nep-sbm New Economics Papers
on Small Business Management
Issue of 2016‒11‒13
fifteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. High Growth Young Firms: Contribution to Job, Output and Productivity Growth By John Haltiwanger; Ron S Jarmin; Robert Kulick; Javier Miranda*
  2. Taking the Leap: The Determinants of Entrepreneurs Hiring their First Employee By Robert W. Fairlie; Javier Miranda
  3. Innovation, Competition and Technical Efficiency By Elina Berghäll
  4. Portuguese Startups: a success prediction model By Daniela Santos da Silva; António Cerqueira; Elísio Brandão
  5. Information Asymmetry Reduction in Opaque Contexts: Evidence From Debt and Outside Equity Financing in Early Stage Firms By Mircea Epure; Martí Guasch
  6. The EU 2020 innovation indicator: A step forward in measuring innovation outputs and outcomes? By Janger, Jürgen; Schubert, Torben; Andries, Petra; Rammer, Christian; Hoskens, Machteld
  7. Effect of Family Control on Corporate Financing Decisions: A Case of Pakistan By Imran Yousaf; Arshad Hassan
  8. On the relation between patent citations and patent value By Jurriën Bakker
  9. Has the German reunification strengthened Germany's national innovation system? Triple helix dynamics of Germany's innovation system By Yi, Sæung-gyu; Jun, Bogang
  10. Foreign ownership and performance: evidence from a panel of Italian firms By Chiara Bentivogli; Litterio Mirenda
  11. Natural resource knowledge idiosyncrasy, innovation, industry dynamics, and sustainability By Allan Dahl Andersen; Olav Wicken
  12. Celebrating 30 years of innovation system research: What you need to know about innovation systems By Klein, Malte; Sauer, Andreas
  13. Start-Up Capital and Women's Entrepreneurship: Evidence from Swaziland By Zuzana Brixiová; Thierry Kangoye
  14. Should I stay or should I go? Firms’ mobility across banks in the aftermath of financial turmoil By Davide Arnaudo; Giacinto Micucci; Massimiliano Rigon; Paola Rossi
  15. Entrepreneurship in the Shadows: Wealth Constraints and Government Policy By Semih Tumen

  1. By: John Haltiwanger; Ron S Jarmin; Robert Kulick; Javier Miranda*
    Abstract: Recent research shows that the job creating prowess of small firms in the U.S. is better attributed to startups and young firms that are small. But most startups and young firms either fail or don’t create jobs. A small proportion of young firms grow rapidly and they account for the long lasting contribution of startups to job growth. High growth firms are not well understood in terms of either theory or evidence. Although the evidence of their role in job creation is mounting, little is known about their life cycle dynamics, or their contribution to other key outcomes such as real output growth and productivity. In this paper, we enhance the Longitudinal Business Database with gross output (real revenue) measures. We find that the patterns for high output growth firms largely mimic those for high employment growth firms. High growth output firms are disproportionately young and make disproportionate contributions to output and productivity growth. The share of activity accounted for by high growth output and employment firms varies substantially across industries – in the post 2000 period the share of activity accounted for by high growth firms is significantly higher in the High Tech and Energy related industries. A firm in a small business intensive industry is less likely to be a high output growth firm but small business intensive industries don’t have significantly smaller shares of either employment or output activity accounted for by high growth firms.
    Date: 2016–01
  2. By: Robert W. Fairlie; Javier Miranda
    Abstract: Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of startups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a non-employer to employer firm among startups. Several interesting patterns emerge regarding the dynamics of non-employer startups hiring their first employee. Hiring rates among the universe of non-employer startups are very low, but increase when the population of non-employers is focused on more growth-oriented businesses such as incorporated and EIN businesses. If non-employer startups hire, the bulk of hiring occurs in the first few years of existence. After this point in time relatively few non-employer startups hire an employee. Focusing on more growth- and employment-oriented startups in the KFS, we find that Asian-owned and Hispanic-owned startups have higher rates of hiring their first employee than white-owned startups. Female-owned startups are roughly 10 percentage points less likely to hire their first employee by the first, second and seventh years after startup. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that non-employers hire their first employee.
    Date: 2016–01
  3. By: Elina Berghäll
    Abstract: Contradictory empirical and theoretical evidence on the relationship between innovation and competition has been reconciled in a model that yields an inverted U-shaped curve. I test whether the predictions of the model are supported by the data with an unbalanced panel of firms for 1990-2003 in a high productivity growth, high-tech industry, Finnish ICT manufacturing. In particular, I investigate how well alternative, yet rigorous measures of innovation and the technology gap, such as R&D intensity, R&D elasticity, technical change, technical efficiency and total factor productivity fare with respect to competition measured by the Lerner index. The results prove sensitive to the choice of variable. Overall, the model is not supported by the empirical evidence of the industry.
    Keywords: competition, innovation, technical efficiency, technology frontier, R&D intensity
    JEL: O25 L50 L60 D20 O30
    Date: 2016–10–12
  4. By: Daniela Santos da Silva (FEP-UP, School of Economics and Management, University of Porto); António Cerqueira (FEP-UP, School of Economics and Management, University of Porto); Elísio Brandão (FEP-UP, School of Economics and Management, University of Porto)
    Abstract: This study analyses the factors that influence the success of Portuguese startups. It aims to develop a success versus failure prediction model regarding the Portuguese entrepreneurship ecosystem. Our empirical study considers four categories that influence the success: characteristics of founders, characteristics of startups, capital and external factors. The sample includes 50 startups established over the period from 2003 to 2015 in Portugal. The explanatory variables that we use are management experience, industry experience, marketing skills, age, education, parents that have their own business (characteristics of founders), capital (capital), record keeping and financial controls, planning, professional advisors, staff, partners, product or service timing (characteristics of startups) and economic timing (external factors). The empirical results show that only the founder’s characteristics and external factors have a significant influence in Portuguese startups success. Portuguese startups with young founders, less than 25 years old, and founders with less education, high school education or less, are more likely to be unsuccessful cases. However, and contrarily to the previous literature, marketing expertise is negatively correlated with the success of startups Overall, the success and failure prediction model presents an ability to accurately predict a specific Portuguese startup as success or failure of 82%.
    Keywords: startup, entrepreneurship, logit model, success, failure, prediction model
    JEL: L25 L26 M13
    Date: 2016–11
  5. By: Mircea Epure; Martí Guasch
    Abstract: This study analyzes the relationship between debt and outside equity investments in early stage firms. The existing evidence on this relationship is scarce and inconclusive, mostly due to the pervasive opaqueness of early stage firms. We argue that outside investors who face the severe information asymmetries that exist in entrepreneurial firms may use the level of debt as a signal. In addition, personal and business debt could signal different information to outside investors. We use the Kauffman Firm Survey and develop an empirical strategy based on a Heckman selection model and a propensity score matching analysis. Our results consistently show that debt, and particularly business debt, is positively related to outside equity investments, especially in times of economic distress. We posit that start-ups with higher levels of business debt can send more credible signals to capital markets, and identify cash holdings and the firm-bank relationship as possible information channels for outside investors.
    Keywords: financing; debt; equity; entrepreneurship; information asymmetry; capital structure
    JEL: G32 M13 M40
    Date: 2016–11
  6. By: Janger, Jürgen; Schubert, Torben; Andries, Petra; Rammer, Christian; Hoskens, Machteld
    Abstract: In October 2013, the European Commission presented a new indicator intended to capture innovation outputs and outcomes and thereby "support policy-makers in establishing new or reinforced actions to remove bottlenecks that prevent innovators from translating ideas into products and services that can be successful on the market". This article aims to evaluate the usefulness of the new indicator against the background of the difficulties in measuring innovation outputs and outcomes. We develop a unique conceptual framework for measuring innovation outcomes that distinguishes structural change and structural upgrading as two key dimensions in both manufacturing and services. We conclude that the new indicator is biased towards a somewhat narrowly defined "high-tech" understanding of innovation outcomes. We illustrate our framework proposing a broader set of outcome indicators capturing also structural upgrading. We find that the results for the modified indicator differ substantially for a number of countries, with potentially wide-ranging consequences for innovation and industrial policies.
    Keywords: Innovation Output,Innovation Outcome,Innovation Measurement,Structural Change,Structural Upgrading,EU 2020 Strategy,Innovation Policy
    JEL: O25 O31 O38 O52
    Date: 2016
  7. By: Imran Yousaf (Pakistan Institute of Development Economics, Islamabad); Arshad Hassan (Capital University of Science and Technology, Islamabad)
    Abstract: This study aims to examine the effect of family control on the corporate financing decision of firms in Pakistan. This sample of study comprises of 100 non financial firms that are listed on Karachi Stock Exchange. This study uses the annual financial data from 2005 to 2012. The study findings of univariate analysis show that a significant difference exists between family and non family firms on the basis of many characteristics of firms. The results of multivariate analysis demonstrate that family firms maintain significantly high “total debt ratio” and “short term debt ratio” as compare to non family firms. There are two reasons of maintaining high debt ratio by family firms as compare to non family firms. First, Family firms don’t want to dilute their ownership and that’s why family firms fulfil their major financing need from debt instead of issuing new share to extract financing from market. Second, family firms in Pakistan use extra cash flows for their private benefits. In result of this, family firm need more external finance (as compare to non family firms) in form of debt to fulfil the financing needs of the firm.
    Keywords: Capital Structure, Family Ownership, Family Firm, Leverage, Dilute Ownership
    Date: 2016
  8. By: Jurriën Bakker
    Abstract: This paper reports the results of an analysis of patent citation and patent renewal data, advancing a log-linear relation between patent citations and patent value. A complementary analysis of firms’ patent portfolios confirms that modelling the relation between citations and firm value benefits from the adoption of the log-linear form.
    Keywords: patent citations, patent value, patent renewal, Tobin’s Q
    Date: 2016–10
  9. By: Yi, Sæung-gyu; Jun, Bogang
    Abstract: This paper investigates whether the German reunification strengthened the country's national innovation system, using the Triple Helix model. In particular, it assesses the various dimensions of the innovation system by analyzing co-authorship networks from 1973 to 2014. Despite the series of policies promoting collaboration between the two regions and the rise in the number of regional collaborations and in the number of papers, the results show that the national innovation system of Germany has worsened since the reunification in 1990, and the role of government is critical in encouraging collaboration. Finally, this paper uses survey data on the type of Triple Helix configuration that actually occurred in East Germany as a robustness check.
    Keywords: Triple Helix model,German reunification,National innovation system
    Date: 2016
  10. By: Chiara Bentivogli (Bank of Italy); Litterio Mirenda (Bank of Italy)
    Abstract: The paper studies the impact of foreign ownership on a firm’s economic performance. We use a unique panel dataset to test the foreign ownership premium by comparing our sample of firms based in Italy and owned by a foreign subject with a sample of purely domestic firms that, in order to have a proper counterfactual, were selected using propensity score matching. Our difference-in-differences results show the existence of a premium for the size, profitability and financial soundness of the foreign-owned companies. The premium increases with time, is concentrated in the service sector, and disappears if the foreign investor is based in a fiscal haven.
    Keywords: multinational enterprise, ownership, foreign direct investment, firm performance
    JEL: F23 F61
    Date: 2016–10
  11. By: Allan Dahl Andersen (TIK Centre, University of Oslo); Olav Wicken (TIK Centre, University of Oslo)
    Abstract: Natural resource based industries (NRBIs) have received only limited attention in Innovation Studies. In this paper we explore how qualitative diversity of ecological and geological conditions influence innovation—a phenomenon we denote natural resource knowledge idiosyncrasy (NKI)—as one particular aspect of change in NRBIs. We find that the dominant thinking in Innovation Studies about innovation and industry change—which is largely informed by studies of high-tech manufacturing industries—does not allow us to achieve a full understanding of change in NRBIs. To advance our thinking about NRBIs we propose a definition of NKI, a conceptualization of how NKI influence innovation and industry change, and explore implications of the latter for strategies for resource based development and sustainability in natural resources. Lastly, we argue that a new model of innovation is required for grasping and guiding innovation and transformation in NRBIs.
    Date: 2016–11
  12. By: Klein, Malte; Sauer, Andreas
    Abstract: On the occasion of the 30th anniversary of Innovation System research, this paper presents an extensive literature review on this large field of innovation research. Building on an analytical basis of the commonalities "system" and "innovation", the authors analyze the four main Innovation System approaches: National Innovation Systems (NIS), Regional Innovation Systems (RIS), Sectoral Innovation Systems (SIS) and Technological Innovation Systems (TIS). The analysis is structured systematically along ten comprehensive criteria. Starting with the founder(s) of each theory and the research program within each Innovation System approach was developed (1), the basic thoughts of each Innovation System approach are explained (2). For five case studies most cited (3), spatial boundaries are examined (4) and units of analyses are derived (5). By comparing the underlying theoretical concept and empirical results, the authors show patterns in the evolution of Innovation System research overall. By studying the basic components (6) and a functional analysis (7), each Innovation System approach is broken down into structural pieces and functional processes. If available, the authors present one or several taxonomies (8) for each Innovation System approach and summarize similar approaches (9), in order to classify and integrate the approaches into the ongoing innovation research. The identification of further research (10) shows which steps will need to be taken in the next years in order to evolve Innovation System research further and deeper. After the conclusion, the extensive table of comparison is presented which can serve as a guideline for academics and practitioners from basic and applied science, industry or policy that need to understand which Innovation System approach may be best for their specific analytical purposes.
    Keywords: Innovation System,National Innovation System,Regional Innovation System,Sectoral Innovation System,Technological Innovation System
    Date: 2016
  13. By: Zuzana Brixiová (SALDRU, University of Cape Town); Thierry Kangoye (African Development Bank)
    Abstract: This paper examines gender differences in entrepreneurial performance and their links with start-up capital utilizing a search model and empirical analysis of survey of entrepreneurs from Swaziland. The results show that entrepreneurs of both genders with higher start-up capital record better sales performance than those with smaller amounts of capital. For women entrepreneurs, formal finance sources of start-up capital are also associated with higher sales. However, as in other developing countries, women entrepreneurs in Swaziland have smaller start-up capital and are less likely to fund it from formal sources than men. Among women entrepreneurs, those with college education and confident in their skills tend to start their firms with higher amounts of capital. Professional support also matters, as women with such support are more likely to fund their start-up capital from the formal financial sector.
    Keywords: women's entrepreneurship, start-up capital, search model, multivariate analysis
    JEL: L53 O12 C61
    Date: 2016
  14. By: Davide Arnaudo (Bank of Italy); Giacinto Micucci (Bank of Italy); Massimiliano Rigon (Bank of Italy); Paola Rossi (Bank of Italy)
    Abstract: We study the mobility of Italian firms across different lending banks in the aftermath of Lehman Brothers’ collapse, when 40 per cent of the firms analysed changed their pool of lending banks. Using a unique dataset on a sample of about 3,000 Italian firms that encompasses financial and economic records, information on the existence of credit constraints and data on lending relationships with banks, we provide evidence that mobility within the credit market helped to ease credit constraints. Firms that started new banking relationships were able to maintain or even increase their outstanding loans. These firms were generally large and credit-rationed. At the same time, access to new credit lines was more difficult for small and more opaque firms, for which a long-term relationship with their main bank has been the most effective way of overcoming financial constraints. Geographical proximity is also important in affecting credit constraints: the closer the firms are to the lending banks, the lower is the probability of their closing an existing credit relationship and start a new one.
    Keywords: financial crisis, mobility in the credit market, relationship lending
    JEL: G01 G21 G32
    Date: 2016–10
  15. By: Semih Tumen
    Abstract: I develop a dynamic model of forward-looking entrepreneurs, who decide whether to operate in the formal economy or informal economy and choose how much to invest in their businesses, taking government policy as given. The government has access to two policy tools: taxes on formal business activity and enforcement (or policing) discouraging informality. The main focus of the paper is on transitional dynamics under different initial wealth levels. Whether an initially small business will be trapped in the informal economy and remain small forever or grow quickly and become a large formal business depends on tax and enforcement policies. High tax rates accompanied by loose enforcement—which is mostly the case in less-developed countries (LDCs)—induce tax avoidance, discourage investment in formal businesses, and drive the entrepreneurial activity toward the informal sector even though the initial wealth level is high. Lowering taxes on formal activity joined with strict enforcement can help reducing the magnitude of poverty traps in LDCs—such as the MENA region, Latin America, and developing Asia.
    Keywords: Entrepreneurship, Informal economy, Government policy, Investment, Wealth constraints
    JEL: E21 E26 L26 O17
    Date: 2016

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