nep-sbm New Economics Papers
on Small Business Management
Issue of 2018‒09‒10
sixteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Measuring and Examining Innovation in Philippine Business and Industry By Albert, Jose Ramon G.; Llanto, Gilberto M.; Serafica, Ramonette B.; Vizmanos, Jana Flor V.; Quimba, Francis Mark A.; Bairan, Jose Carlos Alexis C.
  2. Innovation, Knowledge Diffusion, and Selection By Danial Lashkari
  3. Exporting a Bit Faster: The Long-Run Performance of Born Globals in Computing By Ferguson, Shon; Henrekson, Magnus
  4. Skill variety in entrepreneurship: A literature review and research directions By Krieger, Alexander; Block, Joern; Stuetzer, Michael
  5. Innovating for the Better? The Role of Advocacy Group Work Experience for Employee Pay By Grimpe, Christoph; Kaiser, Ulrich; Sofka, Wolfgang
  6. Financing Ventures By Jeremy Greenwood; Juan Sanchez; Pengfei Han
  7. European Funds and Firm Dynamics: Estimating Spillovers from Increased Access By Pereira dos Santos, João; Tavares, José
  8. Putting China in perspective: a comparative exploration of the ascent of the Chinese knowledge economy By Rodríguez-Pose, Andrés; Wilkie, Callum
  9. Can Government Intervention Make Firms More Investment-Ready? A Randomized Experiment in the Western Balkans By Cusolito, Ana Paula; Dautovic, Ernest; McKenzie, David J.
  10. The Effect of Foreign Cash Holdings on Internal Capital Markets and Firm FInancing By De Simone, Lisa; Lester, Rebecca
  11. Inter-firm Transaction Networks and Location in a City By OTAZAWA Toshimori; OHIRA Yuki; Jos VAN OMMEREN
  12. A mathematical toy model of R&D process. How this model may be useful in studying territorial development By Angelo Bonomi
  13. Self-Employment Dynamics and the Returns to Entrepreneurship By Eleanor Dillon; Christopher Stanton
  14. Financing innovation: two models of private equity investment By Laure-Anne Parpaleix; Kevin Levillain; Blanche Segrestin
  15. Reviving American Entrepreneurship? Tax Reform and Business Dynamism By Sedlacek, Petr; Sterk, Vincent
  16. A Patent Mining Approach for Technological opportunity Analysis in the Telehealth Industry By Juite Wang; Chun-Hao Huang

  1. By: Albert, Jose Ramon G.; Llanto, Gilberto M.; Serafica, Ramonette B.; Vizmanos, Jana Flor V.; Quimba, Francis Mark A.; Bairan, Jose Carlos Alexis C.
    Abstract: Innovation involves implementing new or significantly improved goods and services, production processes, marketing, or organizational methods for adding value. The measurement of innovation provides a mechanism for benchmarking national performance, as well as allows a better understanding of its relation to economic growth. Further, examining determinants and bottlenecks to innovation among firms provides inputs to mainstreaming of policies on innovation. In this paper, results of the 2015 Survey of Innovation Activities, conducted by the Philippine Institute for Development Studies, are described and discussed. Survey results suggest that less than half of the firms in the country were innovators, with larger-sized firms innovating more than the micro, small, and medium establishments. The most common innovative behavior among firms was process innovation. Effects of innovation were observed to be largely customer-driven. Firms identified cost factors as the most important barrier to innovation. Knowledge and cooperation networks for innovation need strengthening. Government support and its role on innovation was also limited. Firms hardly accessed technical assistance from the government and research institutions. Similarly, firms have limited cooperation with the academe in terms of innovation activities. Firms cooperated more internally with establishments within their enterprise, their customers, and suppliers for their innovation activities. Given these issues, the government needs to have a champion for developing stronger policies and interventions to support and encourage innovation. It is also important to improve information dissemination regarding public programs available to assist firms to pursue innovation. Networking, linkages, and collaboration among the government, industry associations, and universities and research institutions also require further enhancement.
    Keywords: innovation, business, Philippines, process innovation, product innovation, organizational innovation, marketing innovation, MSMEs, micro, small, and medium enterprises, 2015 Survey of Innovation Activities of Establishments
    Date: 2018
  2. By: Danial Lashkari (Yale University)
    Abstract: This paper constructs a theory of industry growth through innovation and selection-driven creative destruction. Firms’ ideas determine their productivity and stochastically evolve over time. Firms innovate to improve their ideas and endogenously exit if unsuccessful. Entrants adopt the ideas of incumbents. In this model, when better ideas are innovated or adopted, they selectively replace worse ideas. Innovation externalities vary based on firm productivity: ideas generated by more productive firms create 1) longer-lasting positive externalities due to knowledge diffusion and 2) stronger negative externalities due to dynamic displacement of other firms. Therefore, the net external effect of innovation on aggregate productivity is heterogeneous and market equilibrium misallocates investments across firms. The solution to the social planner's problem suggests that optimal innovation policy instruments should depend on firm productivity. Quantitatively, the misallocations are large when the model is calibrated to firm-level data from US manufacturing and retail trade, and imply first-order considerations for the design of innovation policy.
    Date: 2018
  3. By: Ferguson, Shon (Research Institute of Industrial Economics (IFN)); Henrekson, Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: Policymakers in several countries have recently taken steps to promote the rapid export expansion of high-tech small- and medium-sized enterprises (SMEs). The goal of these policies has been to create successful export-intensive firms, which are often referred to as born globals. To the best of our knowledge, we are the first to study born globals in computing using firm-level register data, which cover the universe of firms in a particular country and sector. Using data on all Swedish computing startups founded 2007–2015, we find a systematic positive relationship between the propensity of a computing firm to reach customers globally via digital platforms and its long-run employment growth relative to domestically-oriented computer firms. We find mixed evidence that born globals in computing grow faster in terms of sales or value added. Our analysis also indicates that very few computing firms fit the profile of born globals; only 15 percent of the 250 largest computing employers in 2015 were born globals. Moreover, only 1.5 percent of computing startups founded 2007–2015 were computer game publishers, which arguably have the highest propensity to be born global. Thus, although we find positive born global effects at the firm level, policymakers must be aware that encouraging more born globals need not necessarily lead to large benefits for the overall economy.
    Keywords: Born globals; Computing industry; Exporting; Firm growth; Globalization; Job creation
    JEL: F14 F23 L25 M13
    Date: 2018–08–10
  4. By: Krieger, Alexander; Block, Joern; Stuetzer, Michael
    Abstract: Lazear’s concept of skill variety has been established in entrepreneurship research and is con-sidered an important extension to human capital theory. The literature on skill variety, its de-terminants and its effects on entrepreneurial outcomes is growing. But especially the literature on determinants of skill variety as well as the relation between gender and skill variety is still in its infancy. Thus, this article takes stock of the academic knowledge collected about skill variety, its outcomes and determinants, its measurement alternatives as well as the role of gender. Overall, it can be summarized that skill variety is an important driver of entrepreneur-ship - above all for the entry-decision into entrepreneurship. The literature on skill variety and entrepreneurial success shows mixed evidence. Looking at the determinants of skill variety, extant literature is scarce. The debate whether the acquisition of skill variety is driven by a purposeful investment strategy or by the possession of certain endowment factors (such as risk aversion or a taste for variety) has not come to a conclusion. Regarding the topic of gender and skill variety, the studies under investigation report negative correlations between being female and skill variety. Measurement alternatives of skill variety used in academic research are diversely and sometimes inconsistently used. This makes it difficult to compare the results of different studies.
    Keywords: Skill variety; Balanced Skills, Literature Review
    JEL: I25 L26 M13
    Date: 2018
  5. By: Grimpe, Christoph (Copenhagen Business School); Kaiser, Ulrich (University of Zurich); Sofka, Wolfgang (Copenhagen Business School)
    Abstract: How valuable is work experience with advocacy groups, e.g. Greenpeace, for new hires of innovative firms? We integrate strategic human capital with stakeholder theory and suggest that this experience creates scarce human capital (knowledge, skills, abilities) facilitating innovations acceptable and legitimate for stakeholders such as regulators or residents. We argue that such human capital is complementary to firm resources and leads to a value surplus. Individuals with advocacy group work experience can subsequently appropriate at least parts of that surplus through higher salaries. Using matched data for 10,303 employees in Denmark, we find that new hires of innovative firms with advocacy group human capital enjoy salary premiums which are stronger in mature and technologically concentrated firms. Our findings have important implications for HR decision making.
    Keywords: resource complementarity, advocacy groups, scarce human capital, stakeholder theory, value creation and capture
    JEL: J24 J6 C21
    Date: 2018–06
  6. By: Jeremy Greenwood (University of Pennsylvania); Juan Sanchez (Federal Reserve Bank of St. Louis); Pengfei Han (University of Pennsylvania)
    Abstract: The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of fi nancing, venture capitalists evaluate the viability of startups. If viable, VCs provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rate, failure rate, investment rate, equity shares, and the value of an IPO. Raising capital gains taxation reduces growth and welfare.
    Date: 2018
  7. By: Pereira dos Santos, João; Tavares, José
    Abstract: We take advantage of a quasi-natural experiment to assess the impact of European funds on firm dynamics in regions that, while not having their status changed, saw their neighbours increased access to European funds. Causality is established in a difference-in-differences intention to treat setting, using a rich dataset that considers the universe of Portuguese mainland municipalities from 2003 to 2010, and controlling for socio-economic, political and demographic variables. Our findings suggest a causal impact of between 1 and 2 percent in private sector firms´ entry and net entry rates, while we find no impact on firm exit rates. We consider time and space placebos to assure the reliability of our estimates. Our findings suggest that EU regional funds have a greater impact in times of distress, such as the world economic crisis, as far as entry rates are concerned. The analysis of the cross-section of firm demonstrates it is domestic owned micro firms in the primary and tertiary sectors that are most impacted by regional funds.
    Keywords: European funds; firm creation; municipalities.; quasi-natural experiment
    JEL: C21 R10
    Date: 2018–07
  8. By: Rodríguez-Pose, Andrés; Wilkie, Callum
    Abstract: This article traces the ascent of China from knowledge economy laggard to world leader over the last two decades, using a comparative perspective. Chinese trends in R&D and patenting are compared to those of the countries of the ‘triad’ (the European Union, Japan and the US), as well as to those of other large emerging economies (Brazil, India, Mexico and South Africa). The analysis demonstrates how both in innovation inputs and outputs China reflects an innovation reality closer to that of the most developed areas of the world than to that of other emerging countries. However, the rapid ascent of Chinese innovation has generated a distinct set of territorial dynamics, with innovation much more geographically concentrated than elsewhere in the world and more reliant on agglomeration forces than on more traditional ‘innovative’ drivers. Such a distinct geography of innovation may have until now facilitated the innovation surge in China, but poses serious future risks in terms of the sustainability of the system.
    Keywords: innovation; knowledge economy; R&D; patenting; regions; China
    JEL: N0
    Date: 2016–11–01
  9. By: Cusolito, Ana Paula; Dautovic, Ernest; McKenzie, David J.
    Abstract: Many innovative start-ups and SMEs have good ideas, but do not have these ideas fine-tuned to the stage where they can attract outside funding. Investment readiness programs attempt to help firms to become ready to attract and accept outside equity funding through a combination of training, mentoring, master classes, and networking. We conduct a five-country randomized experiment in the Western Balkans that works with 346 firms and delivers an investment readiness program to half of these firms, with the control group receiving an inexpensive online program instead. A pitch event was then held for these firms to pitch their ideas to independent judges. The investment readiness program resulted in a 0.3 standard deviation increase in the investment readiness score, with this increase occurring throughout the distribution. Two follow-up surveys show that these judges' scores predict investment readiness and investment outcomes over the subsequent two years. Treated firms attain significantly more media attention, and are 5 percentage points (p.p.) more likely to have made a deal with an outside investor, although this increase is not statistically significant (95 confidence interval of -4.7 p.p., +14.7p.p.).
    Keywords: entrepreneurship; equity investment; Innovation; Investment readiness; randomized controlled trial.; start-ups
    JEL: L26 M13 M2 O12
    Date: 2018–08
  10. By: De Simone, Lisa (Stanford University); Lester, Rebecca (Stanford University)
    Abstract: Prior literature demonstrates that firms should use internal capital before accessing costly external finance. However, prior to 2018, the U.S. repatriation tax imposed an internal capital market friction on U.S. multinational firms (MNCs), thereby motivating companies to retain cash offshore. We quantify the extent to which U.S. MNCs used domestic financing rather than incur the repatriation tax to meet domestic cash needs. We find that firms with high tax-induced foreign cash have approximately 3.0 percent higher domestic liabilities relative to other MNCs, equivalent to $138.4 million more of domestic debt per firm, or approximately $89.9-$129.0 billion in aggregate. We also show that this effect occurs primarily for the subset of firms financing shareholder payouts, with weaker evidence for financing domestic M&A and R&D activity. The evidence informs expectations of responses to the recent U.S. tax law by quantifying the extent that firms will likely reduce domestic debt with repatriated funds as opposed to the intended responses of increasing domestic investment and employment.
    JEL: F23 G32 G35 H25 M40
    Date: 2018–07
  11. By: OTAZAWA Toshimori; OHIRA Yuki; Jos VAN OMMEREN
    Abstract: This study contributes to the literature on the relationship between geographical and relation-based distances of economic agents. We aim to estimate the causal effect of a firm's position in the inter-firm transaction network on its spatial location within a city. Using micro data of inter-firm financial transactions for non-retail firms in the metropolitan areas of Japan, we demonstrate that the more central firms in transaction networks tend to have smaller inter-firm distances and therefore locate at more accessible places within the city. We also find that the results are robust to alternative specifications both of network centrality measures and spatial accessibility measures. It is also declared that the effect for single establishment firms are much stronger than that for multi-establishment firms. Furthermore, the result shows that this effect is noticeable for young firms in knowledge-intensive industries. The evidence suggests the potential importance of the inter-firm transaction pattern as a determinant of urban spatial configuration.
    Date: 2018–08
  12. By: Angelo Bonomi (CNR-IRCRES, National Research Council, Research Institute on Sustainable Economic Growth, via Real Collegio 30, Moncalieri (TO) – Italy)
    Abstract: This work describes a mathematical application of a technological model of the R&D process, presented in a previous work, with the objective to contribute to a better knowledge of relation between R&D investments and growth. The model considers R&D as an organized flux of knowledge and capitals generating new technologies and a general knowledge exploitable for further R&D activities. The mathematical model makes an oversimplification of the R&D activity considering R&D investments related to number of R&D projects carried out, and economic growth, stagnation or decline, related to the number of new technologies entering in use. The model considers the circulating knowledge in a territory in term of number of information packages generated by R&D projects and external contributions in term of scientific, technical or other knowledge. A combinatory process with all available packages gives the total number of potential innovative ideas, part of them generating R&D project proposals. The ratio between the number of R&D proposals and the total number of potential innovative ideas may be considered related to the innovative system efficiency of the territory. Proposals are selected forming the number of R&D projects effectively carried out following the adopted strategies for financing R&D projects. The number of new technologies entering in use depends on a selection rate of all R&D projects carried out, and the number of new successful technologies with high rates of return of investment depends on a selection rate of all new technologies entering in use. The study considers an application of the model consisting in the introduction of a variable number of initial R&D projects in a territory with various degrees of innovative efficiency resulting or not, after a certain time, in entering in use of new technologies and possible successful technologies. Calculations show that dependence curves, in term of number of carried out R&D projects as a function of the innovative efficiency of the territory, and following dependence of formation or not of new or successful technologies, delimit three specific areas in the diagram corresponding to development, stagnation and decline of the technological asset of the territory. The results of calculations of the model show how complex is the relation between R&D investments and economic growth, characterized by absence or weak growth at level of R&D investments under a critical value, and exponential growth above due to the autocatalytic effect of R&D. This discontinuity resulting by the model calculations is in contrast with assumed continuity of dependence of growth by R&D investments often considered in econometric models.
    Keywords: Technology innovation, Research & development, R&D model, R&D management, Socio-economic growth, Territorial development
    JEL: C6 O31 O32
    Date: 2017–12
  13. By: Eleanor Dillon (Amherst College); Christopher Stanton (Harvard University)
    Abstract: Small business owners and others in self-employment have the option to transition to paid work. If there is initial uncertainty about entrepreneurial earnings, this option increases the expected lifetime value of self-employment relative to pay in a single year. This paper rst documents that moves between paid work and self-employment are common and consistent with experi- mentation to learn about earnings. This pattern motivates estimating the expected returns to entrepreneurship within a dynamic lifecycle model that allows for non-random selection and gradual learning about the entrepreneurial earnings process. The model accurately ts entry patterns into self-employment by age. The option value of returning to paid work is found to constitute a substantial portion of the monetary value of entrepreneurship. The model is then used to evaluate policies that change incentives for entry into self-employment.
    Date: 2018
  14. By: Laure-Anne Parpaleix (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Kevin Levillain (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Blanche Segrestin (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The ability to adapt to fast-paced business change has become critical to firms' competitiveness. Thus, it requires firms to continuously innovate. Extensive research efforts have been conducted to understand the drivers behind a firm's capacity to constantly innovate. If significant advance has been made in the fields of innovation management and design theory, there is still a need for research in finance to integrate these developments. Especially in clarifying the relationship between private equity investment and corporate innovation. Thus, this paper specifically aims at exploring new investment models in private equity to support the development of firm's sustained innovation capabilities. Based on a literature review exploring the existing private equity investment practices and their potential links with innovation, we highlight the main model used by private equity. We show that this model cannot account for the two design regimes (extracted from design theories) required to support innovation capabilities. Therefore, we build a second hypothetical model that could complement the first one to do so. We then conduct an empirical study to assess whether actual private equity funds' practices reflect the use of this second hypothetical model, and if so to refine it. From a managerial point of view, this research contributes to shape new valuation approaches and post-investment strategies that better foster invested firm's innovation capabilities, among which R&D activities.
    Date: 2018–07–02
  15. By: Sedlacek, Petr; Sterk, Vincent
    Abstract: The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous firms model, we investigate the long-run effects of such tax reforms on firm dynamics. We find that they can substantially increase business dynamism, potentially off-setting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform stimulates firm entry, leading to an increase in labor demand and wages, which in turn makes firm selection more stringent. Related to this is a large boost of the number of firms and of aggregate output, investment and employment.
    JEL: D21 E22 E24 H25
    Date: 2018–07
  16. By: Juite Wang (Graduate Institute of Technology Management, National Chung Hsing University); Chun-Hao Huang (Graduate Institute of Technology Management, National Chung Hsing University)
    Abstract: Early identification of emerging technological opportunities is crucial for companies to formulate technology strategies that can provide a core competitive advantage over competitors in the future. This research develops a dynamic patent citation analysis methodology based on the theory of social network evolution to analyze patent documents for technological opportunity discovery in the telehealth industry. We found several technological opportunities, including healthcare administration, vital sign detection methods, transaction-based healthcare network management, movement disorder therapeutic system, health related services for IOT devices, alarm management for vital signs, and teleconference among medical practitioners. The research findings are useful for telehealth firms to understand the technological trend and explore potential technological opportunities, while formulating technology strategies to provide a core competitive advantage over competitors in the future.
    Keywords: Patent mining, technology opportunity analysis, technology strategy, telehealth.
    JEL: O31 O32 O33
    Date: 2018–07

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