumption formulated by Pianta (2005) that the impact of innovation on employment growth depends on the macroeconomic situation.
    Keywords: Poland, services, innovation, firm growth, quantile regression
    JEL: D22 L25 L80 O33
    Date: 2013–06
  11. By: Sandra M. Leitner; Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In the course of tapping into external funding sources, innovators frequently encounter binding and insurmountable financing constraints, prompting them to discontinue, postpone or altogether abandon some of their innovative efforts, a key source of their growth and survival. This is even more so during economic crises, when profits collapse, internal resources dwindle and external sources risk drying up altogether. Against that backdrop, the analysis identifies the effects of prevailing credit constraints on innovative efforts of both formal R&D innovators as well as non-R&D innovators, which have mostly been neglected so far. It uses Latin America as its empirical platform and demonstrates that irrespective of the global financial crisis, which manoeuvred global financial markets on the verge of collapse, R&D innovators faced binding credit constraints while non-R&D innovators were unconstrained and remained unaffected by the crisis. In addition, there is no evidence that monetary policies aimed at stabilizing capital markets during the crisis had any noticeable alleviating effect on a firm’s probability to pursue R&D-based innovative activities. It also shows that innovative efforts of R&D and non-R&D innovators were driven by entirely different firm characteristics, while, on the contrary, almost identical characteristics determined whether both types of innovators faced any credit constraints at all.
    Keywords: credit constraints, R&D and non-R&D innovators, financial crisis, Latin America
    JEL: C35 G01 G32 O31
    Date: 2013–02
  12. By: Degryse, H.A.; Lu, L.; Ongena, S. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: The recent financial crisis has reopened the debate on the impact of informal and formal finance on firm growth in developing countries. Using unique survey data, we find that informal finance is associated with higher sales growth for small firms and lower sales growth for large firms. We identify a complementary effect between informal and formal finance for the sales growth of small firms, but not for large firms. Informal finance offers informational and monitoring advantages, while formal finance offers relatively inexpensive funds. Co-funding, i.e. the simultaneous use of formal and informal finance, is the optimal choice for small firms.
    Keywords: Informal Finance;Formal Finance;Co-Funding;Growth.
    JEL: G21 G32 P2
    Date: 2013
  13. By: Krogmann, Yin; Riedel, Nadine; Schwalbe, Ulrich
    Abstract: This paper analyses the inter-firm R&D network formed in the pharmaceutical biotechnology industry during the 1990s from different perspectives: theoretical network formation, firm's structural positions and its collaborations at the entire network level, and the determinants for firm's centrality-based partnering capability. The results indicate that pharmaceutical biotechnology industry has experienced a significant evolutional change in size and structure during 1991-1998. By considering individual structural positions, the descriptive statistics show that in the 1990s, established pharmaceutical companies developed into dominant star players with multiple partnerships while holding central roles in the R&D network. In the network analysis that emphasized aggregate network level, the degree-based and betweenness-based network centralization were not high implying that the distribution of overall positional advantages in the pharmaceutical biotechnology industry is, to a large degree, not unequal and even though most firms in this sector are linked to the R&D network, some of them are more active than others. The current analysis also shows that firm's efficiency, firm's dependency on its complementary resources and firm's experiences at managing partnerships are important determinants for firm's centrality-based partnering capability, which has important managerial implications for understanding firm's strategic partnering behaviour. --
    Keywords: Inter-firm cooperation,R&D partnerships,Network formation,Social network analysis,Instrumental variable
    JEL: C12 C36 D85 L24 L65 O32
    Date: 2013
  14. By: Artz, Georgeanne M.; Kim, Younjun; Orazem, Peter F.
    Keywords: firm entry, specialization, local monopoly, industrial diversity, upstream and downstream firms, education, stand-alone versus expansion start-ups, Community/Rural/Urban Development, M13, R11, L26,
    Date: 2013
  15. By: Nyström, Kristina (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Elvung, Gulzat Zhetibaeva (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: In this paper, we explore the role of new firms as an entry point to the labor market. Because the vast majority of new firms are short-lived, it is a risky decision to accept employment in a new venture. It can be argued that individuals with little (or no) labor market experience are more willing to accept the high risks associated with employment in new firms. Hence, new firms may work as an entry point to the labor market. Nevertheless, some research concludes that one disadvantage of employment in a new firm is that new firms pay less (Shane, 2009). However, this empirical conclusion is primarily based on literature on the wage penalty of small firms. In this paper, we study whether the wage penalty of employment in a new firm persists if we focus solely on labor market entrants. In the empirical analysis, we employ an employer-employee matched dataset that covers the Swedish population during the period from 1998-2008. We use the Propensity Score Matching (PSM) method to study the wage differences between labor market entrants employed in new and incumbent firms. We find an average wage penalty of 2.9 percent for labor market entrants employed in new firms over the studied period.
    Keywords: new firms; labor market entrants; wage penalty; propensity score matching; average treatment effect
    JEL: C21 J21 J31 M13
    Date: 2013–06–14
  16. By: Anna Bottasso (Department of Economics, University of Genoa); Carolina Castagnetti (Department of Economics and Management, University of Pavia); Maurizio Conti (Department of Economics, University of Genoa)
    Abstract: Bottazzi and Peri (2007) show that the existence of a cointegrating relationship between the domestic stock of knowledge, domestic R&D and the international knowledge stock can be interpreted as evidence supporting the semi-endogenous growth models versus the endogenous growth ones. We replicate their study in a wide sense by analysing a slighlty wider sample of countries observed over a more recent time period and by estimating the cointegrating vector with an econometric methodology that is robust to cross sectional dependence. Our replication confirms Bottazzi and Peri’s main results but finds stronger spillover effects.
    Date: 2013–06
  17. By: Vera Rocha (Universidade do Porto, cef.up and CIPES); Anabela Carneiro (Universidade do Porto and cef.up); Celeste Amorim Varum (Universidade de Aveiro, DEGEI and GOVCOPP)
    Abstract: This paper conducts a comprehensive study on entrepreneurship dynamics using a large longitudinal matched employer-employee dataset. We identify the transition of over 200,000 nascent business-owners and follow their survival patterns in the respective businesses using discrete time competing risks models. Different profiles of new business-owners are identified, taking into account their entry routes and how such entry choices impact on their persistence in the firm. Exits by dissolution are distinguished from exits by ownership transfer. We also analyze how previous labor market experiences and macroeconomic environment shape the individuals' decision to become and persist as business-owners. Controlling for a set of individual and previous job characteristics, we found that those experiencing a recent displacement are more likely to become entrepreneurs and to persist longer in the business. Concerning macroeconomic conditions, nascent entrepreneurs entering via start-up enter counter-cyclically, while all other nascent business-owners behave in line with the "prosperity-pull" hypothesis. Business-owners' entry choices significantly affect their post-entry persistence and exit modes. Particular experiences in the labor market while paid employees are also found to significantly influence the way individuals enter into and exit from entrepreneurship.
    Keywords: Entrepreneurship, Business Ownership, Entry, Exit
    JEL: J24 L26 M13
    Date: 2013–06
  18. By: Tyler Muir (Northwestern University); Andrea Eisfeldt (UCLA Anderson School of Management)
    Abstract: We document the fact that at both the aggregate and the firm level, corporations tend to simultaneously raise external finance and accumulate liquid assets. For all but the very largest firms, the aggregate correlation between external finance raised and liquidity accumulation is 0.6, and the average firm level correlation is 0.2. This seems puzzling if internal and external finance are substitutes and external finance is costly. In fact, static pecking order intuition predicts that firms will first draw down liquid balances and only then issue external finance. On the other hand, if one believes that the cost of external finance varies over time, then the fact that there appear to be aggregate waves of issuance and savings activity may not be surprising. We show that a simple dynamic model with constant costs of external finance can easily match the observed positive correlation between liquidity accumulation and external finance. We compare the results of this simple model to those from a model which features a shock to the cost of external finance.
    Date: 2012

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