nep-sbm New Economics Papers
on Small Business Management
Issue of 2014‒07‒13
twenty-two papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior and Universidade de Lisboa

  1. Do firms benefit from university research? Evidence from Italy By Cardamone, Paola; Pupo, Valeria; Ricotta, Fernanda
  2. The Multiple Facets of Regional Innovation By Matthias Siller; Christoph Hauser; Janette Walde; Gottfried Tappeiner
  3. Are organizational innovation practices complements or substitutes for technological innovation performance? By Caroline Mothe; Uyen T. Nguyen-Thi; Phu Nguyen-Van
  4. Innovation, financial constraints and relationship lending: firm-level evidence in times of crisis By Emanuele Brancati
  5. Capital structure, profitability and firm value: panel evidence of listed firms in Kenya By Kodongo, Odongo; Mokoaleli-Mokoteli, Thabang; Maina, Leonard
  6. R&D, spatial proximity and productivity at firm level: evidence from Italy By Cardamone, Paola
  7. Small and Medium-Sized Enterprises in Global Markets: A Differential Approach for Services? By Iza Lejárraga; Humberto López Rizzo; Harald Oberhofer; Susan Stone; Ben Shepherd
  8. Small and Medium Size Enterprises, Credit Supply Shocks, and Economic Recovery in Europe By Nir Klein
  9. SMEs’ Access to Finance in the Euro Area: What Helps or Hampers? By Bahar Öztürk; Mico Mrkaic
  10. Effect of Credit Rating on Firm Performance and Stock Return; Evidence form KSE Listed Firms By Rubina Shaheen; Attiya Yasmin Javid
  11. Product versus Process: Innovation Strategies of Multi-Product Firms By Flach, Lisandra; Irlacher, Michael
  12. Firms Size and Directed Technological Change. By Antonelli, Cristiano; Scellato, Giuseppe
  13. A patentability requirement and industries targeted by R&D By Keiichi Kishi
  14. Entrepreneurial Couples By Michael S. Dahl; Mirjam van Praag; Peter Thompson
  15. Financial Constraints, Intangible Assets, and Firm Dynamics: Theory and Evidence By Sophia Chen
  16. Toward Competitive and Innovative ASEAN SMEs: Philippine SME Policy Index 2012 By Aldaba, Rafaelita M.; Aldaba, Fernando T.
  17. Does Inside Ownership Matters in Financial Decisions and Firm Performance: Evidence from Manufacturing Sector of Pakistan By Haris Arshad; Attiya Yasmin Javid
  18. Human Capital and the Size Distribution of Firms By Gomes, Pedro Maia; Kuehn, Zoë
  19. The determinants of exit in Argentina: core and peripheral regions By Calá, Carla Daniela; Manjón-Antolín, Miguel; Arauzo-Carod, Josep-Maria
  20. Intangible assets finance: a complementary or substitution effect between external and internal channels? Evidence from the Italian divide By Succurro, Marianna
  21. Caractéristiques des entrepreneurs et conception de leurs business plans : le cas des primés au concours du Réseau Entreprendre Paris By Lubica Hikkerova; Jean-Louis Paré; Jean Rédis; Guillaume Marceau
  22. Patents and Cumulative Innovation: Causal Evidence from the Courts By Alberto Galasso; Mark Schankerman

  1. By: Cardamone, Paola; Pupo, Valeria; Ricotta, Fernanda
    Abstract: The aim of this paper is to assess the effect on firm total factor productivity of the university research. Since the impact of universities on firms’ performance is subtle and complex, we verify whether territorial context, sector and firm size may influence this relationship. Results show that university R&D does not seem to affect Italian firm productivity. However, if we consider geographical location and sector, we find that university activities have a positive effect on the performance of firms located in the North of Italy or operating in the specialised supplier sector. Several robustness checks confirm the significant role played by universities above all in the North of Italy. The policy implications of these findings are discussed.
    Keywords: University, R&D, Total Factor Productivity
    JEL: C21 D24 O30
    Date: 2014–04–30
  2. By: Matthias Siller; Christoph Hauser; Janette Walde; Gottfried Tappeiner
    Abstract: Measuring innovation activities involves critical decisions in selecting appropriate indicators and levels of observation. The present article contributes to the literature on this subject by addressing innovation measurement on the regional level. The dimensionality of regional innovation is examined by applying a principal component analysis on seven innovation output indicators in European regions from the Community Innovation Survey and two traditional indicators, i.e. patent applications and R&D expenses. The analysis reveals that regional innovation indeed needs to be regarded as a multidimensional concept involving technological, commercial and service innovation. These distinct innovation activities exhibit clear regional patterns with both technological and service innovation concentrated in highly developed territories and urban areas displaying particularly strong innovation performance in services. In addition, commercially successful innovation appears clustered in backward regions and may thus be seen as imitation efforts and technology transfers from areas at the innovation frontier. Overall, the elaborated findings suggest that the selection of innovation indicators in empirical analyses demands appropriate motivation and theoretical guidance.
    Keywords: regional innovation, innovation dimensions, Principal Component Analysis, patent applications, Community Innovation Survey
    JEL: R11 O31 O33
    Date: 2014–07
  3. By: Caroline Mothe; Uyen T. Nguyen-Thi; Phu Nguyen-Van
    Abstract: We empirically investigate the pattern of complementarity between four organizational practices. Firm-level data were drawn from the Community Innovation Survey (CIS) carried out in 2008 in Luxembourg. Supermodularity tests confirm the crucial role of organizational innovation in raising firms’ technological innovation. The pattern of complementarity between organizational practices differs according to the type of innovation, i.e. product or process innovation, but also according to whether the firm is in the first stage of the innovation process (i.e. being innovative or not) or in a later stage (i.e. innovation performance in terms of sales of new products).
    Keywords: Complementarity, Organizational innovation, Substitution, Supermodularity, Technological innovation.
    JEL: D22 O32
    Date: 2014
  4. By: Emanuele Brancati (LUISS University of Rome)
    Abstract: Financial frictions represent a severe obstacle to firmsÕ innovativeness. This paper shows the existence and quantifies the effects of financial barriers to the innovation propensity of Italian SMEs. Employing direct measures of financial constraints and a credit-score estimated ad hoc, I find financially-constrained firms have a probability of innovating that is significantly lower than sound companies (-30%). Results document the existence of a feedback-effect of innovation on firmsÕ financial position, resulting into an additional reduction in firmsÕ propensity to innovate. The paper also highlights the role of soft information in mitigating financial obstacles to innovation by improving the financial condition of more opaque (small) borrowers.
    Keywords: Innovation, financial constraints, relationship lending, SMEs.
    JEL: O31 L25 G21
    Date: 2014
  5. By: Kodongo, Odongo; Mokoaleli-Mokoteli, Thabang; Maina, Leonard
    Abstract: This paper investigates the relationship between leverage and the financial performance of listed firm in Kenya. We use annual data for the period 2002 – 2011. Using various panel procedures, our study finds reasonably strong evidence that leverage significantly, and negatively, affects the profitability of listed firms in Kenya. However, leverage has no effect on Tobin’s Q, our proxy for firm value. Our results are robust to alternative panel specifications and hold for both small-size and large-size firms. Second, because the performance of firms depends on other things than just their capital structure, we control for the effects of those other variables by including them in our models. In this respect, our findings suggest that asset tangibility, sales growth and firm size are important determinants of profitability. Surprisingly, asset tangibility consistently has a negative relationship with profitability. For small firms, our results indicate that sales growth and firm size are important factors driving firm value (Tobin’s Q). Yet, the same variables do not appear to drive the value of large firms.
    Keywords: Capital structure, leverage, firm value, profitability, Kenya
    JEL: G30 G32
    Date: 2014–04
  6. By: Cardamone, Paola
    Abstract: The aim of this paper is to evaluate the effect of research and development (R&D) on productivity by taking into account productivity spillovers. To this end, by using a sample of Italian manufacturing firms provided by the Xth UniCredit-Capitalia survey (2008), which covers the period 2004-2006, we have analyzed the role of R&D in firm productivity by using a spatial autoregressive model. In so doing, we have allowed the total factor productivity (TFP) of each firm to be affected by the TFP of nearby firms. Results show that R&D play an important role in Italian firm productivity. Moreover, we find evidence in favor of productivity spillovers across firms due to spatial proximity. In addition, intrasectoral R&D spillovers seem to have a relevant effect on firm productivity, while intersectoral R&D spillovers do not have a significant effect.
    Keywords: R&D, TFP, spillovers, spatial econometrics, Italian manufacturing firms
    JEL: C21 D24 O33
    Date: 2014–06–15
  7. By: Iza Lejárraga; Humberto López Rizzo; Harald Oberhofer; Susan Stone; Ben Shepherd
    Abstract: This study empirically investigates key restrictions to the internationalisation of small and medium-sized enterprises (SMEs) in manufacturing and across different types of services. The study explores the extent to which binding constraints faced by SMEs producing goods may differ from small firms operating in services sectors and takes stock of how existing policy initiatives address some of these differences. Our results suggest that while firm size clearly influences the trade performance of SMEs in manufacturing, it is an ambiguous predictor of export performance in the case of small-sized services firms. The findings show that firm size influences the choice of export channel and that small firms rely more on indirect and agglomeration networks. Finally, the results point to a strong degree of firm-level heterogeneity across services activities and enterprise size. It would seem that incorporating sectoral and size heterogeneity into existing policies might be desirable to address key constraints for SMEs.
    Keywords: trade, services, small and medium-sized enterprises, internationalisation, SMEs, trade in services
    JEL: F14 L8
    Date: 2014–07–03
  8. By: Nir Klein
    Abstract: The limited access to bank credit in recent years has increased the pressure on small and medium size enterprises (SMEs), forcing them to scale down investment plans and production. This paper, which explores the macroeconomic implications of this channel, finds evidence that countries with high prevalence of SMEs tended to recover more slowly from the global financial crisis than their peers, implying that the interaction of the economic structure and access to bank financing plays a critical role in episodes of economic recovery. This conclusion is reinforced by a VAR estimation, which demonstrates that a negative credit supply shock applied to SMEs has an adverse effect on economic activity, and this impact is amplified in countries that have a high share of SMEs.
    Keywords: Economic recovery;Europe;Business enterprises;Credit;Supply;External shocks;Panel analysis;SMEs, Credit Supply Shocks, Economic Recovery, Panel VAR.
    Date: 2014–06–10
  9. By: Bahar Öztürk; Mico Mrkaic
    Abstract: The monetary transmission mechanism in the euro area has been adversely affected by the recent crises. Using survey data on thousands of euro area firms, we study factors that affect the access to finance of SMEs. We find that changes in bank funding costs and borrower leverage matter for firms’ access to finance. Increases in bank funding costs and borrowers’ debt-to-asset ratios are significantly and negatively associated with firms’ access to finance. The use of subsidies significantly improve access to finance of SMEs. Finally, access to finance is found to be positively related to firm size and firm age.
    Keywords: Access to capital markets;Euro Area;Monetary transmission mechanism;Private sector;Credit;Borrowing;Banking sector;Monetary policy;access to finance; micro, small and medium sized enterprises; monetary policy
    Date: 2014–05–09
  10. By: Rubina Shaheen (Pakistan Institute of Development Economics, Islamabad); Attiya Yasmin Javid (Pakistan Institute of Development Economics, Islamabad)
    Abstract: This study investigates the determinants of credit ratings of firms and the impact of credit rating on firms’ performance and stock return for listed firms in Pakistan. For empirical analysis of this study, panel data of 63 financial and nonfinancial firms rated by Pakistan Credit Rating Agency (PACRA) and Karachi Stock Exchange covering period from 2007-2011 is used on the basis of availability of data. The results are obtained by applying two estimation techniques. First, to estimate the determinants of credit rating Ordered Probit approach is used. Second, the generalised method of moments (GMM) technique is applied on panel data to estimate the relationship between credit rating and firm performance and also for credit ratings and stock returns. The results illustrate that firm specific factors (leverage, firm size, profitability, and growth opportunities dividend per share) and corporate governance attributes (board size, block holders, shareholder’s rights and CEO duality) are important factors in predicting firms’ credit rating in Pakistan. The analysis further suggests that firms with higher credit ratings have higher corporate performance and firms with higher credit ratings tend to have higher stock returns. The analysis of this study might facilitate debt holders, investors, shareholders and other stake holders to understand the significance of credit ratings and its influence on performance and stock returns of firms.
    Keywords: Credit Ratings, Financial Attributes, Corporate Governance Attributes, Business Conditions, Stock Returns, Ordered Probit Model, PACRA
    JEL: G10 G11 G30 G32
    Date: 2014
  11. By: Flach, Lisandra; Irlacher, Michael
    Abstract: This paper studies the innovation strategies of multi-product firms in industries with different scope for product differentiation. In a simple model of multi-product firms, we show that returns to product versus process innovation are industry-specific. Demand and cost linkages induce a natural distinction between the returns to product and process innovation. In highly differentiated industries, the cannibalization effect is lower and, therefore, firms invest more in product innovation. In homogeneous industries, firms internalize intra-firm spillover effects and invest more in process innovation. We test the predictions from the model using Brazilian firm-level data, with information on investment efforts over time. Following a major exchange rate devaluation, firms have better access to foreign markets and exploit economies of scale in innovation. However, detailed information on product and process innovation allows us to evaluate differential effects across industries. We con.rm the predictions from the theoretical model and show that the type of innovation depends on the industry scope for differentiation.
    Keywords: Multi-Product Firms; Innovation; Product Differentiation; Cannibalization Effect; Spillovers; Globalization
    JEL: F12 F14 L25
    Date: 2014–06–25
  12. By: Antonelli, Cristiano; Scellato, Giuseppe (University of Turin)
    Abstract: The analysis of the characteristics of firms helps understanding the causes and the consequences of the direction of technological change. Firms differ substantially with respect to the type of technological knowledge they can generate and exploit with the introduction of technological innovations. This in turn has major effects on the direction of technological change they are able to introduce. Large firms able to command the recombinant generation of codified knowledge with a strong scientific base are more likely to introduce neutral technological changes that consist in a shift effect of production functions. Small firms that rely more on tacit and external knowledge are more likely to rely on technologies directed towards the most intensive use of locally abundant production factors. The effects of this difference in terms of the resulting total factor productivity growth are important and can be grasped only when the changes of output elasticity of production factors in growth accounting are properly appreciated. The empirical evidence for a sample of 6600 Italian firms observed during the years 1996 - 2005 confirms that large firms introduced mainly neutral technological changes while small firms with lower levels of profitability introduced biased technological changes.
    Date: 2014–06
  13. By: Keiichi Kishi (Graduate School of Economics, Osaka University)
    Abstract: In this paper, we introduce into a Schumpeterian growth model an inventive step: a minimum innovation size required for patents, which is a patentability requirement. We show that each R&D firm targets only the industries that the incumbentfs technology is sufficiently obsolete in order to satisfy an inventive step requirement. This is because a technological gap between innovator and incumbent is larger in the industries that use older technology. Under the circumstance, strengthening an inventive step requirement reduces the industries targeted by R&D, on the other hand, increases R&D investments to the targeted industries. Consequently, we find a nonmonotonic effect of the inventive step on the aggregate flow of innovations.
    Keywords: Technological progress, Innovations, Intellectual property rights
    JEL: O31 O34 O41
    Date: 2014–07
  14. By: Michael S. Dahl (Aalborg University, Denmark); Mirjam van Praag (Copenhagen Business School, Denmark); Peter Thompson (Emory University, United States)
    Abstract: We study possible motivations for co-entrepenurial couples to start up a joint firm, using a sample of 1,069 Danish couples that established a joint enterprise between 2001 and 2010. We compare their pre-entry characteristics, firm performance and postdissolution private and financial outcomes with a selected set of comparable firms and couples. We find evidence that couples often establish a business together because one spouse – most commonly the female – has limited outside opportunities in the labor market. However, the financial benefits for each of the spouses, and especially the female, are larger in co-entrepreneurial firms, both during the life of the business and post-dissolution. The start-up of co-entrepreneurial firms seems therefore a sound investment in the human capital of both spouses as well as in the reduction of income inequality in the household. We find no evidence of non-pecuniary benefits or costs of coentrepreneurship
    Keywords: Entrepreneurship, motives, performance, couples, co-entrepreneurship.
    JEL: J12 L26
    Date: 2014–05–08
  15. By: Sophia Chen
    Abstract: I study whether firms' reliance on intangible assets is an important determinant of financing constraints. I construct new measures of firm-level physical and intangible assets using accounting information on U.S. public firms. I find that firms with a higher share of intangible assets in total assets start smaller, grow faster, and have higher Tobin’s q. Asset tangibility predicts firm dynamics and Tobin’s q up to 30 years but has diminishing predicative power. I develop a model of endogenous financial constraints in which firm size and value are limited by the enforceability of financial contracts. Asset tangibility matters because physical and intangible assets differ in their residual value when the contract is repudiated. This mechanism is qualitatively important to explain stylized facts of firm dynamics and Tobin’s q.
    Keywords: Intangible capital;Corporate finance;Corporate investment;Commercial borrowing;Assets;Depreciation;Debt financing;Contracts/Agreements/Leases;Econometric models;Financial constraints, intangible assets, firm dynamics, Tobin’s q
    Date: 2014–05–14
  16. By: Aldaba, Rafaelita M.; Aldaba, Fernando T.
    Abstract: The ASEAN SME Policy Index is an analytical tool to review, track, and identify gaps in small and medium enterprise (SME) policy development and implementation. The index covers the following eight policy areas: institutional framework; cheaper and faster start-up and better legislation and regulation for SMEs; access to information and supporting services; access to finance; technology and technology transfer; market access and getting more output of the single market; promotion of entrepreneurial education; and developing stronger, more effective representation for SMEs` interests. Applying the above framework, the paper assesses whether the policies, programs, and institutions in the Philippines are supportive of the development of SMEs in the region. On the average, the overall score for the country is quite modest and to move forward, it is important to simplify and streamline the overall registration process. Existing government programs must be evaluated in terms of scope and delivery with a view to improve and broaden support services for start-ups to include business incubators as well as vouchers, grants and loans on favorable terms especially for the most dynamic enterprises. There is also a need to institutionalize the framework for conducting regulatory impact assessment in the country.
    Keywords: Philippines, ASEAN SME Policy Index
    Date: 2014
  17. By: Haris Arshad (Pakistan Institute of Development Economics, Islamabad); Attiya Yasmin Javid (Pakistan Institute of Development Economics, Islamabad)
    Abstract: This study provides the evidence on the effect of managerial ownership on the firm’s performance and financial policies (debt and dividend) for 140 listed manufacturing firms of Pakistan. Firstly, effect of managerial ownership on dividend and leverage policies of the firm are investigated by simultaneous equation model. The results indicate that high level of managerial ownership decreases the tendency of firms to go for debt financing. Similarly in firms having high financial leverage probability to engage in managerial ownership programmes decreases. As managerial ownership increases the firm chose to distribute less to shareholders. These results support the predictions of agency theory which is of the view that managerial ownership results in the decrease in asymmetric information. Secondly, the impact of managerial ownership on the performance is examined. The study finds conclusive evidence that managerial ownership exerts positive and significant on performance only up to a moderate level. The relationship revolves around the cubic function of managerial ownership and firm performance by following convergence of interests (incentive alignment theory) and entrenchment theories. Thirdly, the response of managerial share ownership to the agency cost is considered and result indicate that managerial ownership is an important instrument to reduce agency cost in-case of manufacturing sector of Pakistan.
    Keywords: Managerial Ownership, Leverage, Dividend, Agency Cost, Entrenchment Theory, Incentive Alignment Theory
    Date: 2014
  18. By: Gomes, Pedro Maia (Universidad Carlos III de Madrid); Kuehn, Zoë (Universidad Autónoma de Madrid)
    Abstract: Countries that have relatively fewer workers with a secondary education have smaller firms. The shortage of skilled workers limits the growth of more productive firms. Two factors influence the availability of skilled workers: i) the education level of the workforce and ii) large public sectors that predominantly hire individuals with a better education. We set up a model economy with a government and private firm formation where production requires unskilled and skilled jobs. Workers with a secondary education are pivotal as they can perform both types of jobs. We find that level of education and public sector employment account for 40-45% of the differences between the United States and Mexico in terms of average firm size, GDP per capita, and GDP per hour worked. We also show that the impact of public employment on skill premiums and productivity measures depends on the skill bias in public hiring.
    Keywords: firm size, educational attainment, skill complementarities, public employment, college premium, high school premium
    JEL: J24 J45 E24 H30 O11
    Date: 2014–06
  19. By: Calá, Carla Daniela; Manjón-Antolín, Miguel; Arauzo-Carod, Josep-Maria
    Abstract: This paper analyses the regional determinants of exit in Argentina. We find evidence of a dynamic revolving door by which past entrants increase current exits, particularly in the peripheral regions. In the central regions, current and past incumbents cause an analogous displacement effect. Also, exit shows a U-shaped relationship with respect to the informal economy, although the positive effect is weaker in the central regions. These findings point to the existence of a core-periphery structure in the spatial distribution of exits.
    Keywords: Cese de Actividad; Empresas; Argentina;
    Date: 2014
  20. By: Succurro, Marianna
    Abstract: The goal of this research is to verify whether, and to what extent, differences in the availability of both internal and external financial resources explain differences in intangible activity between the Centre-North and the South of Italy. The paper focuses on Italian manufacturing firms over the 2003-2010 period. The empirical evidence, based on a dynamic econometric model, shows that the effects of finance on intangible activity can be heterogeneous depending on firms’ relative size and geographic location. In the Centre-North, where access to financial markets is easier, firms rely on external funding to invest in intangible assets. By contrast, in Southern regions, where access to external finance is harder, firms invest in intangible activity by substituting external funds with internal resources. The empirical evidence suggests that below a certain level of per-capita GDP a substitution effect prevails between the two sources of finance. On the contrary, some complementary effect between external and internal finance would exist in more developed Italian regions.
    Keywords: External Finance, Internal Finance, Intangibles, Italian Divide
    JEL: C23 G20 G30 O30
    Date: 2014–06–04
  21. By: Lubica Hikkerova; Jean-Louis Paré; Jean Rédis; Guillaume Marceau
    Abstract: In this article, we propose a method to evaluate enterprise creation projects based on the study of profiles of entrepreneurs and project teams, as well as external factors. This method is based on the theories of human capital and social capital, notabl
    Keywords: human capital, social capital, entrepreneur, entrepreneurship, start-up, performance,
    Date: 2014–06–23
  22. By: Alberto Galasso; Mark Schankerman
    Abstract: Cumulative innovation is central to economic growth. Do patent rights facilitate or impede follow-on innovation? We study the causal effect of removing patent rights by court invalidation on subsequent research related to the focal patent, as measured by later citations. We exploit random allocation of judges at the U.S. Court of Appeals for the Federal Circuit to control for endogeneity of patent invalidation. Patent invalidation leads to a 50 percent increase in citations to the focal patent, on average, but the impact is heterogeneous and depends on characteristics of the bargaining environment. Patent rights block downstream innovation in computers, electronics and medical instruments, but not in drugs, chemicals or mechanical technologies. Moreover, the effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.
    JEL: O33 O34
    Date: 2014–06

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