nep-sbm New Economics Papers
on Small Business Management
Issue of 2020‒10‒26
nineteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Financial distress and the role of management in micro and small-sized firms By Fernando Alexandre; Sara Cruz; Miguel Portela
  2. Institutions, Financial Development, and Small Business Survival: Evidence from European Emerging Markets By Ichiro Iwasaki; Evzen Kocenda; Yoshisada Shida
  3. Dynamic financial landscapes and entrepreneurial cultures on new firm formation in different industries By Sin Tian Ho, Cynthia; Fili, Andreas
  4. Entrepreunial Orientation : Open Innovation Concept and Risk Management Measurement By mosse, Michelle veren
  5. The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions By Robert W. Fairlie
  6. Influence of entrepreneurial orientation: How open innovation and risk governance affects firm performance By Susanto, Stefanny Magdalena
  7. The Effects of COVID-19 on U.S. Small Businesses: Evidence from Owners, Managers, and Employees By Georgij Alekseev; Safaa Amer; Manasa Gopal; Theresa Kuchler; JW Schneider; Johannes Stroebel; Nils Wernerfelt
  8. R&D and ICT in the Innovation Process of Japanese Innovative SMEs: Panel Data Analysis Based on Firm-Level Survey Data By Shigeno, Hidenori; Bunno, Teruyuki; Abu Taher, Sheikh; Tsuji, Masatsugu
  9. Firm-bank “Odd Couples” and trade credit: Evidence from Italian SMEs By Jérémie BERTRAND; Pierluigi MURRO
  10. Weathering the Storm: Who Can Access Credit in a Pandemic? By Gabriel Chodorow-Reich; Olivier M. Darmouni; Cooperman Harry; Stephan Luck; Matthew Plosser
  11. Determinants of debt ratio levels among small-scale manufacturing enterprises in Ethiopia: Do government policies matter? By Melesse, Wondemhunegn Ezezew
  12. Inter-industry FDI spillovers from foreign banks: Evidence in transition economies By Shusen Qi; Kent Hui; Steven Ongena
  13. The Determinants of Economic Competitiveness By Kluge, Jan; Lappoehn, Sarah; Plank, Kerstin
  14. Factor Adjustments and Liquidity Management: Evidence from Japan's Two Lost Decades and Financial Crises By Hirokazu Mizobata; Hiroshi Teruyama
  15. Pengukuran Open Innovation dan Pengelolahan Risiko Melalui Pendekatan Subjektif Berupa Likert Scale By Lim, Raymond
  16. Entrepreneurs and Start-ups in the Agricultural Industry By Grant, Marta; Zhang, Wendong
  17. In knowledge we trust: learning-by-interacting and the productivity of inventors By Matteo Tubiana; Ernest Miguelez; Rosina Moreno
  18. Bank Liquidity Provision Across the Firm Size Distribution By Gabriel Chodorow-Reich; Olivier Darmouni; Stephan Luck; Matthew C. Plosser
  19. An Uphill Battle: COVID-19’s Outsized Toll on Minority-Owned Firms By Lucas Misera

  1. By: Fernando Alexandre (University of Minho and NIPE); Sara Cruz (University of Minho and NIPE); Miguel Portela (University of Minho, NIPE and IZA, Bonn)
    Abstract: In this paper, we focus on managerial characteristics of micro and small-sized firms. Using linked employer-employee data on the Portuguese economy for the 2010-2018 period, we estimate the impact of management teams' human capital on the probability of firms becoming financially distressed and on their subsequent recovery. Our estimates show that the relevance of management teams' formal education on the probability of firms becoming financially distressed depends on firms' size and the type of education. We show that management teams' formal education and tenure reduces the probability of micro and small-sized firms becoming financially distressed and increases the probability of their subsequent recovery. The estimates also suggest that those impacts are stronger for micro and small-sized firms. Additionally, our results show that functional experience previously acquired in other firms, namely in foreign-owned and in exporting firms and in the area of finance, may reduce the probability of micro firms becoming financially distressed. On the other hand, previous functional experience in other firms seems to have a strong and highly significant impact on increasing the odds of recovery of financially distressed firms. We conclude that policies that induce an improvement in the managerial human capital of micro and small-sized firms have significant scope to improve their financial condition, enhancing the resilience of the economy against shocks.
    Keywords: Financial distress; human capital; firm performance
    JEL: G32 J24 L25
    Date: 2020
  2. By: Ichiro Iwasaki (Institute of Economic Research, Hitotsubashi University, Tokyo, Japan); Evzen Kocenda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Czech Academy of Sciences, Prague, Czech Republic; CESifo, Munich, IOS, Regensburg); Yoshisada Shida (Economic Research Institute for Northeast Asia (ERINA), Niigata, Japan)
    Abstract: In this paper, we traced the survival status of 94,401 small businesses in 17 European emerging markets from 2007–2017 and empirically examined the determinants of their survival, focusing on institutional quality and financial development. We found that institutional quality and the level of financial development exhibit statistically significant and economically meaningful impacts on the survival probability of the SMEs being researched. The evidence holds even when we control for a set of firm-level characteristics such as ownership structure, financial performance, firm size, and age. The findings are also uniform across industries and country groups and robust beyond the difference in assumption of hazard distribution, firm size, region, and time period.
    Keywords: small business; institutions; financial development; survival analysis; European emerging markets
    JEL: C14 D02 D22 G33 M21
    Date: 2020–10
  3. By: Sin Tian Ho, Cynthia (Department of Real Estate and Construction Management, Royal Institute of Technology); Fili, Andreas (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: In this paper, the effect of local entrepreneurial attitudes and proximity to bank branches on new firm formation in different industries is analysed using spatial Durbin models for a panel dataset of two years — 2007 and 2013 on the municipal level. Previous studies have shown that a high level of regional social legitimacy increases the demand for entrepreneurship due to perceivably better access to resources and the entrepreneur has also higher confidence in his ability to run a business in the area (Kibler, Kautonen, and Fink 2014). Furthermore, previous studies has also shown that the proximity of banks is important for local entrepreneurial activity (Agarwal and Hauswald 2010; Backman 2015; Backman and Wallin 2018; Ho and Berggren 2020). It is also noted that every entrepreneurial ecosystem in each municipality is unique and can be industry specific. The results from our spatial models show that an increase in the local public attitudes has positive significant effects on new firm formation in these following industries: manufacturing, construction and ‘financial and business services’ industries. Our results also show that when weighted mean distance to the nearest bank branch doubled, there is a 4.5% decrease in the total number of new firms formed. Weighted mean distance to the nearest bank branch has also been shown to lower new firm formation especially in two industries — ‘financial and business services’ and ‘education, health and others’.
    Keywords: Attitudes; Banks; New Firm Formation; Industries; Spatial Analysis
    JEL: C23 G21 L26
    Date: 2020–10–12
  4. By: mosse, Michelle veren
    Abstract: Entrepreneurial Orientation is an orientation part of entrepreneurship which consists of a process of making strategies and policies that form the basis of entrepreneurship (Rauch, Wiklund, Lumpkin & Frese). Entrepreneurial Orientation is an important thing as a basis for strength in an organization to improve the course of the entrepreneurial process and can lead to a pattern of business behavior that is applied if you want to maintain a business. There are 5 dimensions of entrepreneurial orientation, namely Innovation, fgProactiveness, Risktaking (Miller, 1983), Autonomy Orientation and Competitive Aggressiveness according to (Lumpkin & Dess, 1996). A company is said to be able to apply an entrepreneurial orientation if the company has characteristics such as first in market product innovation, has the courage to take risks, is proactive in making innovations.
    Date: 2020–10–01
  5. By: Robert W. Fairlie
    Abstract: Social distancing restrictions and health- and economic-driven demand shifts from COVID-19 are expected to shutter many small businesses and entrepreneurial ventures, but there is very little early evidence on impacts. 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 April 2020 CPS – the first month fully capturing early effects. The number of active business owners in the United States plummeted by 3.3 million or 22 percent over the crucial two-month window from February to April 2020. The drop in active business owners was the largest on record, and losses to business activity were felt across nearly all industries. African-American businesses were hit especially hard experiencing a 41 percent drop in business activity. Latinx business owner activity fell by 32 percent, and Asian business owner activity dropped by 26 percent. Simulations indicate that industry compositions partly placed these groups at a higher risk of business activity losses. Immigrant business owners experienced substantial losses in business activity of 36 percent. Female business owners were also disproportionately affected (25 percent drop in business activity). Continuing the analysis in May and June, the number of active business owners remained low – down by 15 percent and 8 percent, respectively. The continued losses in May and June, and partial rebounds from April were felt across all demographic groups and most industries. These findings of early-stage losses to small business activity have important implications for policy, income losses, and future economic inequality.
    Keywords: small business, entrepreneurship, business owners, self-employment, COVID-19, coronavirus, shelter in place restrictions, social distancing restrictions, minority business, female business
    JEL: J15 J16 L26
    Date: 2020
  6. By: Susanto, Stefanny Magdalena
    Abstract: Entrepreneurial Orientation adalah proses pembuatan strategi yang mewakili kebijakan dan praktik sebagai dasar dalam bertindak dan mengambil keputusan dalam berwirausaha (Zhang, O'Kane, & Chen, 2020). Dalam penerapannya, Entrepreneurial Orientation sendiri selalu mengedepankan karakter open innovation dan pengelolaan risikonya dengan harapan dapat mengembangkan organisasi / perusahaan di semua tingkat khususnya terhadap unit bisnisnya (Hughes & Hodgkinson, 2020).
    Date: 2020–10–01
  7. By: Georgij Alekseev; Safaa Amer; Manasa Gopal; Theresa Kuchler; JW Schneider; Johannes Stroebel; Nils Wernerfelt
    Abstract: We analyze a large-scale survey of owners, managers, and employees of small businesses in the United States to understand the effects of the early stages of the COVID-19 pandemic on those businesses. The survey was fielded in late April 2020 among Facebook business page administrators, frequent sellers on Facebook’s e-commerce platform Marketplace, and the general Facebook user population. We observe more than 66,000 responses covering most sectors of the economy, including many businesses that had stopped operating due to the pandemic. The survey asks 136 questions covering topics such as changes in business operations and employment, changes in financing patterns, and the interaction of household and business responsibilities. We characterize the adjustments implemented to survive the pandemic and explore the key challenges to continue operating or to re-open. We show how these patterns differ across industry, firm size, owner gender, and other firm characteristics.
    Keywords: small businesses, COVID-19, working from home, small business finance
    JEL: E30 L26 M13
    Date: 2020
  8. By: Shigeno, Hidenori; Bunno, Teruyuki; Abu Taher, Sheikh; Tsuji, Masatsugu
    Abstract: This study seeks the elements of R&D and ICTs that play a role in the innovation process, and how these two are integrated with each other to achieve innovation. To achieve this goal, this paper uses panel data analysis. A fairly large number of panel data studies on innovation have appeared thus far, but the novelty of this paper lies in the authors' own firm-level survey data. The surveys were conducted in February 2012 and March 2017. The number of achieved innovations in the questionnaire is taken as an outcome variable. Explanatory variables related to R&D and ICTs were extracted from related questions by factor analysis. The fixed effect robust model with an instrumental variable (IV) is estimated, since the error term may contain heteroscedasticity. The significant variables are R&D autonomy (p
    Keywords: random effect,instrumental variable,R&D autonomy,R&D orientation,factor analysis
    Date: 2020
  9. By: Jérémie BERTRAND (IESEG School of Management, Finance Department 3, rue de la digue, 59000 Lille - France); Pierluigi MURRO (LUISS University, Department of Business and Managemen, Viale Romania, 32 00197 Rome – Italy)
    Abstract: We analyze the use of trade credit as a substitute for relationship lending credit when firms cannot otherwise obtain such credit. Using a sample of SMEs from the Survey of Italian Manufacturing Firms, we show that when opaque firms seeking relationship credit encounter transactional banks, they use a greater portion of trade credit. This findings suggest that opaque firms substitute their missing relationship credit with trade credit, because trade creditors are more able to evaluate soft information. The results depend on firm characteristics, the nature of the bank, and the size of the firms’ banking pool.
    Keywords: Banks, Lending Technologies, Small Business, Trade Credit
    JEL: G21 L14 L22
    Date: 2020–10
  10. By: Gabriel Chodorow-Reich; Olivier M. Darmouni; Cooperman Harry; Stephan Luck; Matthew Plosser
    Abstract: Credit enables firms to weather temporary disruptions in their business that may impair their cash flow and limit their ability to meet commitments to suppliers and employees. The onset of the COVID recession sparked a massive increase in bank credit, largely driven by firms drawing on pre-committed credit lines. In this post, which is based on a recent Staff Report, we investigate which firms were able to tap into bank credit to help sustain their business over the ensuing downturn.
    Keywords: liquidity provision; macro-finance; credit; financial constraints; loan terms; banking; credit lines; COVID-19
    JEL: G2 G3
    Date: 2020–10–13
  11. By: Melesse, Wondemhunegn Ezezew
    Abstract: Businesses, consumers, and individual investors rely on a host of debt instruments when their internal resources are insufficient. This paper explores the determinants of debt financing choices among small-scale manufacturing enterprises in Ethiopia—with special focus on the role of government policies. The study exploits survey data gathered from 1321 enterprises in the Amhara region of Ethiopia and employs conditional mixed process (CMP) estimation technique to isolate the key drivers of firm debt levels. The major econometric findings confirm that enterprises that had some debt mix in their startup capital are more likely to be in higher debt categories than those enterprises that kick start exclusively with their own internal resources. In addition, the results also reveal that self-reported profitability, firm age, ownership structure, access to business development services, and receipt of bureaucratic support during enterprise formation process have strong effects on the degree of firms’ indebtedness. However, firm size, gender, and owner-manager’s education have no discernible correlation with reported debt levels in the sampled firms.
    Keywords: debt financing, small-scale enterprises, ordered probit, conditional mixed process, Ethiopia
    JEL: D04 G28 M21
    Date: 2020–09–20
  12. By: Shusen Qi (Xiamen University - School of Management); Kent Hui (Xiamen University); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: Too little is known about the inter-industry spillovers from foreign direct investment (FDI) in services. We therefore study whether and how spillovers from FDI in the banking sector occurs. We access a sample of non-financial domestic firms in transition economies from Eastern Europe and Central Asia and find that the innovation pursued by domestic firms benefits from foreign bank penetration. This positive interindustry spillover surprisingly (and in contrast to conventional wisdom) does not seem to work through enhanced credit access, but rather through the improvement of the local market of fee-based banking services and through the transfer of knowledge to domestic firms in non-contractual interactions. These positive spillovers occur mainly for foreign banks that use relationship lending, domestic firms that do not export, and host countries that are less open to the global market.
    Keywords: FDI spillovers, knowledge transfer, foreign banks, services FDI, innovation
    Date: 2020–10
  13. By: Kluge, Jan (Institute for Advanced Studies, Vienna, Austria); Lappoehn, Sarah (Institute for Advanced Studies, Vienna, Austria); Plank, Kerstin (Institute for Advanced Studies, Vienna, Austria)
    Abstract: This paper aims at identifying relevant indicators for TFP growth in EU countries during the recovery phase following the 2008/09 economic crisis. We proceed in three steps: First, we estimate TFP growth by means of Stochastic Frontier Analysis (SFA). Second, we perform a TFP growth decomposition in order to get measures for changes in technical progress (CTP), technical efficiency (CTE), scale efficiency (CSC) and allocative efficiency (CAE). And third, we use BART – a non-parametric Bayesian technique from the realm of statistical learning – in order to identify relevant predictors of TFP and its components from the Global Competitiveness Reports. We find that only a few indicators prove to be stable predictors. In particular, indicators that characterize technological readiness, such as broadband internet access, are outstandingly important in order to push technical progress while issues that describe innovation seem only to speed up CTP in higher-income economies. The results presented in this paper can be guidelines to policymakers as they identify areas in which further action could be taken in order to increase economic growth. Concerning the bigger picture, it becomes obvious that advanced machine learning techniques might not be able to replace sound economic theory but they help separating the wheat from the chaff when it comes to selecting the most relevant indicators of economic competitiveness.
    Keywords: Competitiveness, TFP growth, Stochastic Frontier Analysis, BART
    JEL: C23 E24 O47
    Date: 2020–10
  14. By: Hirokazu Mizobata (Faculty of Economics, Kansai University); Hiroshi Teruyama (Institute of Economic Research, Kyoto University)
    Abstract: To reveal the cause of Japan's recent weak physical investment, this study estimates and compares the Euler equations for physical investment, R&D investment, and employment. We construct an unbalanced panel from Japanese firms' microdata from 1994 to 2014. The estimation results suggest that firms face weak financial constraints in the sense that their borrowing amount is not restricted, but their internal funds are insufficient.To address such constraints, firms first allocate their cash flows and cash reserves to buffer their employment and then incur R&D investment rather than protect physical investment. We suggest the following reason for this result: employment and R&D investment are more productive and/or impose larger adjustment costs than physical investment, and thus, firms prioritize the stabilization of employment and R&D over funding physical investment. This study also shows that young, small-sized, and manufacturing firms are likely to suffer from weak financial constraints. Furthermore, even during financial crises, firms rely only on internal funding and are not restricted by external funding in the same way as they are during usual times.
    Keywords: physical investment, research and development investment, employment, adjustment cost, financial constraint, Euler equation
    JEL: G31 G32
    Date: 2020–10
  15. By: Lim, Raymond
    Abstract: Artikel ini membahas mengenai karakter perusahaan yaitu Open Innovation dan Risk Governance yang mengadopsi Entrepreneurial Orientation serta pengukurannya melalui pendekatan subjektif berupa likert scale.
    Date: 2020–09–24
  16. By: Grant, Marta; Zhang, Wendong
    Abstract: Analyzing 24 recent agricultural start-up companies and 23 agricultural applications, this article provides an overview of entrepreneurs and start-ups in the agricultural industry, with a focus on crop production and farm management. Agricultural entrepreneurship is gaining traction and getting more support from universities and industries. While most recent agricultural start-ups focus on producers, opportunities exist to better serve investors and agricultural professionals. Better data management to assist agricultural production and management decisions would be a potential source of new ideas. Despite the challenges, the rural property professionals should be more aware of newer data, tools, and technologies brought by these innovative firms. Additionally, automation, artificial intelligence, and sensors will present significant opportunities for new start-ups.
    Date: 2019–01–01
  17. By: Matteo Tubiana; Ernest Miguelez; Rosina Moreno
    Abstract: Innovation rarely happens through the actions of a single person. Innovators source their ideas while interacting with their peers, at different levels and with different intensities. In this paper, we exploit a dataset of disambiguated inventors in European cities to assess the influence of their interactions with co-workers, organizations’ colleagues, and geographically co-located peers, to understand if the different levels of interaction influence their productivity. Following inventors’ productivity over time and adding a large number of fixed effects to control for unobserved heterogeneity, we uncover critical facts, such as the importance of city knowledge stocks for inventors’ productivity, with firm knowledge stocks and network knowledge stocks being of smaller importance. However, when the complexity and quality of knowledge is accounted for, the picture changes upside down, and closer interactions (individuals’ coworkers and firms’ colleagues) become way more important.
    Keywords: inventors; productivity; stock of knowledge; interactions
    JEL: O18 O31 O33 O52 R12
    Date: 2020
  18. By: Gabriel Chodorow-Reich; Olivier Darmouni; Stephan Luck; Matthew C. Plosser
    Abstract: Using loan-level data covering two-thirds of all corporate loans from U.S. banks, we document that SMEs (i) obtain much shorter maturity credit lines than large firms; (ii) have less active maturity management and therefore frequently have expiring credit; (iii) post more collateral on both credit lines and term loans; (iv) have higher utilization rates in normal times; and (v) pay higher spreads, even conditional on other firm characteristics. We present a theory of loan terms that rationalizes these facts as the equilibrium outcome of a trade-off between commitment and discretion. We test the model's prediction that small firms may be unable to access liquidity when large shocks arrive using data on drawdowns in the COVID recession. Consistent with the theory, the increase in bank credit in 2020Q1 and 2020Q2 came almost entirely from drawdowns by large firms on pre-committed lines of credit. Differences in demand for liquidity cannot fully explain the differences in drawdown rates by firm size, as we show that large firms also exhibited much higher sensitivity of drawdowns to industry-level measures of exposure to the COVID recession. Finally, we match the bank data to a list of participants in the Paycheck Protection Program (PPP) and show that SME recipients of PPP loans reduced their non-PPP bank borrowing in 2020Q2 by between 53 and 125 percent of the amount of their PPP funds, suggesting that government-sponsored liquidity can overcome private credit constraints.
    JEL: E51 G21 G32
    Date: 2020–10
  19. By: Lucas Misera
    Abstract: Since COVID-19 sparked state-mandated lockdowns nationwide in March, data suggest that minority-owned small businesses have been disproportionately impacted by the pandemic, facing higher rates of closures and sharper declines in cash balances as compared to nonminority-owned small businesses. Research shows that Black-owned businesses closed at more than twice the rate of white-owned firms and experienced declines in cash balances nine times as steep as nonminority firms in some cases. Black-owned businesses faced the greatest impact of any racial group, though Latinx- and Asian-owned businesses also experienced outsized closures and declines in cash balances. This report collects insight from various sources into the pandemic’s effect on minority-owned firms thus far and examines possible explanations for race-level differences in COVID-19’s impact on businesses.
    Date: 2020–10–08

This nep-sbm issue is ©2020 by João Carlos Correia Leitão. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.