nep-sbm New Economics Papers
on Small Business Management
Issue of 2020‒09‒14
thirteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. The Role of Formal, Informal, and Family Credit in the Business Performance of Young Entrepreneurs in Benin By Djossou Gbetoton Nadege Author-Name: Jacob Novignon Author-Name: Atchade Touwédé Bénédicte Author-Name: Abdelkrim Araar
  2. Households and entrepreneurship in England and Wales, 1851-1911 By Smith, Harry; Bennett, Robert J.; van Lieshout, Carry; Montebruno, Piero
  3. Division of Labor in R&D? Firm Size and Specialization in Corporate Research By Annette Becker; Hanna Hottenrott; Anwesha Mukherjee
  4. Liaisons between culture and innovation: comparative analysis of South Korean and Lithuanian IT companies By Mindaugas Laužikas; Aistė Miliūtė
  5. Choosing Technology: An Entrepreneurial Strategy Approach By Joshua S. Gans; Michael Kearney; Erin L. Scott; Scott Stern
  6. The role of innovation in industrial dynamics and productivity growth: a survey of the literature By Ugur, Mehmet; Vivarelli, Marco
  7. The Impact of COVID-19 on Small Business Owners: Continued Losses and the Partial Rebound in May 2020 By Robert W. Fairlie
  8. R&D, Market Power and the Cyclicality of Employment By Uluc Aysun; Melanie Guldi; Adam Honig; Zeynep Yom
  9. Multinational Corporation Affiliates, Backward Linkages, and Productivity Spillovers in Developing and Emerging Economies : Evidence and Policy Making By Jordaan,Jacob Arie; Douw,Willem; Qiang,Zhenwei
  10. The Effect of Managers on Systematic Risk By Antoinette Schoar; Kelvin Yeung; Luo Zuo
  11. Where do we go? VC firm heterogeneity and the exit routes of newly listed high-tech firms By Diego Useche; Pommet Sophie
  12. Government Support for SMEs in Response to COVID-19: Theoretical Model Using Wang Transform By Shaun Shuxun Wang; Jing Rong Goh; Didier Sornette; He Wang; Esther Ying Yang
  13. Corporate zombies: Anatomy and life cycle By Ryan Niladri Banerjee; Boris Hofmann

  1. By: Djossou Gbetoton Nadege Author-Name: Jacob Novignon Author-Name: Atchade Touwédé Bénédicte Author-Name: Abdelkrim Araar
    Abstract: Young entrepreneurship is an important lever for economic growth and employment creation in developing countries. Credit uptake, however, continues to pose significant limitations to the sustainability of small-scale enterprises. We estimated the impact of credit uptake (formal, informal, and family) on young entrepreneurship performance in Benin, using 2014-2016 panel data from a World Bank survey on enterprise formalization. To address potential endogeneity and ensure robustness of results, we employed multiple models and estimation techniques (fixed-effects and Lewbel approach). Our results showed that, while formal credit was most important for larger firms, smaller firms benefited mainly from flexible (informal or family) credit. The impact of credit uptake was generally higher for women-owned firms. There were also variations in uptake according to firm owner’s age: the impact of formal credit was relatively higher for older firm owners while younger owners benefited more from flexible credit. The findings highlight the importance of Informal and family credit sources, especially for start-ups and small firms.
    Keywords: Youth Entrepreneurship, Microcredit, Small-scale Enterprises, Benin
    JEL: D20 O12 O17
    Date: 2020
  2. By: Smith, Harry; Bennett, Robert J.; van Lieshout, Carry; Montebruno, Piero
    Abstract: This article uses the British Business Census of Entrepreneurs (BBCE) to examine the relationship between the household and entrepreneurship in England and Wales between 1851 and 1911. The BBCE allows three kinds of entrepreneurial households to be identified: those where an entrepreneur employs co-resident family members in their business, those where two or more household members are partners in the same firm, and households with two or more entrepreneurs resident who are running different firms. The article traces the number of these different households across the period and examines their sector and gender breakdowns as well as their geographical distribution. The article demonstrates that these different kinds of entrepreneurial households served different purposes; co-resident family businesses were used in marginal areas where other sources of labour and capital were scarce and the incidence of such firms decreased over this period. In contrast, household partnerships and co-entrepreneurial households were used to share risk or diversify; they were found throughout England and Wales at similar levels during this period.
    Keywords: Entrepreneurship; household; census; England and Wales; economic history
    JEL: D1 J1 L26 N83
    Date: 2020–08–18
  3. By: Annette Becker (Technical University of Munich, TUM School of Management, Dept. of Economics & Policy); Hanna Hottenrott (Technical University of Munich, TUM School of Management, Dept. of Economics & Policy; K.U.Leuven, Dept. of Managerial Economics, Strategy and Innovation; Centre for European Economic Research (ZEW)); Anwesha Mukherjee (Technical University of Munich, TUM School of Management, Dept. of Economics & Policy)
    Abstract: Corporate research and development constitutes one of the main sources of innovation. Recent research, however, discusses a decline in corporate research and its implications for technological progress. The contribution of this study is to model research & development (R&D) decisions in an R&D investment model that allows the analysis of firms’ engagement in research (R) as compared to development (D) activities. The model predicts higher investments in both activities for larger firms, but it also shows that research intensity, i.e. the R-share in R&D, declines with firm size. We test these propositions using data of R&D-active firms over the period from 2000 to 2015. Results from panel model estimations that account for unobserved heterogeneity across firms show that larger firms invest indeed more in both research and development whereas the relative focus on research decreases with firm size. In addition, the empirical results suggest that, since the returns to research decline with firm size, specialization maximizes productivity. We discuss policy implications based on these findings.
    Keywords: Corporate Research, R&D, Firm Size, Comparative Advantage, Productivity, Innovation Policy
    JEL: C14 C30 O31 O38
    Date: 2020–09
  4. By: Mindaugas Laužikas (Vilnius University [Vilnius]); Aistė Miliūtė (Vilnius University [Vilnius])
    Abstract: The present publication is centred on the key liaisons of Innovation (Kane et al. 2019, Marwede and Herstatt 2019, Kremer et al. 2019, Narayan, 2019, Lauzikas and Miliute 2017, 2019a, 2019b, and etc.) and Culture (Lauzikas and Mokseckiene 2013, Boon et al. 2019, ASUG, 2019, Clercq and Pereira 2019, and etc.) as two separate components of innovation climate aas well as the main effects of combination of these dimensions on business sustainability (Collett et al. 2019, Halim et al. 2019, Sull et al. 2019, Jin et al. 2019, and etc.). The research problem is how to acknowledge and excel in the areas, related to ‘Innovation-Culture Symbiosis', without limiting the progress of innovation or human resource management as separate departments and not stopping a firm from strengthening its competitive advantages, driven by the combination of these dimensions. This is relevant and innovative, because nowadays a great number of efficiency and innovation-driven economies or high-tech industries face the necessity to identify, acknowledge and mitigate weaknesses in human resource or R&D performance as well as link these dimensions towards innovation culture via modern technologies, innovative managerial processes, strategic collaboration and creative leadership. The purpose of the present paper: comparing the key dimensions of ‘Innovation-Culture Symbiosis' in high-tech firms of South Korea and Lithuania (both are education-driven countries) it is expected to illustrate the dynamics of a holistic system of innovation and culture, where these two dimensions are interdependent and form a unique equilibrium (which corresponds to a specific economic and business development stage, position in the value-chain as well as cultural and social norms of a country). Taking into account that sustainable business calls for continuous improvement of products and processes via HRM techniques, R&D, innovation and technology, the present research results are pertinent and value-adding to high-tech companies of both economies: they could help reach healthier equilibrium between innovation and culture within a specific socio-economic context, and contribute to the establishment of monitoring models which track the dynamics of innovation culture and lead to the bigger economic and social value-added. Taking into consideration the trans-disciplinary holistic nature of innovation culture, which requires a rich knowledge and experience within the present topic, the semi structured interviews with experts of Lithuanian and South Korean IT firms were conducted, the research results of the two economies were compared, and recommendations were provided for both high-tech experts and governmental policy or program developers.
    Date: 2020–06–30
  5. By: Joshua S. Gans; Michael Kearney; Erin L. Scott; Scott Stern
    Abstract: A central premise of research in the strategic management of innovation is that start-ups are able to leverage emerging technological trajectories as a source of competitive advantage. But, if the potential for a technology is given by the fundamental character of a given technological trajectory, then why does entrepreneurial strategy matter? Or, put another way, if the evolution of technology is largely shaped by the strategic choices entrepreneurs make, then why do technological trajectories exhibit systematic patterns such as the Technology S-curve? Taking a choice-based perspective, this paper illuminates the choices confronting a start-up choosing their technology by resolving the paradox of the Technology S-curve through a reformulation of the foundations of the Technology S-curve. Specifically, we reconceptualize the Technology S-curve not as a technological given but as an envelope of potential outcomes reflecting differing strategic choices by the entrepreneur in exploration versus exploitation. Taking this lens, we are able to clarify the role of technological uncertainty on start-up strategy, the impact of constraints on technological evolution, and how technology choice is shaped by the possibility of imitation. Our findings suggest that staged exploration may stall innovation as a result of the replacement effect, increasing the strategic importance of commitment.
    JEL: O31
    Date: 2020–07
  6. By: Ugur, Mehmet (Institute of Political Economy, Governance, Finance and Accountability, University of Greenwich); Vivarelli, Marco (UNU-MERIT, Maastricht University, Department of Economic Policy, Universita Cattolica del Sacro Cuore, and IZA, Bonn)
    Abstract: We review the theoretical underpinnings and the empirical findings of the literature that investigates the effects of innovation on firm survival and firm productivity, which constitute the two main channels through which innovation drives growth. We aim to contribute to the ongoing debate along three paths. First, we discuss the extent to which the theoretical perspectives that inform the empirical models allow for heterogeneity in the effects of R&D/innovation on firm survival and productivity. Secondly, we draw attention to recent modelling and estimation effort that reveals novel sources of heterogeneity, non-linearity and volatility in the gains from R&D/innovation, particularly in terms of its effects on firm survival and productivity. Our third contribution is to link our findings with those from prior reviews to demonstrate how the state of the art is evolving and with what implications for future research.
    Keywords: Innovation, R&D, Survival, Productivity
    JEL: O31 O32 O33 O40
    Date: 2020–09–03
  7. By: Robert W. Fairlie
    Abstract: Social distancing restrictions and demand shifts from COVID-19 shuttered many small businesses and entrepreneurs in the first month of widespread shelter-in-place restrictions. Fairlie (2020) finds that 22 percent of small business owners were inactive in April 2020 with disproportionate impacts on African-American, Latinx, immigrant, and female business owners. What happened in the second month of social distancing restrictions? Were there further closures or a rebound? This paper provides the first analysis of impacts of the pandemic on the number of active small businesses in the United States using nationally representative data from the May 2020 CPS – the second month capturing effects from mandated restrictions. The number of active business owners in the United States is down by 2.2 million or 15 percent from February 2020, but up 7 percent since the low in April. The continued losses in May and partial rebound from April were felt across nearly all industries and were not sensitive to using alternative restrictions on hours worked and measures. African-American business owners continue to be the hardest hit by COVID-19 experiencing a drop of 26 percent in business activity from pre-COVID-19 levels. Latinx business owners fell by 19 percent, and Asian business owners dropped by 21 percent. Immigrant business owners experienced substantial losses of 25 percent. Simulations indicate that industry compositions partly placed black, Latinx and immigrant businesses at a higher risk of losses. All of these demographic groups, however, experienced partial rebounds in business activity from April lows. These findings of the continued early-stage losses to small businesses have important policy implications and may portend longer-term ramifications for job losses and economic inequality.
    JEL: J0 J15 J16 L26
    Date: 2020–07
  8. By: Uluc Aysun (Department of Economics, College of Business Administration, University of Central Florida); Melanie Guldi (Department of Economics, College of Business Administration, University of Central Florida); Adam Honig (Department of Economics, Amherst College); Zeynep Yom (Department of Economics, Villanova School of Business, Villanova University)
    Abstract: This paper provides a first look into the joint effects of research and development (R&D) and market power on the cyclicality of employment. It presents a theoretical model with R&D and monopolistically competitive firms which shows that firms smooth their R&D activities when they face large R&D adjustment costs. This smoothing behavior comes at the expense of higher labor volatility, and it is stronger for firms with high R&D intensity and low market power. Firm-level data support these predictions. Dynamic panel estimations reveal that employment at competitive firms engaging in a high level of R&D is more procyclical.
    Keywords: R&D; employment volatility; firm-level data; COMPUSTAT
    JEL: E30 E32 O30 O33
    Date: 2020–08
  9. By: Jordaan,Jacob Arie; Douw,Willem; Qiang,Zhenwei
    Abstract: Recent research on productivity spillovers from affiliates of multinational corporations in developing and emerging economies finds that backward linkages from affiliates of foreign-owned firms to local suppliers constitute the main channel transmitting productivity spillovers. This finding has important policy implications, given that host economy governments often spend considerable resources on attracting multinational corporation investments and promoting their impact on technological development and economic growth. This paper conducts a new and comprehensive survey of recent empirical studies that focus on the drivers and impacts of backward linkages between multinational corporation affiliates and their local suppliers. The literature survey reveals that several characteristics of multinational corporation affiliates and domestic firms, host economy conditions, and various mediating factors influence the level of use of local suppliers, the nature and degree of technology dissemination, and the materialization of productivity spillovers among domestic firms. These findings are used to identify the main areas where policy making can be effective. The paper discusses various types of soft or light-handed industrial policies that host economy governments can design and implement to foster the extent of linkages between multinational corporations and local suppliers, facilitate technology dissemination, and enhance productivity spillovers among domestic firms.
    Keywords: International Trade and Trade Rules,Macroeconomic Management,Economic Forecasting,Governance Diagnostic Capacity Building,Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Access to Finance
    Date: 2020–08–24
  10. By: Antoinette Schoar; Kelvin Yeung; Luo Zuo
    Abstract: Tracking the movement of top managers across firms, we document the importance of manager-specific fixed effects in explaining heterogeneity in firm exposures to systematic risk. These differences in systematic risk are partially explained by managers’ corporate strategies, such as their preferences for internal growth and financial conservatism. Managers’ early-career experiences of starting their first job in a recession also contribute to differential loadings on systematic risk. These effects are more pronounced for smaller firms. Overall, our results suggest that managerial styles have important implications for asset prices.
    JEL: G12 G30
    Date: 2020–07
  11. By: Diego Useche (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Pommet Sophie (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we study how the support of heterogeneous venture capital firms (VCs), that is independent venture capital firms (IVCs), bank-affiliated venture capital firms (BVCs), and corporate venture capital firms (CVCs), shapes the delisting route of companies through business failure and merger and acquisitions (MandAs), while distinguishing between European MandAs and extra-EU MandAs after the initial public offering (IPO). We find that the influence of the VCs in the firms' post-IPO delisting varies according to the mode of delisting and the type of venture capitalist. In particular, we find that the presence of leading IVC and BVC investments before IPO is related to a lower likelihood of exiting the stock market through business failure but does not significantly affect the likelihood of MandAs. In contrast, the presence of CVC investors is related to a higher likelihood of delisting through extra-EU MandAs.
    Keywords: Independent venture capital,IPO survivability,Corporate venture capital,Bank-affiliated venture capital,High-tech firms,Firm failure,Cross-border MandAs
    Date: 2020
  12. By: Shaun Shuxun Wang (Southern University of Science and Technology); Jing Rong Goh (Risk Lighthouse International, Singapore); Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute); He Wang (Southern University of Science and Technology); Esther Ying Yang (Risk Lighthouse, USA)
    Abstract: Many governments are taking measures in support of small and medium-sized enterprises (SMEs) to mitigate the economic impact of the COVID-19 outbreak. This paper presents a theoretical model for evaluating various government measures, including insurance for bank loans, interest rate subsidy, bridge loans and relief of tax burdens. Our paper distinguishes a firm’s intrinsic value and book value, where a firm can lose its intrinsic value when it encounters cash flow crunch. Our model highlights the importance of providing bridge loans to SMEs during the COVID-19 disruption to prevent massive business closures. Wang Transform is applied to (i) calculating the appropriate level of interest rate subsidy payable to incentivize banks to issue more loans to SMEs and to extend the loan maturity of current debt to the SMEs, (ii) describing the frailty distribution for SMEs, and (iii) defining banks’ underwriting capability and overlap index in risk selection. This paper makes policy recommendations of establishing policy-oriented banks or investment funds dedicated to supporting SMEs, developing risk indices for SMEs to facilitate refined risk underwriting, providing SMEs with long-term tax relief and early-stage equity-type investments.
    Keywords: COVID-19, SME, Bank Loan, Government Subsidy, Wang Transform
    Date: 2020–08
  13. By: Ryan Niladri Banerjee; Boris Hofmann
    Abstract: Using firm-level data on listed non-financial companies in 14 advanced economies, we document a rise in the share of zombie firms, defined as unprofitable firms with low stock market valuation, from 4% in the late 1980s to 15% in 2017. These zombie firms are smaller, less productive, more leveraged and invest less in physical and intangible capital. Their performance deteriorates several years before zombification and remains significantly poorer than that of non-zombie firms in subsequent years. Over time, some 25% of zombie companies exited the market, while 60% exited from zombie status. However, recovered zombies underperform compared to firms that have never been zombies and they face a high probability of relapsing into zombie status.
    Keywords: zombie companies, firm behaviour, economic dynamism, productivity growth, bankruptcy
    JEL: D22 D24 E43 G33
    Date: 2020–09

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