nep-sbm New Economics Papers
on Small Business Management
Issue of 2017‒08‒27
eight papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. The Real Effects of Improving Access to Capital Markets Financing: Evidence from European SMEs By Eisele, Alexander; Nowak, Eric
  2. Business cycles, innovation and growth: welfare analysis By Marcin Bielecki
  3. Look Who’s Talking: On the Heterogeneous Returns to Foreign Language Use at Work among Natives and Migrants in Europe By Wang, Zhiling; de Graaff, Thomas; Nijkamp, Peter
  4. Employment in family firms: Less but safe? Analyzing labor demand of German family firms with a treatment model for panel data By Kölling, Arnd
  5. Enforceability of non-complete agreements : When does state stifle productivity? By Anand, Smriti; Hasan, Iftekhar; Sharma, Priyanka; Wang, Haizhi
  6. Innovation, inequality and the skill premium By Riccardo Leoncini
  7. How do Tax Incentives A ect Investment and Productivity? Firm-Level Evidence from China By Yongzheng Liu; Jie Mao
  8. Moral Hazard and Investment-Cash-Flow Sensitivity By Rui Li; Kai Li; Hengjie Ai

  1. By: Eisele, Alexander; Nowak, Eric
    Abstract: Due to crisis-ridden banks and new regulation (Basel III, IFRS, Mifid), there was a significant growth in innovative financing sources for SMEs in recent years. This paper uses the introduction of SME equity and bond segments as quasi-exogenous shocks and studies their effect on firm behavior. First, we find that the introduction of dedicated equity segments for SMEs increases their equity financing significantly (around 6% in relative terms). Equivalently, the introduction of SME bond segments increases bond financing of SMEs significantly (around 9.5% in relative terms). Our results suggest a positive complementarity of introducing SME bond and equity segments, as higher disclosure costs can be leveraged across segments. Second, we document significant real effects. In line with theory, an easier access to external finance increases investment and decreases the amount of cash holdings.
    Keywords: equity capital markets; finance innovations; SME financing
    Date: 2017–08
  2. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw)
    Abstract: Endogenous growth literature treats deliberate R&D effort as the main engine of long-run growth. It has been already recognized that R&D expenditures are procyclical. This paper builds a microfounded model that generates procyclical aggregate R&D investment as a result of optimizing behavior by heterogeneous monopolistically competitive firms. I find that business cycle fluctuations affect the aggregate endogenous growth rate of the economy so that transitory shocks leave lasting level effects on the economy’s Balanced Growth Path. This result stems from both procyclical R&D expenditures of the incumbents and procyclical firm entry rates. This mechanism generates economically significant hysteresis effects, increasing the welfare cost of business cycles by two orders of magnitude relative to the exogenous growth model. Coupled with potential to affect endogenous growth rates, ample space for welfare improving policy interventions arises. The paper evaluates the effects of selected subsidy schemes and finds some of them welfare improving.
    Keywords: business cycles, firm dynamics, innovation, growth, welfare analysis
    JEL: E32 E37 L11 O31 O32 O38 O40
    Date: 2017
  3. By: Wang, Zhiling; de Graaff, Thomas; Nijkamp, Peter
    Abstract: We examine the heterogeneous impacts of foreign language use at work on earnings of both native-born workers and foreign-born workers, using a longitudinal survey, viz. the European Community Household Panel (ECHP) running from 1994 to 2001. Our findings are the following. First, for native-born workers with a tertiary diploma, using a foreign language at work is found to have an unambiguously positive impact on their earnings (2% on average). Second, for foreign-born workers, returns to foreign language use at work is highly complementary to education. Foreign language users below the upper secondary educational level earn significantly less (¡8%) than those who use the local language at work. Third, with regard to language types, a linguistically distant foreign language gives native-born workers the highest wage premium, while the use of EU official languages pays off the most for foreign-born workers. Fourth, our results do not show evidence that the lack of local language knowledge of low-educated migrants causes these results, as immigrants for whom themother tongue is similar to the local language show a similar pattern.
    Keywords: foreign language at work,earnings,native-born,foreign-born
    JEL: J24 J31 J61
    Date: 2017
  4. By: Kölling, Arnd
    Abstract: This paper analyzes the differences in labor demand and labor turnover between family and nonfamily firms. The majority of firms in modern economies and, therefore, also in Germany are family controlled. These firms seem to have better employment performance than non-family controlled companies. Therefore, this study applies a treatment model for panel data using family firms as a treatment indicator. Moreover, a propensity score estimation is introduced to the model to control for selectivity. The results of the estimations indicate that labor demand is possibly larger because of family members joining the firms as extra employees. Moreover, labor turnover is lower, thus supporting the assumption that family firms offer some kind of implicit contracts to their employees and are more loss averse than other establishments. However, evidence of these results for establishments with 20 or more employees is generally weaker, indicating that the differences between both types of firms decrease with firm size.
    Keywords: Labor Demand,Family Firms,Firm Size,Treatment Model,Panel Data
    JEL: J23 D22 G32 C21 C23
    Date: 2017
  5. By: Anand, Smriti; Hasan, Iftekhar; Sharma, Priyanka; Wang, Haizhi
    Abstract: Non-compete agreements (also known as Covenants Not to Compete or CNCs) are frequently used by many businesses in an attempt to maintain their competitive advantage by safeguarding their human capital and the associated business secrets. Although the choice of whether to include CNCs in employment contracts is made by firms, the real extent of their restrictiveness is determined by the state laws. In this paper, we explore the effect of state level CNC enforceability on firm productivity. We assert that an increase in state level CNC enforceability is detrimental to firm productivity, and this relationship becomes stronger as comparable job opportunities become more concentrated in a firm’s home state. On the other hand, this negative relationship is weakened as employee compensation tends to become more long-term oriented. Results based on hierarchical linear modeling analysis of 21,134 firm-year observations for 3,027 unique firms supported all three hypotheses.
    JEL: J61 K2 O31
    Date: 2017–08–16
  6. By: Riccardo Leoncini (Freiburg Institute for Advanced Studies (FRIAS), University of Freiburg (D); Research Institute on Sustainable Economic Growth (IRCrES), National Research Council, Milan (I); AlmaMater University of Bologna (I).)
    Abstract: The relationship between innovation and inequality is analysed on a panel of 148 countries for a 50 year span, from 1963-2012. A non linear relationship is found that links innovation to inequality, and which appears to be rather different whether variables representing either input or output of innovative effort are considered. In both cases in fact there appears to be a threshold that once is overcame reverses the relationship. In particular, in the case of innovative inputs a positive relationship with inequality reverses once the threshold is crossed, while the opposite holds for innovative outputs, for which the relationship is initially negative to become positive as, for instance, the number of patents increases over a certain threshold. It is nally possible to exploit these di erent patterns, to provide a truly innovation-based analysis of the patterns of skill premium for US, France, Germany and Great Britain. In all these case, the ratio of R&D to Patents shows a robust negative relationship with the skill premium. In particular, when the ratio of R&D to Patents is low (implying a relatively high overall level of appropriability) increasing patterns of the skill premium result. The opposite happens when the ratio is high (implying a relatively low appropriability level), determining a decrease in the skill premium.
    Keywords: innovation, income inequality, skill premium
    JEL: O33 D63 J24
    Date: 2017–08
  7. By: Yongzheng Liu (School of Finance, Renmin University of China); Jie Mao (Department of Public Finance and Taxation, School of International Trade and Economics, University of International Business and Economics)
    Abstract: China initiated a critical value-added tax reform in 2004. Completed in 2009, it introduced permanent tax credit for firms' investment in fixed assets. We use a quasi-experimental design and a unique firm-level dataset covering all sizes of firms across a broad range of sectors and regions between 2005 and 2012, to test whether the reform promoted firms' investment and productivity. We estimate that on average, the reform raised investment and productivity of the treated firms relative to the control firms by 8.8 percent and 3.7 percent, respectively. We also show that the positive effects tend to be strengthened for firms with financial constraints.
    Date: 2017–08
  8. By: Rui Li (University of Massachusetts Boston); Kai Li (Hong Kong University of Science and Technology); Hengjie Ai (University of Minnesota)
    Abstract: We develop a dynamic model of investment with moral hazard to provide a micro-foundation for financing constraints. In the model, standard investment-cash-flow sensitivity regressions will find a small coefficient on Tobin's Q and a large and significant coefficient on cash flow. Our calibration replicates the empirical fact that larger and more mature firms are less financially constrained but have higher investment-cash-flow sensitivity. Our theory therefore resolves the long-standing puzzle of the existence of the investment-cash-flow sensitivity and the seemingly weak relationship between investment-cash-flow sensitivity and the severity of financing constraints documented by Kaplan and Zingales (1997) and many others.
    Date: 2017

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