nep-sbm New Economics Papers
on Small Business Management
Issue of 2020‒03‒02
ten papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Public credit guarantee and financial additionalities across SME risk classes By Emanuele Ciani; Marco Gallo; Zeno Rotondi
  2. Does Successful Innovation Require Large Urban Areas? Germany as a Counterexample By Michael Fritsch; Michael Wyrwich
  3. A preliminary review of policy responses to enhance SME access to trade financing in the Caribbean By McLean, Sheldon; Charles, Don
  4. The Readiness of Small and Medium Enterprises for the Industrial Revolution 4.0 By Shan Shan Teh
  5. Do vertical spillovers differ by investors' productivity?Theory and evidence from Vietnam By Bin Ni; Hayato Kato
  6. Import Competition, Heterogeneous Preferences of Managers, and Productivity By Cheng Chen; Claudia Steinwender
  7. Start-up acquisitions and innovation strategies By Igor Letina; Armin Schmutzler; Regina Seibel
  8. Análisis del emprendimiento usando datos GEM: evidencias para la Comunidad de Madrid By Ortega Palacios, Inés
  9. Creative Destruction? Local Business Conditions and the Earnings of Employees at Startups. By Mahieu, Jeroen
  10. Political Connections and Financial Constraints : Evidence from Transition Countries By Bussolo,Maurizio; De Nicola,Francesca; Panizza,Ugo G.; Varghese,Richard

  1. By: Emanuele Ciani (Bank of Italy); Marco Gallo (Bank of Italy); Zeno Rotondi (UniCredit)
    Abstract: In this paper we study the functioning of the Italian public guarantee fund (“Fondo Centrale di Garanzia”, FCG) for Small and Medium Enterprises (SMEs). Using an instrumental variable strategy, based on the eligibility for the FCG, we investigate whether the guarantee generated additional loans and/or lower interest rates to SMEs. Differently from previous literature, by focusing on the lending activity of a single large Italian lender we control for the probability of default as assessed by the bank’s internal rating model, and we examine whether the effects of the guarantee differ across firms belonging to different classes of risk. We find that guaranteed firms receive an additional amount of credit equal to 7-8 percent of their total banking exposure. We also estimate a reduction of about 50 basis points of interest rates applied to term loans granted to guaranteed firms. The effects on credit availability are concentrated in the intermediate class of solvent firms, i.e. those neither too safe nor too risky. Conversely, interest rate effects are present in all classes, but for the least risky firms. Finally, we observe a stronger impact of the guarantee for solvent firms with a longer relationship with the bank. This finding questions their ability to reduce financial frictions for very young firms.
    Keywords: credit guarantees, access to credit, banking
    JEL: L25 O12 G28
    Date: 2020–02
  2. By: Michael Fritsch; Michael Wyrwich
    Abstract: Popular theories claim that innovation activities should be located in large cities because of more favorable environmental conditions that are absent in smaller cities or remote and rural areas. Germany provides a clear counterexample to such theories. We argue that a main force behind the geography of innovation in Germany is the country’s federal tradition that has shaped the settlement structure, the geographic distribution of universities and public research institutions, as well as local access to finance. Additional factors that may play a role in this respect are the system of education and the tax treatment of inheriting a business. We demonstrate the long-lasting effect of the historical political structure and distribution of knowledge sources on innovation activities today. We conclude that historical factors that shape the settlement structure and location of knowledge sources are of key importance for the geographic location of innovation activities.
    Keywords: innovation, patents, agglomeration economies, cities, Germany
    JEL: O31 R11 L26
    Date: 2020–02
  3. By: McLean, Sheldon; Charles, Don
    Abstract: The economies of the Caribbean face several challenges, such as a lack of economies of scale in production of goods and services exacerbated by small populations, narrow internal markets and scarce capital, which limit the economic gains from self-sufficiency. For this reason, more emphasis should be placed on building export capacity and facilitating trade. If we examine the characteristics of firms in the subregion, the majority can be categorized as small and medium-sized enterprises (SMEs). Moreover, only about 13 per cent of these SMEs export. This suggests that on average the subregion is not utilising its potential to generate gains from international trade. Access to finance is a key factor that hinders the subregion’s small businesses from developing their export capacity. Given the importance of business finance, this study explores the factors that limit the subregion’s entrepreneurs from accessing finance and makes policy recommendations to address this challenge.
    Date: 2020–01–28
  4. By: Shan Shan Teh (Universiti Sains Malaysia, 11800, Penang, Malaysia Author-2-Name: Daisy Mui Hung Kee Author-2-Workplace-Name: Universiti Sains Malaysia, 11800, Penang, Malaysia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - The Industrial Revolution 4.0 has penetrated across the industrial world. It promotes innovation in organizing and controlling the entire value chain life cycle. The Industrial Revolution 4.0 not only brings convenience, but it also acts as a new trend toward smart technology. With this smart technology, production times are shortened, productivity is doubled, efficiency is increased, and income is also improved. The Industrial Revolution 4.0 is being emphasized among Malaysian SMEs. This is because SMEs constitute 98.5% of the business community in Malaysia. However, although the Industrial Revolution 4.0 is gaining popularity, SMEs remain relatively unaware on it. This has cast doubt on the readiness of Malaysian SMEs for the Industrial Revolution. Is the readiness of industrial revolution 4.0 reach the satisfaction level among Malaysian SMEs? Therefore, the purpose of this study is to assess the level of readiness of Malaysian SMEs for the Industrial Revolution 4.0. In addition, the study will also propose strategies to improve the readiness of SMEs in Malaysia for the Industrial Revolution 4.0. Methodology/Technique – Various papers and current information was accessed to determine the readiness of Malaysia for the Industrial Revolution 4.0 and strategies that can be employed to enable SMEs to adopt the new era of industrial revolution. Findings- From the findings it was concluded that Malaysian SMEs remain unprepared for the Industrial Revolution 4.0. Novelty - This paper proposed important strategies to assist SMEs and employees to adapt to the Industrial Revolution 4.0.
    Keywords: Readiness; Strategies; Small and Medium Enterprises; Industrial Revolution 4.0; Malaysia.
    JEL: M20 M13 M19
    Date: 2019–12–31
  5. By: Bin Ni (Faculty of Economics, Hosei University,); Hayato Kato (Graduate School of Economics, Osaka University)
    Abstract: Developing countries are eager to host foreign direct investment to receive positive technology spillovers to their local firms. However, what types of foreign firms are desirable for the host country to achieve spillovers best? We address this question using firm-level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors with different productivity affects the productivity of local Vietnamese firms in upstream sectors differently. Using endogenous structural breaks, we divide Asian investors into low-, middle-, and high-productivity groups. The results suggest that the presence of the middle group has the strongest positive spillover effect. The differential spillover effects can be explained by a simple model with vertical linkages and productivity-enhancing investment by local suppliers. The theoretical mechanism is also empirically confirmed.
    Keywords: FDI spillovers; Heterogeneous productivity; Firm-level data; Endogenous struc-tural break; Vertical Cournot model
    JEL: D22 F21 F64 Q56
  6. By: Cheng Chen; Claudia Steinwender
    Abstract: When managers have objectives beyond maximizing monetary profits, inefficiencies may arise. An increase in competition may then force managers to improve the productivity of the firm in order to ensure survival. While this hypothesis has received ample theoretical attention, empirical evidence is scarce, mainly because preferences of managers are typically unobserved. In this paper, we exploit the fact that a large literature has documented specific non-monetary preferences of family managers. Using Spanish firm-level data, we compare how family-managed and professionally-managed firms react to import competition shocks. We find that import competition leads to productivity increases in family-managed firms that are initially unproductive. Productivity improvements are driven by family management as opposed to family ownership or non-managing family members. Furthermore, we show that these managers increase efficiency by reducing material usage, which is consistent with them trying to increase their short-term cash flow in order to survive. Finally, productivity improvements seem to be particularly pronounced in multi-generational family firms that also introduce organizational changes.
    Keywords: import competition, productivity, family firms, managers
    JEL: D22 D23 F14 L21 L22
    Date: 2019
  7. By: Igor Letina; Armin Schmutzler; Regina Seibel
    Abstract: This paper provides a theory of strategic innovation project choice by incumbents and start-ups. We apply this theory to identify the effects of prohibiting start-up acquisitions. We differentiate between killer acquisitions (when the incumbent does not commercialize the acquired start-up’s technology) and acquisitions with commercialization. A restrictive acquisition policy reduces the variety of research approaches pursued by the firms and thereby the probability of discovering innovations. Furthermore, it leads to strategic duplication of the entrant’s innovation by the incumbent. These negative innovation effects of restrictive acquisition policy have to be weighed against the pro-competitive effects of preserving potential competition.
    Keywords: innovation, acquisitions, mergers, competition, start-ups.
    JEL: O31 L41 G34
    Date: 2020–02
  8. By: Ortega Palacios, Inés
    Abstract: Este artículo estudia los determinantes del emprendimiento en la Comunidad de Madrid (España) mediante el uso de la base de datos GEM. Primero, se realiza una introducción sobre la situación actual del emprendimiento en España y en la Comunidad de Madrid. En segundo lugar, se muestra un estudio de datos y una descripción metodológica. Finalmente, se identifican los determinantes del emprendimiento. Los emprendedores se identifican como jóvenes sin responsabilidades familiares, sin miedo al fracaso, con habilidades para el emprendimiento y con el contacto con otros empresarios. Además, tener educación universitaria tiene un efecto positivo en convertirse en emprendedor.
    Keywords: Emprendimiento, Madrid, Factores microeconómicos
    JEL: L26 R10
    Date: 2020–02–17
  9. By: Mahieu, Jeroen
    Abstract: What drives job quality in startups? In this paper, I examine how fluctuations in local business conditions affect wages in startups and incumbent firms in the retail sector. I identify shocks to local business conditions using plausibly exogenous variation of hurricane strikes in U.S. coastal counties. I find that, on average, wages of startup employees increase in response to negative shocks to local business conditions. This effect does not appear to be driven by changes in supply or demand for labor. These findings are consistent with a “cleansing” effect of downturns, fostering the creation and retainment of more productive jobs, and driving out unproductive ones.
    Keywords: Startups; Employee Compensation; Local Business Conditions; Entrepreneurship
    JEL: J21 J31 L26
    Date: 2020–02–08
  10. By: Bussolo,Maurizio; De Nicola,Francesca; Panizza,Ugo G.; Varghese,Richard
    Abstract: This paper examines whether political connections ease financial constraints faced by firms. Using firm-level data from six Central and Eastern European economies, the paper shows that politically connected firms: (i) have high levels of leverage, (ii) have low levels of profitability, (iii) are less capitalized, (iv) have low marginal productivity of capital, and (v) do not invest more than unconnected firms. Next, the paper shows that connected firms borrow more because they have easier access to credit and that political connections lead to a misallocation of capital. The results are consistent with the idea that political connections distort capital allocation and may have welfare costs.
    Keywords: Economics and Finance of Public Institution Development,State Owned Enterprise Reform,Economic Theory&Research,Economic Growth,Industrial Economics,Financial Regulation&Supervision,De Facto Governments,Public Sector Administrative&Civil Service Reform,Public Sector Administrative and Civil Service Reform,Administrative&Civil Service Reform,Democratic Government,Armed Conflict
    Date: 2019–08–06

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