nep-sbm New Economics Papers
on Small Business Management
Issue of 2016‒09‒04
eighteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Firm Innovation and Financial Analysis: How Do They Interact? By Joel Peress; jim goldman
  2. External determinants of small business survival – The overwhelming impact of GDP and other environmental factors and a new proposed framework By GUIMARÃES BARBOSA, EVALDO
  3. Science and technology parks and firm growth By Arauzo Carod, Josep Maria; Segarra Blasco, Agustí, 1958-; Teruel, Mercedes
  4. The Role of Start-Ups in StructuralTransformation By Robert C. Dent; Fatih Karahan; Benjamin Pugsley; Aysegul Sahin
  5. Relational capital in lending relationships: Evidence from European family firms By Marco Cucculelli; Valentina Peruzzi; Alberto Zazzaro
  6. Network externalities and process R&D: A Cournot-Bertrand comparison By Mili Naskar; Rupayan Pal
  7. Agglomeration of Creative Industries: an Intra-metropolitan Analysis for Barcelona By Coll Martínez, Eva; Moreno Monroy, Ana Isabel; Arauzo Carod, Josep Maria
  8. From Science to Technology: The Value of Knowledge From Different Energy Research Institutions By David Popp
  9. The effect of FDI on local suppliers: Evidence from Audi in Hungary By Marta Bisztray
  10. When is Good News Not Good News? Opening Up the Black Box of Innovation for Family Firms By Hsu, Po-Hsuan; Huang, Sterling; Massa, Massimo; Zhang, Hong
  11. Housing collateral and small firm activity in Europe By Ryan Niladri Banerjee; Kristian S Blickle
  12. Measures, Drivers and Effects of Green Employment: Evidence from US Local Labor Markets, 2006-2014 By Francesco Vona; Giovanni Marin; Davide Consoli
  13. Human Capital, Public Debt, and Economic Growth: A Political Economy Analysis By Tetsuo Ono; Yuki Uchida
  14. Demand learning and firm dynamics:evidence from exporters By Vincent Vicard; Vincent Rebeyrol; Nicolas Berman
  15. Downward Nominal Wage Rigidity in Canada: Evidence from Micro- Level Data By Dany Brouillette; Olena Kostyshyna; Natalia Kyui
  16. Smithian Growth through Creative Organization By Patrick Legros; Andrew F. Newman; Eugenio Proto
  17. Firm Entry and Exit and Aggregate Growth By Timothy Kehoe; Sewon Hur; Kim Ruhl; Jose Asturias
  18. Involuntary Entrepreneurship - Evidence from Thai Urban Data By Tenzin Yindok; Alexander Karaivanov

  1. By: Joel Peress (INSEAD); jim goldman (insead)
    Abstract: Entrepreneurs innovate more when financiers are better informed about their projects because they expect to receive more funding should their projects be successful. Conversely, financiers collect more information about projects when entrepreneurs innovate more because the opportunity cost of misinvesting, i.e. of missing out on successful projects, is higher. Thus, technological knowledge and knowledge about technologies are mutually reinforcing. We report evidence consistent with this interaction using two quasi-natural experiments that changed, respectively, the innovation incentives and the information environment for U.S. listed firms. A calibration suggests that its contribution to income growth represents more than one third of the total contributions of information collection and innovation. We also estimate that a policy designed to stimulate innovation has an indirect effect through investors’ learning incentives that accounts for a third of the total effect of the policy on firms’ innovation incentives.
    Date: 2016
    Abstract: This article claims that the basic relationships between, on the one side, the small firms’ hazard of exit, and, on the other side, the GDP growth rate and the industry growth rate are U-shaped. This means that there are more births and deaths for this segment of manufacturing enterprises during both cyclical downturns and booms in the economy. Higher competition in the economy in the first case comes from necessity entrepreneurs and in the second case from opportunity ones. The article also claims that the quadratic specification would rarely be the most adequate, since other combinations of different pairs of exponents would certainly better capture nuances of the relationships being regressed, in view of the fact that the actual U-shaped relationship is rarely symmetric. This is exactly why the artificial exclusive monotonic fitting normally produces parameter estimates that signalize the existence of a decreasing relationship. So, what may wonder many people, the invariably detected inverse relationship is not caused by the second half segment (where the economic upturns occur) of the continuous of the GDP growth rate, but rather by the first (where the economic downturns occur), whose impact on the hazard of exit is normally stronger. Also, even a direct relationship may occur because of this asymmetry and findings of lack of statistical significance result from a misguided attempt to fit a linear specification to a perfect, or almost perfect, symmetrical actual U-shaped relationship. The article conclusively claims that these realizations, and the fact that authors overfit by specifying contemporaneously the GDP growth rate, the industry growth rate and the industry entry rate, explain findings in the extant literature that are awkward, unexpected and embarrassing and interpretations that are many times completely inapplicable.
    Keywords: Small business; Survival determinants; GDP growth; Cox regression
    JEL: M21
    Date: 2016–08–15
  3. By: Arauzo Carod, Josep Maria; Segarra Blasco, Agustí, 1958-; Teruel, Mercedes
    Abstract: This paper aims to contribute to understanding the role played by Science and Technology Parks in fostering firm growth. Public policies have given such parks a central role but empirical research has not come to a consensus on whether there is a link between in†park location and firm growth. Applying a matching procedure to our mercantile register data we obtain a database of 286 in†park firms, together with 268 out†park firms. Our results show that in†park firms show greater growth rates and volatility than their counterparts, but we do not find evidence of their capacity to obtain larger long†term debts. Keywords: science and technology parks, firm location, firm growth. JEL codes: L25, O30, R11, R58
    Keywords: Parcs tecnològics, Localització industrial, Economia regional, Empreses -- Creixement, Innovacions tecnològiques -- Aspectes econòmics, 332 - Economia regional i territorial. Economia del sòl i de la vivenda,
    Date: 2016
  4. By: Robert C. Dent; Fatih Karahan; Benjamin Pugsley; Aysegul Sahin
    Abstract: The U.S. economy has been going through a striking structural transformation—the secular reallocation of employment across sectors—over the past several decades. We propose a decomposition framework to assess the contributions of various margins of firm dynamics to this shift. Using firm-level data, we find that at least 50 percent of the adjustment has been taking place along the entry margin, owing to sectors receiving shares of start-up employment that differ from their overall employment shares. The rest is mostly the result of life cycle differences across sectors. Declining overall entry has a small but growing effect of dampening structural transformation.
    Keywords: structural transformation, employment dynamics, sectoral reallocation
    Date: 2016–01
  5. By: Marco Cucculelli (Università Politecnica delle Marche); Valentina Peruzzi (Università Politecnica delle Marche); Alberto Zazzaro (Università di Napoli Federico II)
    Abstract: In this paper we empirically investigate the effects of active family involvement in the company’s management on bank-firm lending relationships and access to credit. Based on the trade-off between relational and management human capital, we explore whether the relational capital embodied in the family leadership of the company influences the lending relationships with the main bank in terms of information sensitivity and duration. Then, we test whether family firms with family CEOs are more likely to experience a credit restriction from banks than family firms appointing professional CEOs external to the family. Results indicate that family businesses appointing family managers are significantly more likely to maintain soft-information-based and longer-lasting lending relationships. However, having family executives does not have a negative impact on firm’s access to credit, while the creation of soft-information-based and long-lasting lending relationships significantly reduces the likelihood of experiencing credit restrictions. In view of these findings, family relational capital seems to have a univocal beneficial impact on bank-firm relationship in our sample.
    Keywords: Family firm, family CEO, soft-information, relational capital, relationship lending, credit rationing.
    JEL: D22 G21 G22
    Date: 2016–08
  6. By: Mili Naskar (Indira Gandhi Institute of Development Research); Rupayan Pal (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines the implication of the nature of competition in a market with network externalities on strategic investment in process R&D by firms. It shows that network externalities have a positive effect on process R&D, regardless of the nature of product market competition; but, that effect is larger under Bertrand competition than under Cournot competition. If network externalities are sufficiently strong, regardless of the degree of product differentiation, Bertrand firms have a stronger incentive for process R&D than Cournot firms. Otherwise, if network externalities are not sufficiently strong, the higher the degree of product differentiation, the greater is the possibility of Bertrand R&D to be higher than Cournot R&D.
    Keywords: Process R&D, Network Externalities, Cournot, Bertrand, Product Differentiation
    JEL: L13 D43 O31
    Date: 2016–07
  7. By: Coll Martínez, Eva; Moreno Monroy, Ana Isabel; Arauzo Carod, Josep Maria
    Abstract: The aim of this paper is to analyse the spatial patterns of agglomeration and coagglomeration of Creative Industries (CIs) in the Metropolitan Area of Barcelona (MAB). We compare agglomeration patterns of CIs to non-creative ones (Non-CIs) in order to identify specificities in their location patterns at an intra-metropolitan level. We use firms’ geo-located data for 2012 to calculate the distance-based M and m cumulative and density functions of agglomeration and coagglomeration. Our main results show that CIs and Non-CIs have different agglomeration patterns. Concretely, whilst CIs tend to cluster at very small distances, Non-CIs have a more dispersed pattern. Concerning the results of coagglomeration, these reveal that micro CIs and Non-CIs seem to be coagglomerated. Regarding agglomeration patterns of subgroups of CIs, we find that these sectors display high levels of agglomeration individually, and that there is a clear coagglomeration among them in the MAB. Finally, our results emphasise Barcelona’s centre as a magnet for Cultural and CIs. Keywords: creative industries, agglomeration, M function, intra-metropolitan analysis, Barcelona
    Keywords: Creativitat en els negocis -- Barcelona, Economia del coneixement -- Barcelona, Barcelona (Catalunya : Àrea metropolitana) -- Condicions econòmiques, 332 - Economia regional i territorial. Economia del sòl i de la vivenda,
    Date: 2016
  8. By: David Popp
    Abstract: Using an original data set of both scientific articles and patents pertaining to alternative energy technologies, this paper provides new evidence on the flows of knowledge between university, private sector, and government research. Better understanding of the value of knowledge from these institutions can help decision makers target R&D funds where they are most likely to be successful. I use citation data from both scientific articles and patents to answer two questions. First, what information is most useful to the development of new technology? Does high quality science lead to commercial success? I find that this is the case, as those articles most highly cited by other scientific articles are also more likely to be cited by future patents. Second, which institutions produce the most valuable research? Are there differences across technologies? Research performed at government institutions appears to play an important translational role linking basic and applied research, as government articles are more likely to be cited by patents than any other institution, including universities. Universities play a less important role in wind research than for solar and biofuels, suggesting that wind energy research is at a more applied stage where commercialization and final product development is more important than basic research.
    JEL: O38 Q42 Q48 Q55
    Date: 2016–08
  9. By: Marta Bisztray (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: In 1993 Audi opened a new plant in Hungary. This paper examines the long-term effects of this large foreign direct investment on local firms operating in supplier industries. I use firm-level panel data with long time series. Using the method of triple difference-in-differences I compare outcomes of firms in supplier and control industries, close and far from the Audi plant, before and after the entry. My main findings are: (1) after the Audi entry the average annual growth rate of local firms increased by 3 percentage points for sales and 2 percentage points for employment. The effect is visible only five years after the entry of Audi. I find no positive effect on productivity. (2) Firms with foreign owners account for all the positive effect on sales and employment, suggesting a foreign-to-foreign complementarity in investments. Firms with higher productivity gained more. Consequently, the low initial productivity of domestic firms may explain the lack of an effect in this group. (3) New entrants in the supplier industry locating close to Audi are larger and grow faster, suggesting that Audi also had an effect on the extensive margin.
    Keywords: foreign direct investment, vertical spillovers, agglomeration
    JEL: F23 R12
    Date: 2016–06
  10. By: Hsu, Po-Hsuan; Huang, Sterling; Massa, Massimo; Zhang, Hong
    Abstract: This paper examines the incentives for family firms to innovate. We argue that, due to the wealth concentration of major shareholders, family firms are incentivized to diversify their risk through innovation. In particular, family firms use innovation to explore new (as opposed to existing) fields of business. Using a comprehensive sample of U.S. family-owned public firms and patents for the period from 1998 to 2010, we confirm that family ownership is positively (negatively) related to exploratory (exploitative) innovation. Tests based on instrumental variables regression (divorce laws of family firms' headquarter states or neighboring states) and regulatory shocks in inheritance taxes further offer a causal interpretation. Market prices, however, respond negatively to family firms' exploratory innovation, suggesting that such innovation may benefit major shareholders of family firms at the cost of minority shareholders. Our results suggest that risk-mitigation incentives play an important role in affecting innovation strategies, which may have subtle implications for investors in financial markets.
    Keywords: family firms; innovation; innovation strategies; under-diversification
    JEL: G32 O32
    Date: 2016–08
  11. By: Ryan Niladri Banerjee; Kristian S Blickle
    Abstract: We investigate the importance of the housing-based collateral lending channel on firm borrowing, investment and employment. We focus on small firms in France, Italy, Spain and the United Kingdom. To identify a credit supply effect, as opposed to a home-equity driven demand effect, we compare activity in similar firms that differ by the degree of financial opacity, and therefore the degree of their reliance on collateral to overcome borrowing constraints. We find that changing house prices have a more pronounced effect on borrowing, investment and employment in financially more opaque firms. This relationship is particularly strong in southern Europe (Italy and Spain), where financial frictions are larger and the use of collateral more important.
    Keywords: firm financing, capital structure, housing collateral, employment
    Date: 2016–08
  12. By: Francesco Vona (OFCE-SciencesPo, Sophia Antipolis); Giovanni Marin (IRCrES-CNR, Milan); Davide Consoli (INGENIO CSIC-UPV, Valencia)
    Abstract: This paper explores the nature and the key empirical regularities of green employment in US local labor markets between 2006 and 2014. We construct a new measure of green employment based on the task content of occupations. Descriptive analysis reveals the following: 1. the share of green employment oscillates between 2 and 3 percent, and its trend is strongly pro-cyclical; 2. green jobs yield a 4 percent wage premium; 3. despite moderate catching-up across areas, green jobs remain more geographically concentrated than similar non-green jobs; and 4. the top green areas are mostly high-tech. As regards the drivers, changes in environmental regulation are a secondary force compared to the local endowment of green knowledge and resilience in the face of the great recession. To assess the impact of moving to greener activities, we estimate that one additional green job is associated with 4.2 (2.4 in the crisis period) new jobs in non-tradable activities in the local economies.
    Keywords: Green Employment, Local Labor Markets, Environmental Regulation, Environmental Technologies, Local Multipliers
    JEL: J23 O33 Q52 R23
    Date: 2016–07
  13. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University)
    Abstract: This study considers public education policy and its impact on growth and wel- fare across generations. In particular, the study compares two scal perspectives| tax nance and debt nance|and shows that in a competitive equilibrium context, the growth and utility in the debt- nance case could be higher than those in the tax- nance case in the long run. However, the opposite occurs when the policy is shaped by politics. When the degree of parents' altruism is low, they choose debt nance in their voting, despite its long-run worse performance because a current generation can pass the cost of debt repayment to future generations.
    Keywords: Economic growth, Human capital, Public debt, Political equilib- rium
    JEL: D70 E24 H63
    Date: 2016–01
  14. By: Vincent Vicard (Banque de France); Vincent Rebeyrol (Toulouse School of Economics); Nicolas Berman (Graduate Institute of International and)
    Abstract: This paper provides evidence that learning about demand is an important driver of firms’ dynamics. We present a model of Bayesian learning in which firms are uncertain about their idiosyncratic demand in each of the markets they serve, and update their beliefs as noisy information arrives. Firms are predicted to update more their beliefs the younger they are. Guided by the model, we use exporter-level data to identify separately the idiosyncratic demand shocks and the firms’ beliefs about future demand. The learning process appears stronger for younger firms and weaker in more uncertain environments. Further, accumulated knowledge decays during exit periods. The updating process generates a decline in growth rate with age conditional on size. Firm exit behavior is also consistent with the theory: the exit probability decreases with the firms’ beliefs and the demand shocks the firm faces, and demand shocks trigger more exit in younger cohorts.
    Date: 2016
  15. By: Dany Brouillette; Olena Kostyshyna; Natalia Kyui
    Abstract: We assess the importance of downward nominal wage rigidity (DNWR) in Canada using both firm- and worker-level microdata. In particular, we analyze employer-level administrative data from the Major Wage Settlements (MWS) and household-based survey data from the Survey of Labour Income Dynamics (SLID). MWS data cover large unionized firms in Canada, while SLID is a rich rotating panel representative of the employed population in Canada. Combining both sources of information allows for a more extensive analysis of DNWR in the Canadian labour market. The results suggest that, on average, the effects of DNWR added about 0.2 to 0.4 percentage points to wage growth between 1994 and 2011; as well, the estimated effects increased in the years following the Great Recession in 2008–09. That includes a higher proportion of workers affected by DNWR (which rose from 16 to 32 per cent) and a larger impact on average wage growth. DNWR’s effects on average wage growth were also much stronger during periods of lower CPI inflation in Canada and are positively related to provincial unemployment rates. Finally, we provide an extensive analysis of the heterogeneity in the effects of DNWR. For example, its impact is more pronounced among smaller firms, lower occupational levels, immigrants and older workers. Overall, population ageing and an increasing proportion of immigrants may continue to increase the effects of DNWR in Canada, while the continuing shift toward service industries, declining unionization rates and the increasing educational attainment of the Canadian population may reduce them.
    Keywords: Econometric and statistical methods, Labour markets
    JEL: J3 E24 J30
    Date: 2016
  16. By: Patrick Legros; Andrew F. Newman; Eugenio Proto
    Abstract: We model technological progress as an external effect of organizational design, fo- cusing on how factories, based on labor division, could spawn the industrial revolution. Dividing labor, as Adam Smith argued, facilitates invention by observers of production processes. However, entrepreneurs cannot internalize this benefit and choose labor di- vision to facilitate monitoring. Equilibrium with few entrepreneurs features low wage shares, high specialization, but a limited market for innovations. Conversely, with many entrepreneurs there is a large market for innovation, but little specialization be- cause of high wage shares. Technological progress therefore occurs with a moderate scarcity of entrepreneurs. Institutional improvements affect growth ambiguously.
    Keywords: factory system, industrial revolution, technological change, contracts
  17. By: Timothy Kehoe (University of Minnesota); Sewon Hur (University of Pittsburgh); Kim Ruhl (New York University Stern School of Busi); Jose Asturias (Georgetown University)
    Abstract: Using plant-level data from Chile and Korea, we find that, during episodes of rapid growth, most of the aggregate productivity growth is due to the entry and exit of firms while, during episodes of slower growth, it is mostly due to growth within and across existing firms. Studies for other countries suggest that this is an empirical regularity. We develop a dynamic general equilibrium model based on Hopenhayn (1992) which incorporates the theory of economic growth proposed by Parente and Prescott (1994) and Kehoe and Prescott (2002). In this model, new firms enter every period with productivities drawn from a distribution whose mean grows over time. After entering, a firm’s productivity grows, but not as rapidly as new firms’ productivity distribution. In a version of the model calibrated to U.S. plant-level data, we simulate two sets of reforms: a decrease in new firms’ costs of entry and a reduction in the barriers to technology adoption for new firms. The model reproduces the regularity that we observe in the data, and confirm that entry and exit of firms is crucial for reforms to generate rapid growth.
    Date: 2016
  18. By: Tenzin Yindok (Simon Fraser University); Alexander Karaivanov (Simon Fraser University)
    Abstract: We build and structurally estimate an occupational choice model between entrepreneurial and non-entrepreneurial alternatives. Unlike much of the literature, we explicitly model and distinguish between "involuntary" entrepreneurship, i.e., running own business out of necessity vs. running business because this is income-maximizing. Involuntary entrepreneurship arises for those who prefer the non-business occupation (e.g., wage-work) but cannot obtain it (with some probability that we estimate), due to lack of education, qualifications, or other labor market frictions. We also allow for credit constraints and analyze their interaction with the labor constraint. We estimate the model via GMM using the 2005 Townsend Thai urban survey. We find that 16% of all business households are classified as involuntary entrepreneurs. We use the structural estimates to evaluate the effect of relaxing the credit and labor constraints, and the impact of microcredit on the rate of entrepreneurship (voluntary and involuntary) and income, on average and stratified by wealth and schooling. Our results suggest that there are large potential income gains for poor households from relaxing both the labor and credit constraints or from providing access to microcredit, but the fraction of involuntary entrepreneurs can only be significantly reduced by addressing the labor constraint.
    Date: 2016

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