nep-sbm New Economics Papers
on Small Business Management
Issue of 2015‒06‒27
fourteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Appropriability Mechanisms, Innovation and Productivity:Evidence from the UK By Hall, Bronwyn H.; Sena, Vania
  2. Exploring the link between innovation capability and financial performance By Salih Ye; Ahmet Kaya
  3. Entrepreneurial Regions: do macro-psychological Cultural Characteristics of Regions help solve the “Knowledge Paradox” of Economics? By Obschonka, Martin; Stuetzer, Michael; Gosling, Samuel D.; Rentfrow, Peter J.; Lamb, Michael E.; Potter, Jeff; Audretsch, David B.
  4. Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China? By Hombert, Johan; Matray, Adrien
  5. R&D Tax Credits, Financial Constraints, and R&D Investments (Japanese) By HOSONO Kaoru; HOTEI Masaki; MIYAKAWA Daisuke
  6. Cluster Policy: Renewal through the integration of institutional variety By Grillitsch, Markus; Asheim, Björn
  7. Deviating from the benchmarks: Human capital inputs and the survival of new startups By Vera Rocha; Mirjam van Praag; Anabela Carneiro
  8. Policy Lessons from Financing Innovative Firms By Karen E. Wilson
  9. “Differences in efficiency between Formal and Informal Micro Firms in Mexico” By Antonio Báez-Morales
  10. Spillovers from the global productivity frontier and public policy: Industry-level evidence By Alessandro Saia; Dan Andrews; Silvia Albrizio
  11. Financing Entrepreneurial Experimentation By Ramana Nanda; Matthew Rhodes-Kropf
  12. The Impact of Captive Innovation Offshoring on the Effectiveness of Organizational Adaptation By Baier, Elisabeth; Rammer, Christian; Schubert, Torben
  13. Infringement of Intellectual Property in Innovation Partnerships By Schubert, Torben
  14. Summary of the Survey on the Aftermath of SME Financing Facilitation Act (Japanese) By UESUGI Iichiro; FUKANUMA Hikaru; ONO Arito; XU Peng; TSURUTA Daisuke; NEMOTO Tadanobu; MIYAKAWA Daisuke; YASUDA Yukihiro; YAMORI Nobuyoshi; WATANABE Wako; IWAKI Hiromichi

  1. By: Hall, Bronwyn H. (University of California at Berkeley and University of Maastricht; NBER, IFS London, and NIESR); Sena, Vania (Essex Business School, University of Essex)
    Abstract: We use an extended version of the wellestablished Crepon, Duguet and Mairesse model (1998) to model the relationship between appropriability mechanisms, innovation and firmlevel productivity. We enrich this model in several ways. First, we consider different types of innovation spending and study the differences in estimates when innovation spending (rather than R&D spending) is used to predict innovation in the CDM model. Second, we assume that a firm simultaneously innovates and chooses among different appropriability methods (formal or informal) to protect the innovation. Finally, in the third stage, we estimate the impact of the innovation output conditional on the choice of appropriability mechanisms on firms’ productivity. We find that firms that innovate and rate formal methods for the protection of Intellectual Property (IP) highly are more productive than other firms, but that the same does not hold in the case of informal methods for the protection of a firm’s IP, except possibly for large firms as supposed to SMEs. We also find that this result is strongest for firms in the services, trade, and utility sectors, and negative in the manufacturing sector.
    Keywords: productivity; innovation; intellectual property; appropriability; patents; CDM
    JEL: L25 O30 O34
    Date: 2015–06–18
  2. By: Salih Ye (Kaahmramanmara); Ahmet Kaya (Akdeniz Un,versty)
    Abstract: Today’s global and uncertain business world transform the way business is conducted. Companies need to pay attention to the innovation and innovation capabilities for the survival, success and growth. Innovation provides several strategic advantages (e.g., better performance outcomes, efficiency, productivity and competitive advantages) to all types of organisations. This study focuses on innovation capability and explores its effect on firm financial performance. The hypothesis is drawn from existent related literature. Data is collected from fifty four SMEs operating in Gaziantep city of Turkey and tested through correlation and regression analyses. The results reveal that innovation capability is positively related to sales growth but not to the return on assets. The findings and implications are discussed in relation to theory and previous empirical studies.
    Keywords: Innovation, Innovation Capability, Performance, Financial Performance, SMEs
    JEL: O31 L25 M10
    Date: 2015–06
  3. By: Obschonka, Martin; Stuetzer, Michael; Gosling, Samuel D.; Rentfrow, Peter J.; Lamb, Michael E.; Potter, Jeff; Audretsch, David B.
    Abstract: In recent years, modern economies have shifted away from being based on physical capital and towards being based on new knowledge (e.g., new ideas and inventions). Consequently, contemporary economic theorizing and key public policies have been based on the assumption that resources for generating knowledge (e.g., education, diversity of industries) are essential for regional economic vitality. However, policy makers and scholars have discovered that, contrary to expectations, the mere presence of, and investments in, new knowledge does not guarantee a high level of regional economic performance (e.g., high entrepreneurship rates). To date, this “knowledge paradox” has resisted resolution. We take an interdisciplinary perspective to offer a new explanation, hypothesizing that “hidden” regional culture differences serve as a crucial factor that is missing from conventional economic analyses and public policy strategies. Focusing on entrepreneurial activity, we hypothesize that the statistical relation between knowledge resources and entrepreneurial vitality (i.e., high entrepreneurship rates) in a region will depend on “hidden” regional differences in entrepreneurial culture. To capture such “hidden” regional differences, we derive measures of entrepreneurship-prone culture from two large personality datasets from the United States (N = 935,858) and Great Britain (N = 417,217). In both countries, the findings were consistent with the knowledge-culture-interaction hypothesis. A series of nine additional robustness checks underscored the robustness of these results. Naturally, these purely correlational findings cannot provide direct evidence for causal processes, but the results nonetheless yield a remarkably consistent and robust picture in the two countries. In doing so, the findings raise the idea of regional culture serving as a new causal candidate, potentially driving the knowledge paradox; such an explanation would be consistent with research on the psychological characteristics of entrepreneurs.
    Keywords: Innovation, Personality, Knowledge, Culture, Entrepreneurship, Psychology, Regions, Cities
    JEL: L26 M13 O3 O30
    Date: 2015
  4. By: Hombert, Johan; Matray, Adrien
    Abstract: We study whether R&D-intensive firms are more resilient to trade shocks. We correct for the endogeneity of R&D using tax-induced changes to the cost of R&D. On average across US manufacturing firms, rising imports from China lead to slower sales growth and lower profitability. These effects are, however, significantly smaller for firms with a larger stock of R&D -- by about half when moving from the 25th percentile to the 75th percentile of the R&D stock distribution. As a result, while the average firm in import-competing industries cuts capital expenditures and employment, R&D-intensive firms downsize considerably less.
    Keywords: China; import competition; innovation; R&D tax credit
    JEL: F14 L25 L60 O33
    Date: 2015–06
  5. By: HOSONO Kaoru; HOTEI Masaki; MIYAKAWA Daisuke
    Abstract: Research and development (R&D) expenditures are affected potentially by the present and past use of R&D tax credits through two channels. While the present use of R&D tax credits promotes R&D investment through a reduction in capital cost, the past use promotes the investment through an increase in internal funds. We empirically investigate how these two channels affect the R&D investment of Japanese manufacturing firms by using firm-level data. Our results can be summarized as follows. First, the effect of the present use of R&D tax credit on R&D investment is smaller for firms that are more likely to depend on external finance (i.e., firms that operate in industries with higher dependence on external finance) than for those that are less likely to depend on external finance, suggesting that higher agency cost associated with the larger use of external finance partially mitigates the effect of R&D tax credits. Second, the past use of R&D tax credits does not necessarily lead to significant increase in the internal funds for firms that are more likely to depend on external finance, which implies that the use of R&D tax credits does not contribute to the promotion of firms' R&D investment. These results jointly imply that the effect of R&D tax credits on R&D investment is limited for financially constrained firms.
    Date: 2015–06
  6. By: Grillitsch, Markus (CIRCLE, Lund University); Asheim, Björn (CIRCLE, Lund University; UiS Business School/Centre for Innovation Research, University of Stavanger; BI Norwegian Business School, Oslo)
    Abstract: The literature on cluster evolution suggests that heterogeneity of firm capabilities and openness of network structures are essential for the renewal of mature and declining clusters. This paper argues that the regional and institutional context in which clusters are embedded plays an important role for the renewal of clusters. It elaborates how the integration of institutional variety can stimulate the combination of different types of knowledge, learning and modes of innovation, thereby promoting cluster renewal. The conceptual argument is illustrated with a case study of the maritime cluster in Møre and Romsdal, Norway, which is one of the globally leading clusters in this industry. We find that key actors and policy play an important role in integrating institutional variety. Additionally, the case shows that institutional variety and the integration thereof can be a driving force for cluster renewal even in specialized and semi-peripheral locations.
    Keywords: cluster policy; institutions; path-renewal; path-creation; manufacturing; periphery
    JEL: B52 O10 O30 R30 R50
    Date: 2015–06–08
  7. By: Vera Rocha (Copenhagen Business School – INO); Mirjam van Praag (Copenhagen Business School – INO); Anabela Carneiro (Universidade do Porto – cef.up)
    Abstract: This paper studies three related questions: To what extent otherwise similar startups employ different quantities and qualities of human capital at the moment of entry? How persistent are initial human capital choices over time? And how does deviating from human capital benchmarks influence firm survival? The analysis is based on a matched employer-employee dataset and covers about 17,500 startups in manufacturing and services. We adopt a new procedure to estimate individual benchmarks for the quantity and quality of initial human resources, acknowledging correlations between hiring decisions, founders' human capital, and the ownership structure of startups (solo entrepreneurs versus entrepreneurial teams). We then study the survival implications of exogenous deviations from these benchmarks, based on spline models for survival data. Our results indicate that (especially negative) deviations from the benchmark can be substantial, are persistent over time, and hinder the survival of firms. The implications may, however, vary according to the sector and the ownership structure at entry. Given the stickiness of initial choices, wrong human capital decisions at entry turn out to be a close to irreversible matter with significant survival penalties.
    Keywords: Keywords: human resources, human capital, startup conditions, new ventures, firm survival, entrepreneurs, intra-industry dynamics
    Date: 2015–06
  8. By: Karen E. Wilson
    Abstract: There has been increasing concern from policy makers around the world about the lack of access to finance for young innovative firms. As a result, governments in many OECD countries have sought to address the financing gap and perceived market failures by supporting the seed and early stage market. This paper seeks to summarise the lessons learned in seed and early stage finance based on OECD work over the past several years focused on policies related to financing high growth firms, including angel investment and venture capital. That research was supplemented with a questionnaire on seed and early stage financing policies in 2012 and a series of policy workshops held between 2012 and 2014. The workshops provided deeper insights into experiences and lessons learned from OECD member countries. The OECD has been working on seed and early stage finance within the Committee for Industry, Innovation and Entrepreneurship (CIIE) in the Directorate for Science, Technology and Industry as well as across other Directorates. This work has highlighted the growth in seed and early stage finance policies as well as the importance of high-growth firms for job creation and the role that financial development and other policies play in firm dynamics and the growth of such firms.
    Date: 2015–06–24
  9. By: Antonio Báez-Morales (Faculty of Economics, University of Barcelona)
    Abstract: The economic role of micro firms is still the subject of much discussion and debate. While these firms can be seen as potential growth drivers, as they are usually related to entrepreneurship, a relatively high share of micro firms can also be a sign of an underdeveloped productive system, which applies especially to developing countries, where micro firms represent the majority of business activity. Unlike other studies, this research separates formal and informal micro firms in order to test whether there are efficiency differences between them, and to explain these differences. One of the novelties of the study is the use of the Oaxaca-Blinder decomposition method, which enables an analysis of the differences between both groups of firms after controlling for their different allocation of factors. Micro firms in Mexico are taken as a case study, with the Encuesta Nacional de Micronegocios (ENAMIN, or the National Micro Firm Survey), for 2008, 2010 and 2011, used to carry out the analysis. The emprical evidence suggests that output differences can be explained by endowment characteristics, while efficiency differences are explained by endowment returns. The main variables to explain the gap between the groups are the owner’s level of education, the firm’s age, the owner’s motivations, and financing.
    Keywords: informality, micro firms, efficiency, productivity, decomposition method. JEL classification: D00, D22, D24
    Date: 2015–06
  10. By: Alessandro Saia; Dan Andrews; Silvia Albrizio
    Abstract: For much of the second half of the twentieth century, labour productivity grew rapidly in most OECD economies, fuelled by the adoption of a large stock of unexploited existing technologies. However, the slowdown in productivity growth over the past decade underscores the idea that as economies converge toward the global technological frontier, the ability to capitalise on new innovations developed at frontier becomes more important. Using industry level data for 15 countries over the period 1984-2007, this paper augments the neo-Schumpeterian framework to identify the relevant channels and policies that shape an economy’s ability to learn from the global productivity frontier. An economy’s ability to benefit from frontier innovation is a positive function of its degree of international connectedness, ability to allocate skills efficiently and investments in knowledge based capital, including managerial capital and R&D. Productivity growth, via more effective learning from the global frontier, is supported by a policy framework that promotes efficient resource allocation – including lower barriers to entrepreneurship, efficient judicial systems and bankruptcy laws that do not overly penalise failure – and fosters the creation of markets for seed and early stage finance. Innovation policies that support basic research and facilitate the absorption of external knowledge for firms – including via university-industry R&D collaboration – also enhance spillovers from the global productivity frontier, and consequently, productivity growth.<P>Retombées des technologies de pointe et politiques publiques : Ce que montrent les données sectorielles<BR>Durant la majeure partie de la seconde moitié du XXème siècle, la productivité du travail a augmenté rapidement dans la plupart des économies de l'OCDE, alimentée par l'adoption d'un grand nombre de technologies existantes mais encore inexploitées. Toutefois, le ralentissement de la croissance de la productivité au cours de la dernière décennie corrobore l'idée selon laquelle au fur et à mesure que les économies convergent vers la frontière technologique mondiale, la capacité à capitaliser sur les innovations développées à la pointe de la technologie augmente. À partir de données sectorielles couvrant 15 pays sur la période 1984-2007, cet article complète le modèle de croissance néo-schumpétérien afin d'identifier les canaux et les politiques qui affectent la capacité d'une économie à apprendre de la frontière de la productivité mondiale. La capacité d'une économie à bénéficier de l'innovation dans les technologies de pointe est une fonction croissante de son degré d’ouverture internationale, de sa capacité à allouer efficacement les compétences et les investissements aux actifs fondés sur la connaissance, y compris le capital managérial et la R & D. La croissance de la productivité, via un apprentissage plus efficace à partir de la frontière technologique mondiale, est soutenue par un cadre politique qui favorise une allocation efficace des ressources - y compris la réduction des barrières à la création d’entreprises, l’efficacité des systèmes judiciaires et les lois sur la faillite qui ne pénalisent pas trop l'échec - et qui favorise la création de marchés du capital d’amorçage et du capital-risque. Les politiques d'innovation qui soutiennent la recherche fondamentale et facilitent l'assimilation des connaissances extérieures par les entreprises - y compris via des collaborations entre les universités et les entreprises en matière de R & D– renforcent également les retombées de la frontière de la productivité mondiale, et par conséquent, la croissance de la productivité.
    Keywords: productivity, spillovers, growth, croissance, rattrapage, productivité
    JEL: C23 L16 L5 O43 O57
    Date: 2015–06–23
  11. By: Ramana Nanda; Matthew Rhodes-Kropf
    Abstract: The fundamental uncertainty of new technologies at their earliest stages implies that it is virtually impossible to know the true potential of a venture without learning about its viability through a sequence of investments over time. We show how this process of experimentation can be particularly valuable in the context of entrepreneurship because most new ventures fail completely, and only a few become extremely successful. We also shed light on important costs to this process of experimentation, and demonstrate how these can fundamentally alter both the rate and direction of startup innovation across industries, regions and periods of time.
    JEL: G24 L26 O31
    Date: 2015–06
  12. By: Baier, Elisabeth (PTV Group AG, Karlsruhe, Germany); Rammer, Christian (ZEW, Mannheim, Germany); Schubert, Torben (CIRCLE, Lund University & Fraunhofer ISI, Karlsruhe, Germany)
    Abstract: We analyze the effects of captive offshoring of innovation activities on the ability of the firms to adapt their organizational structures. Basing our arguments on complexity theory, we use three consecutive waves of the German part of the Community Innovation Survey to test our hypotheses. We find an inverted u-shape of innovation offshoring on the effectiveness of organizational adaptability, implying an optimal threshold value of innovation offshoring. This value is 11% for share of offshored R&D, 15% for downstream innovation activities such as local market adaptation, and 34% for design activities. We also analyze several contingency variables. In particular, we show that the costs of innovation offshoring in terms of reduced organizational adaptation are increased by a regional dispersion of the offshoring activities and strong embeddedness in onshore networks. We also show that smaller firms find it easier to deal with the management complexity induced by geographical dispersion of innovation activities.
    Keywords: Internationalization; Offshoring; Innovation; Organizational Adaptation; Organizational Adaptability
    JEL: O31 O32
    Date: 2015–06–21
  13. By: Schubert, Torben (CIRCLE, Lund University & Fraunhofer ISI, Karlsruhe, Germany)
    Abstract: Using data from the German Community Innovation Survey (CIS) from 2008 we analyze whether innovation partnering increases the risk of experiencing infringement of intellectual property (IP). The results show that depending on types of IP innovation partnerships increase the risk of infringement by up to 37% compared to the average risk in the sample. The results suggest that this massive increase can be reduced by intellectual property rights and contracts to govern the partnerships. Yet we show that formal protection mechanisms do not eliminate the sources of opportunistic infringement, since that infringement in innovation partnerships more commonly relates to the infringement of formally unprotected intellectual property, such as tacit knowledge and know-how.
    Keywords: infringement; intellectual property; innovation; partnerships; alliances; protection
    JEL: O32 O34
    Date: 2015–06–21
  14. By: UESUGI Iichiro; FUKANUMA Hikaru; ONO Arito; XU Peng; TSURUTA Daisuke; NEMOTO Tadanobu; MIYAKAWA Daisuke; YASUDA Yukihiro; YAMORI Nobuyoshi; WATANABE Wako; IWAKI Hiromichi
    Abstract: A number of policy measures have been undertaken in response to the financial crisis started by the collapse of Lehman Brothers in September 2008 and the following severe recessions. They included an introduction of the Small and Medium-sized Enterprises (SME) Financing Facilitation Act, which solicited financial institutions to renegotiate loan terms and conditions with distressed borrowers and thus provided assistance to firms that were financially constrained. In order to examine the current financial status of SMEs after the termination of the Act at the end of March 2013, RIETI sent out a survey questionnaire to 20,000 firms mainly comprised of SMEs in October 2014 and received more than 6,000 responses. The main issues of the survey include: (1) effect of the SME Financial Facilitation Act on the firms' financial procurement; (2) loan renegotiations between financial institutions and borrower firms that were solicited by the Act; (3) restructuring programs submitted to financial institutions after loans are renegotiated; and (4) ex-post performance of borrower firms whose loans were renegotiated. The summary of the survey provides many novel insights on each of the above four issues. Furthermore, the survey summarizes the current status of equity financing among firms in the appendix.
    Date: 2015–06

This nep-sbm issue is ©2015 by João Carlos Correia Leitão. 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.