nep-sbm New Economics Papers
on Small Business Management
Issue of 2018‒10‒22
twenty-one papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. The pecking order of innovation finance By Andrea Mina; Henry Lahr
  2. ICT, R&D and Organizational Innovation: Exploring Complementarities in Investment and Production By Pierre Mohnen; Michael Polder; George van Leeuwen
  3. Export innovation of SMEs through the extensive margin in Latin America By Park, Hyunju; Mulder, Nanno; Park, Yuri
  4. Imported input varieties and product innovation : evidence from five developing countries By Marijke J.D. Bos; Gonzague Vannoorenberghe
  5. Technological Coherence and the Adaptive Resilience of Regional Economies By Silvia Rocchetta; Andrea Mina
  6. Enhancing dynamism in SMEs and entrepreneurship in Korea By Randall S. Jones; Jae Wan Lee
  7. Simultaneous Innovation and the Cyclicality of R&D By Miroslav Gabrovski
  8. A structural model of firm collaborations with unobserved heterogeneity By Shweta Gaonkar; Angelo Mele
  9. Establishing Social Enterprises as a unique organizational type: A mission-value grid By Sumit Mitra; Pradeep Kumar Hota
  10. Related variety, unrelated variety and the novelty content of firm innovation in urban and non-urban locations By Marte C.W. Solheim; Ron Boschma; Sverre Herstad
  11. Technological Diversification in European Regions: The Role of E-skills By Fulvio Castellacci; Davide Consoli; Artur Santoalha
  12. Migration and invention in the age of mass migration By Andrea Morrison; Sergio Petralia; Dario Diodato
  13. Does high growth persist? A focus on growth formulas and the influence of firm exits By Erhardt, Eva
  14. Strukturwandel in der Wissensökonomie: Eine Analyse von Branchen-, Lage- und Regionseffekten in Deutschland By Margarian, Anne
  15. Prediction Based on Entrepreneurship-Prone Personality Profiles: Sometimes Worse Than the Toss of a Coin By Alexander Konon; Alexander Kritikos
  16. Firm Internal Network, Environmental Regulation, and Plant Death By Jingbo Cui; GianCarlo Moschini
  17. The effect of local industry competition on firm productivity. Evidence from the Mexican manufacturing industry By Barriga-Cabanillas, Oscar
  18. Migrant STEM Entrepreneurs By Baum, Christopher F; Dastory, Linda; Lööf, Hans; Stephan, Andreas
  19. Firm Productivity and Exports: Firm-Level Evidence from the Korean Agro-Food Industries By Oh, Saera; Cho, Sung Ju
  20. Fiscal Decentralization and Public R&D Policy: A Country Panel Analysis By Daniel Gama e Colombo; Jorge Martinez-Vazque
  21. The Role of Institutions and Immigrant Networks in Firms’ Offshoring Decisions* By Simone Moriconi; Giowanni Peri; Dario Pozzoli;

  1. By: Andrea Mina; Henry Lahr
    Abstract: This paper examines the relationship between firms' innovation activities and the hierarchy of financing behaviours. We analyse the role of innovation inputs (R&D), intermediate outputs (patents) and outcomes (product and process innovations) as sources of information asymmetry in financing decisions. Our focus on mainly unlisted companies allows us to study the effects of information asymmetries in the context where they are most severe, that is, among small and medium-sized firms. We identify the effect of innovation, alongside the size of the firm, its age and its human capital, on the order of directly observed external capital allocations. Our results show that innovation is strongly associated with a pecking order characterised by increasing agency costs, and that the more uncertain the innovation signal, the stronger its effect on the pecking order. In further robustness tests, this relationship and associated hierarchy of external financing emerge from the data without imposing an a-priori pecking order.
    Keywords: R&D, innovation, information asymmetries, capital structure, pecking order
    Date: 2018–10–17
  2. By: Pierre Mohnen; Michael Polder; George van Leeuwen
    Abstract: This paper examines whether there are complementarities between investments in ICT, R&D and organizational innovation, and the effects of different investment profiles on total factor productivity growth on Dutch firm-level data. We estimate an integrated model of investment profile adoption and total factor productivity growth. We find that the three investment decisions are complementary, in the sense that investing in one increases the probability of investing in another one because joint investments lead to higher TFP growth than individual investments. ICT earns on average an expected rate of return of 9.7%, followed by 6% to 7% on organizational innovation and a modest 1.4% to 1.8% on R&D in services and manufacturing respectively.
    JEL: L25 O30 O33
    Date: 2018–09
  3. By: Park, Hyunju; Mulder, Nanno; Park, Yuri
    Abstract: In Latin America and the Caribbean, there is little direct evidence on export innovation of small and medium-sized enterprises in (SMEs). This type of innovation refers to the adaptation of products and business processes to technical standards, tastes and other customer requirements in the target markets. The successful fulfillment of these requirements by a firm can be measured indirectly through the sale of a new product to an existing market, the entry of an existing product to a new destination, or both. These movements can be measured using firm-level customs data, as is done in this study for Chile, Colombia, Costa Rica, and Mexico for the period 2000 to 2015. The results confirm the well-known fact that a high share of SMEs enter and leave the universe of exporting firms each year. Among the four countries, exporting SMEs in Costa Rica had the lowest entry and exit rates and the highest survival rates. On average, SMEs in Costa Rica and Mexico incorporated more new products into their export basket than those in Chile and Colombia. This is because SMEs in the latter two countries exported mostly natural resources concentrated in few products, while SMEs in the former two countries were selling a relatively more diversified basket of manufactures. Within the sample, Costa Rica was the country where exporting SMEs added more destinations to their export basket each year. In contrast, Mexico was the one where SMEs added the smallest number of new destinations (less than one) on average, due to their great dependence on the United States as an export market. Export innovation is also analyzed with respect to the three dimensions (firms, products, and markets) simultaneously. For this purpose, the change in export value of each firm during this period is broken down into two parts. The first is the intensive margin, which refers to the change in export value of the same firms selling the same products to the same destinations. The second is the extensive margin, which has two components: (i) the extensive margin of entry (which reveals export innovation), including new combinations of companies, products and target markets, and (ii) the extensive margin of exit, referring to combinations of companies, products and destination markets that cease to exist. In all countries except Costa Rica, the extensive margin contributed proportionately more to the growth of exports of SMEs than to that of large companies. In Chile and Colombia, export innovation was concentrated in selling existing products to new markets. In contrast, in Costa Rica and Mexico the export of new products to established destinations was the predominant type of export innovation.
    Date: 2018–10–02
  4. By: Marijke J.D. Bos (Ministry of Economic Affairs, The Hague, Netherlands); Gonzague Vannoorenberghe (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: We examine how access to imported intermediate inputs affects firm-level product innovation in five developing counties. We combine trade data with survey data on innovation and develop a method to determine whether new inputs were essential for the product innovation. We find evidence that the number of newly imported varieties has a significant impact on product innovations that rely on new inputs and provide suggestive evidence that this effect comes from access to better quality imports. We extend our analysis to assess the consequences of the increase in the number of Chinese exporting firms on product innovation in developing countries.
    Keywords: product innovation, trade, new intermediate inputs
    JEL: F1
    Date: 2018–09
  5. By: Silvia Rocchetta; Andrea Mina
    Abstract: This paper explores the effect of different regional technological profiles on the resilience of regional economies to exogenous shocks. It presents an empirical examination of the determinants of resilience through panel analyses of UK NUTS III level data for the 2004-2012 period. The results indicate that regions endowed with technologically coherent -- and not simply diversified-- knowledge bases are better prepared to face an unforeseen downturn and display adaptive resilience. Moreover, local economies tend to be more adaptable if they innovate in sectors with the strongest growth opportunities, even though firms' net entry does not appear to contribute significantly towards resilience.
    Keywords: resilience, adaptation, innovation, technological variety, financial crisis
    Date: 2018–10–17
  6. By: Randall S. Jones; Jae Wan Lee
    Abstract: Making SMEs and start-ups a driver of growth and job creation requires a number of policies to improve the performance of SMEs, whose labour productivity in the manufacturing sector has fallen to less than a third of that in large companies. The large-scale support for SMEs should shift from supporting the survival of firms to raising productivity. Measures to accelerate SMEs' take-up of new technology and increase their participation in international trade would boost productivity and inclusive growth. Given the chronic labour shortages facing SMEs, reforming the education system to reduce labour market mismatch is a priority. Relaxing the regulatory burden and government control would allow innovative SMEs to create new products and services. Entrepreneurship is lagging, reflecting a higher fear of failure and a lack of skills in Korea. Upgrading entrepreneurship education and lowering the personal costs faced by entrepreneurs who fail would be beneficial. A greater role for venture capital, in part by activating the M&A market to allow investors to recuperate their funds, would encourage firm creation. This Working Paper relates to the 2018 OECD Economic Survey of Korea ( y-korea.htm)
    Keywords: business angels, digitalisation, ecosystem, entrepreneurship, incubators, innovation, insolvency regime, Korea, productivity, public procurement, regulatory reform, small and medium-sized enterprises, SMEs, start-ups, subcontractors, R&D, venture capital
    JEL: L26 M13 O3
    Date: 2018–10–10
  7. By: Miroslav Gabrovski (University of Hawaii at Manoa Ministry of Strategy and Finance, Republic of Korea)
    Abstract: There is ample evidence that R&D investment is mildly pro-cyclical. Whereas the existing literature can explain the positive correlation between investment in R&D and output, the moderate strength of the relationship remains under-explored. This paper develops a stochastic expanding-variety endogenous growth model that accounts for the observed mild pro-cyclicality of R&D. In the model, several firms may simultaneously make the same innovation. Research projects innovated by many firms simultaneously are of higher quality, on average, and contribute relatively more to the expansion of the knowledge stock in the economy. This delivers an endogenous mechanism that breaks the otherwise perfect correlation between R&D and output. A calibration of our model closely matches the cyclical properties of R&D.
    Keywords: Simultaneous Innovation, Research and Development, Medium-Term Cycles, Macroeconomic Fluctuations, Endogenous Cycles
    JEL: O30 O40 E32
    Date: 2018–10
  8. By: Shweta Gaonkar (Johns Hopkins Carey Business School, 100 International Dr, Baltimore, MD 21202 - USA); Angelo Mele (Johns Hopkins Carey Business School, 100 International Dr, Baltimore, MD 21202 - USA)
    Abstract: We develop and estimate a structural model of strategic network formation to study the determinants of firms collaborations for patenting new technology in the medical device industry. Our aim is to bridge the strategy literature on interorganizational networks and the economic literature on structural estimation of network models. In our model, firms have payoffs that depend on linking costs and benefits, as well as externalities from common partners and popular partners. Firms are characterized by observed and unobserved characteristics, that affect both their opportunity and their willingness to form links. The equilibrium networks are sparse and match the aggregate clustering levels observed in the data. We use the network of patent collaborations among medical device firms, to estimate the structural parameters using a Bayesian approach. Our results show that firms tend to partner domestically and collaborate with companies in similar markets, perhaps due to technological complementarities or regulation effects. Unobserved heterogeneity matters: we find that firms' payoffs vary by type. Finally we show that the estimated model including unobserved heterogeneity provides a better fit of crucial features of the data.
    Keywords: firm networks, strategic alliances, exponential random graphs, weak dependence, homophily, clustering, sparse networks
    JEL: C13 C31 L14 D85
    Date: 2018–09
  9. By: Sumit Mitra (Indian Institute of Management Kozhikode); Pradeep Kumar Hota (Indian Institute of Management Kozhikode)
    Abstract: Over last two decades, Social enterprises have established themselves as globally relevant ventures exhibiting innovative and sustainable social value creation processes and addressing long-standing social issues through entrepreneurial process. Because of their unique combination of private structure with public purpose, strong connection to citizens, flexibility in operations, ability to innovate, and capacity to tap private resource for public purpose, SEs have emerged as strategically important organizational forms Despite growing interest for social entrepreneurship in academic literature and practices, the body of scholarly research is still much less developed. One of the primary reasons for lack of development in social entrepreneurship domain is difficulties in differentiating social enterprise from other type of organizations. In this paper, we used the concept of value and mission, to propose a grid, which helps to distinguish social enterprises from other enterprise types. This paper argues that working to incorporate negotiation outputs of diverse stakeholder groups, within a plurality of institutional logics, the different enterprise types reflect their distinct design, resourcing and strategy types through their business models. Given the challenges of matching demand and supply side constraints, particularly in the challenging situation of rapid scaling up, hybrid organizational types like social enterprise face greater challenges to identifying effective business models compared to commercial organizations narrowly focused on maximizing benefits of shareholders or owners.
    Keywords: Social enterprises,
    Date: 2018–03
  10. By: Marte C.W. Solheim; Ron Boschma; Sverre Herstad
    Abstract: In this paper, we investigate whether the composition of experience-based knowledge accumulated by firms in urban and rural locations is reflected in the novelty content of their innovations. Looking at the manufacturing industry, and using Norwegian Linked Employer- Employee register data (LEED) merged with Community Innovation Survey (CIS) data, we find that unrelated experience variety within firms increases the probability of radical innovation, independently of firms' location, whereas related variety increases the probability of incremental innovation in large-city regions. These results demonstrate that innovation capacity cannot be understood from the single perspective of R&D efforts and strategy as it also depends on experiences accumulated in 'entire organizations' and the locations in which accumulation occurs. Moreover, they suggest that for manufacturing firms, urban locations are not hot spot for radical change. Instead, they support incremental innovative activities by facilitating effective sharing of knowledge between related sectors.
    Keywords: immigration, Diversity, Innovation, Related Variety, Unrelated Variety, Urban, Rural
    JEL: O31 P25 O15 O14 J24
    Date: 2018–10
  11. By: Fulvio Castellacci (TIK Centre, University of Oslo); Davide Consoli (TIK Centre and INGENIO, Valencia); Artur Santoalha (TIK Centre, University of Oslo)
    Abstract: This paper argues that e-skills, namely capabilities associated with the use and development of digital technologies, enhance regions’ ability to imitate existing knowledge and to create new industrial paths. The empirical analysis focuses on the relationship between e-skills and technological diversification for a panel of European regions for the period 2001-2012. We construct novel indices of regional e-skill endowment distinguishing between basic users, professional users and expert developers of ICTs. The econometric results show that e-skills foster technological diversification dynamics in European regions, and that this effect is particularly strong for less developed regions.
    Date: 2018–10
  12. By: Andrea Morrison; Sergio Petralia; Dario Diodato
    Abstract: More than 30 million people migrated to the US between the 1850s and 1920s. In the order of thousands became inventors and patentees. Drawing on an original dataset of immigrant inventors to the US, we assess the city-level impact of immigrants patenting and their potential crowding out effects on US native inventors. Our study contributes to the different strands of literature in economics, innovation studies and economic geography on the role of immigrants as carriers of knowledge. Our results show that immigrants? patenting is positively associated with total patenting. We find also that immigrant inventors crowd-in US inventors. The growth in US inventors? productivity can be explained also in terms of knowledge spill-overs generate by immigrants. Our findings are robust to several checks and to the implementation of an instrumental variable strategy.
    Keywords: immigration, innovation, knowledge spill-over, patent, age of mass migration, US
    JEL: F22 J61 O31 R3
    Date: 2018–10
  13. By: Erhardt, Eva
    Abstract: This study investigates the development of firms after high-growth. We argue that the formula used for measuring growth determines results. Implications from different formulas are tested with data from Amadeus on Bulgarian firms for the years 2001-2010. We provide first evidence for an absolute growth formula and its systematic comparison to alternative choices. The focus is on growth in employees, but we offer additional evidence for sales and profits. Using a two-part regression model with separate equations for survival and growth, we find that high-growth does not persist when size of exits is accounted for. Losses by exiting high-growth firms outweigh further gains in size by survivors. This result equally holds for the 1 percent fastest growers in absolute terms, the top 1 percent in terms of log growth and high-growth firms defined according to Eurostat-OECD. Implications for the future study of high-growth firms and policies focused at them are discussed.
    Keywords: high-growth firms,persistence,growth formulas,firm size,firm exit
    JEL: L26 J23 C18 D22 P23 L11 L25 D22 C18 P23
    Date: 2018
  14. By: Margarian, Anne
    Abstract: This Thuenen-Report discusses the results of an analysis of the structural change between industries in German districts. At the heart of the report is the question: “In how far is economic development structurally determined?” The theoretical outset is the new growth theory which implies that in the modern economy knowledge is the central differentiating production factor. A differentiation of variably mobile forms of knowledge makes it possible to develop theoretical expectations over industries’ distribution and development in urban and rural regions in the east and west of Germany. The empirical analysis leans mainly on a correspondingly differentiated shift-share regression within which the development of the number of firms and employees on district level can be broken down in industry- and region-effects. In a second step, the identified effects are further statistically examined in order to identify, among others, various non-linear industry effects. The analysis confirms the most important theoretically derived expectations: The economy of prospering rural areas is carried above all by the production sector, despite its own sinking employment share. The intangible knowledge that is crucial for its small and medium size firms is characterized by restricted mobility. Urban regions develop above all positively if they are attractive to knowledge-intensive businesses and highly qualified employees. Due to the differences in the mobility of relevant knowledge sources, an equalization between Germany’s west and east is more likely to take place in urban than in rural districts. Within the analysis, a change from a holistic perspective towards a focus on regional and economic details has helped to answer the initial question: Regional economic development is not totally structurally determined, but is made by firms, who, based on experience and innovation, generate competitive advantages. On the other hand, economic lags cannot simply be compensated through individual efforts because competitiveness pre-supposes experience and tacit knowledge concerning the particular technological regime. Development opportunities for structurally disadvantaged rural regions are in the exploitation of opportunities that stem from new markets and activities. The spatial implications of the digitalization and digital transformation of the economy remain ambiguous so far. If the necessary infrastructural and knowledge resources are successfully created all over the country and applied in innovative extension of existing capacities, new impulses could be generated by this technological “regime-change” for peripheral regions as well.
    Keywords: Agribusiness, Community/Rural/Urban Development, Industrial Organization
    Date: 2018–10–15
  15. By: Alexander Konon; Alexander Kritikos
    Abstract: The human personality predicts a wide range of activities and occupational choices—from musical sophistication to entrepreneurial careers. However, which method should be applied if information on personality traits is used for prediction and advice? In psychological research, group profiles are widely employed. In this contribution, we examine the performance of profiles using the example of career prediction and advice, involving a comparison of average trait scores of successful entrepreneurs with the traits of potential entrepreneurs. Based on a simple theoretical model estimated with GSOEP data and analyzed with Monte Carlo methods, we show, for the first time, that the choice of the comparison method matters substantially. We reveal that under certain conditions the performance of average profiles is inferior to the tossing of a coin. Alternative methods, such as directly estimating success probabilities, deliver better performance and are more robust.
    Keywords: Advice, personality, entrepreneurship, profiles
    JEL: C15 D81 L26
    Date: 2018
  16. By: Jingbo Cui; GianCarlo Moschini (Center for Agricultural and Rural Development (CARD))
    Abstract: This paper examines the role of a firm’s internal network in determining plant shutdown decisions in response to environmental regulations. Using unique plant-level data for U.S. manufacturing industries from 1990 to 2008, we find evidence that, in response to increasingly stringent environmental regulations at the county level, multi-plant firms do exercise their greater flexibility in adjusting production, relative to single-plant firms. Specifically, in regulated counties, the likelihood of a plant shutting down is higher for multi-plant firms. Moreover, we measure the firm internal network effect at the local, neighborhood, and the wider-area levels, as defined by the number of affiliated plants clustered in different regional levels. Their effects on plant closure decisions for dirty subsidiaries vary with the network level. We further decompose the neighborhood network into those in regulated and unregulated neighborhood counties, and examine how these network metrics are associated with closure decisions of dirty plants affiliated with multi-plant firms. The presence of more sibling plants residing in neighboring counties that are free from regulatory controls are associated with a higher closure probability of dirty plants in a regulated county.
    Date: 2018–10
  17. By: Barriga-Cabanillas, Oscar
    Keywords: Productivity Analysis and Emerging Technologies, Industrial Org./Supply Chain Management, Demand and Price Analysis
    Date: 2018–06–20
  18. By: Baum, Christopher F (Boston College, DIW Berlin, and Centre of Excellence for Science and Innovation Studies (CESIS)); Dastory, Linda (The Department of Industrial Economics and Management, Royal Institute of Technology); Lööf, Hans (Centre of Excellence for Science and Innovation Studies (CESIS), Royal Institute of Technology); Stephan, Andreas (Jönköping University, DIW Berlin, and Centre of Excellence for Science and Innovation Studies (CESIS))
    Abstract: STEM workers are considered to be key drivers for economic growth in the developed world. Migrant workers play an increasing role in the supply of this occupational category. We study the universe of STEM workers in the Swedish economy over the period 2003-2015 and find that migrants are less likely to form their own business, but those who are entrepreneurs earn income at least as large as that of their native-born counterparts. While the income differential for economic migrants may be partially explained by self-selection, the estimated effect is not significantly different between natives and refugee migrants.
    Keywords: STEM; migration; entrepreneurship; income; panel data
    JEL: F22 J44 J61 L26 O14
    Date: 2018–10–15
  19. By: Oh, Saera; Cho, Sung Ju
    Keywords: International Trade, Agribusiness Economics and Management, Productivity Analysis and Emerging Technologies
    Date: 2018–06–20
  20. By: Daniel Gama e Colombo (National Institute of Educational Studies and Research Anísio Teixeira, Brazil); Jorge Martinez-Vazque (International Center for Public Policy, Georgia State University, USA)
    Abstract: This paper examines the impact of fiscal decentralization on both public investment in innovation (measured as the share of research and development - R&D - spending in total government budget) and on the intensity of basic research within the public R&D bundle. We present a theoretical model where a ‘benevolent government’ invests in R&D aiming at maximizing net income available in the country (central government) or in the respective region (subnational government), where states compete to attract capital investment, and where R&D results are subject to interregional knowledge spillovers. The model predicts that decentralization leads to a lower level of public spending on innovation, and to a lower share of basic research in government R&D budget. The implications of the model are empirically tested utilizing country aggregate data. We find evidence that expenditure decentralization leads to lower intensity of basic research within public R&D, and that both revenue and expenditure decentralization negatively affect the size of innovation spending. The findings suggest that fiscal decentralization policy, expected to be beneficial in many other dimensions, should be accompanied by measures to compensate for the otherwise decrease in innovation spending, and that the assignment of expenditure responsibilities should have central government play a greater role in financing and carrying out basic research.
    Date: 2018–09
  21. By: Simone Moriconi (IÉSEG School of Management); Giowanni Peri (University of California, Davis); Dario Pozzoli (Copenhagen Business School);
    Abstract: The offshoring of production by multinational firms has expanded dramatically in recent decades, increasing these firms’ potential for economic growth and technological transfers across countries. What determines the location of offshore production? How do countries’ policies and characteristics affect the firm’s decision about where to offshore? Do firms choose specific countries because of their policies or because they know them better? In this paper, we use a very rich dataset on Danish firms to analyze how decisions to offshore production depend on the institutional characteristics of the country and firm-specific bilateral connections. We find that institutions that enhance investor protection and reduce corruption increase the probability that firms offshore there, while those that increase regulation in the labor market decrease such probability. We also show that a firm’s probability of offshoring increases with the share of its employees who are immigrants from that country of origin.
    Keywords: Offshoring, Product Market, Labor Regulations, Networks, Fixed start-up Costs
    Date: 2018–10

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