nep-sbm New Economics Papers
on Small Business Management
Issue of 2020‒11‒23
fifteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. EU start-up calculator: impact of COVID-19 on aggregate employment: Scenario analysis for Denmark, Estonia, Finland, France, Latvia, Lithuania, Portugal and Sweden By Cristiana Benedetti Fasil; Petr Sedlacek; Vincent Sterk
  2. Corporate Governance, Business Group Governance and Economic Development Traps By Luis Dau; Randall Morck; Bernard Yeung
  3. How deep is your love? Innovation, Upgrading and the Depth of Internationalization By Meyer, Birgit
  4. Performance, working capital management, and the liability of smallness: A question of opportunity costs? By Vivien Lefebvre
  5. Government financial support and firm productivity in Vietnam By Vu, Quang; Tran, Tuyen
  6. Import Competition and Firm Productivity: Evidence from German Manufacturing By Slavtchev, Viktor; Bräuer, Richard; Mertens, Matthias
  7. Extreme Events, Entrepreneurial Start-Ups, and Innovation: Theoretical Conjectures By Gries, Thomas; Naudé, Wim
  8. Finance, Gender, and Entrepreneurship: India's Informal Sector Firms By Gang, Ira N.; Natarajan, Rajesh Raj; Sen, Kunal
  9. Investments in R&D and Innovative Behavior: An Exploratory Cross-Country Study By Link, Albert
  10. Identifying Latent Structures in Maternal Employment: Evidence on the German Parental Benefit Reform By Sophie-Charlotte Klose
  11. Political connections and firm's formalization: Evidence from Vietnam By Duc Anh Dang; Hai Anh La
  12. Start-up Acquisitions and Innovation Strategies By Schmutzler, Armin; Letina, Igor; Seibel, Regina
  13. What drives the location choice of new manufacturing plants in Germany? By Krenz, Astrid
  14. Guidelines on designing, implementing and evaluating open innovation activities By Antoine Blanchard; Hélène Schwalm
  15. The contributions of the relational view to understand the diffusion of a public policy for the promotion of cooperation between SMEs in Brazil By Olivier Coussi; Alsones Balestrin; Kadigia Faccin; Felipe Zarpelon

  1. By: Cristiana Benedetti Fasil (European Commission – JRC); Petr Sedlacek (University of Oxford, UK, CFM-LSE & CEPR); Vincent Sterk (University College London, UK, CFM-UCL & CEPR)
    Abstract: Early data show that the COVID-19 pandemic has affected particularly strongly start-up business activity. This may have dramatic and lasting effects on aggregate employment which persist as the cohort of new firms age. To assess such an impact, we developed the EU start-up calculator. A first application targeted to Austria, Belgium, Germany, Hungary, Italy and Spain is discussed in Benedetti Fasil, SedláÄ ek and Sterk (2020). The EU start-up calculator is an empirical tool that allows to conduct scenario analysis to compute the impact that the disruption of start-up activity has on aggregate employment on EU Member States and their economic sectors. In this paper, we simulate the effects of a strong (i.e. of magnitude equivalent to the Great Recession of 2008 and 2009) but short-lived (i.e. lasting one-year) crisis in Denmark, Estonia, Finland, France, Latvia, Lithuania, Portugal and Sweden. This shock generates important and persistent job losses in all the countries ranging between 0.9 (Portugal) and 4.5% (Latvia) from the employment trend in 2020 and results in a computed potential cumulative loss of jobs for the period 2020-2030 ranging from 59,000 (Estonia) to 798,000 (France). The potential negative impact is particularly high in Estonia, France, Latvia, Lithuania and Portugal, as well as in the service sector, which are characterized by a high firm turnover and a reliance on start-ups and young firms for job creation. We also find that in most countries the deterioration of the survival rate of young firms plays an important role in driving employment, seconded by the number of new entrants. As a consequence, policies aimed at supporting young firms and incentivizing the creation of new ones may significantly mitigate the medium-term effect of the pandemic. In fact, when we simulate bounce-back scenarios where the number of firms entering the economy rapidly increases in 2021, in every country the outlook is significantly improved, the recovery is faster and the aggregate job loss is lower.
    Keywords: COVID-19, start-ups, employment
    Date: 2020–10
  2. By: Luis Dau; Randall Morck; Bernard Yeung
    Abstract: Every firm in a developed economy relies on the mere existence of countless other firms to keep prices competitive up and down all supply chains. Without this network externality, no firm forms; and without many firms, no network forms; locking in a low-income trap. Business group governance supersedes corporate governance in most developing economies and in the rapid catch-up development phases of most high-income economies by hierarchically coordinating firms in multiple industries, internalizing this network externality. High-income economies grow via creative destruction - creative firms imposing a negative externality upon firms they destroy or disrupt, but a larger positive innovation-related externality upon the whole economy. Business groups avoid creative self-destruction, innovation by one group firm that disrupts another. Corporate governance supersedes business group governance in high-income economies to facilitate productivity growth. If business group governance does not retreat, productivity growth is impaired and a middle-income trap can result.
    JEL: B26 G3 N20 O1 P12
    Date: 2020–11
  3. By: Meyer, Birgit
    Abstract: Global Value Chains (GVCs) provide an important opportunity to become member of the global economy. Gaining access to GVCs and the possibility of developing linkages with major suppliers and customers enables the prospect to upgrade products and production processes via knowledge and technological spillovers, learning by doing and the allocation of new task. Adopting new production technologies and realizing synergy effects might allow cost reduction, product innovation and product upgrading. Even if GVCs represent a rich environment for innovation activities, the extent to which knowledge is created and transferred among firms may vary considerably across their mode of participation in the global chain, thus resulting in heterogeneous innovation capacities for the firms involved. Differences in the forms of governance underlying buyer-supplier relationships - for instance linked to dissimilar power asymmetries and firm capability - can strongly affect the knowledge transmission along the chains and are potentially able to explain heterogeneities in firms' innovation propensity. Using a firm-product-level dataset of Indian manufacturing firms including information on business groups, this paper contributes to recent studies on international production and GVCs by testing the effect of different modes of internationalization on firms' upgrading activities, including the extensive and intensive margins of innovation and R&D expenditures. Controlling for the selection bias associated with the chosen mode of internationalization and accounting for potential reverse causality, this paper shows that the deeper firms are integrated internationally, the higher the likelihood that they engage in innovation activities. Firms which have a high mode of internationalization are not only more productive, but also more likely to introduce new products, upgrade existing products and produce more sophisticated products than firms that are less engaged in international markets and, thus, less prone to international competition.
    Keywords: Global value chain,exporting,importing,FDI,innovation,upgrading
    JEL: F23 F61 O31 D22 L23 F14
    Date: 2020
  4. By: Vivien Lefebvre (LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg)
    Abstract: This article studies the relationship between working capital management and firm operating performance and focuses on the moderating effect of size. We use a large sample of 56,221 small, medium, and large firms from France, Germany, and Italy, and our results indicate that the impact of working capital management on performance strongly depends on size. We identify a higher sensitivity of performance to underinvestment in net operating working capital for small firms, but no higher sensitivity to overinvestment. These findings suggest that small firms experience high opportunity costs from lost sales when their net operating working capital is low. Financial constraints and lack of financial management are discussed as potential explanations because both are expressions of the liability of smallness.
    Date: 2020–03–24
  5. By: Vu, Quang; Tran, Tuyen
    Abstract: Using the Färe-Primont index and instrumental variable fixed effect estimation for the data of small and medium-sized enterprises (SMEs), this study considers if receiving government financial support enables SMEs in Vietnam to become more productive. The paper discovers no evidence of linkage between financial support and firm productivity. However, access to financial support improves technological progress and growth in firm scale but has a negative effect on improvement in technical efficiency. The estimation results reveal that the use of productivity as an aggregated index in previous studies may hide the real effect of government support on firm productivity.
    Keywords: Financial support; productivity; small and medium-sized enterprises; Vietnam
    JEL: O3 O31 O33
    Date: 2020–01–15
  6. By: Slavtchev, Viktor; Bräuer, Richard; Mertens, Matthias
    Abstract: This study analyzes empirically the effects of import competition on firm productivity (TFPQ) using administrative firm-level panel data from German manufacturing. We find that only import competition from high-income countries is associated with positive incentives for firms to invest in productivity improvement, whereas import competition from middle- and low-income countries is not. To rationalize these findings, we further look at the characteristics of imports from the two types of countries and the effects on R&D, employment and sales. We provide evidence that imports from high-income countries are relatively capital-intensive and technologically more sophisticated goods, at which German firms tend to be relatively good. Costly investment in productivity appears feasible reaction to such type of competition and we find no evidence for downscaling. Imports from middle- and low-wage countries are relatively labor-intensive and technologically less sophisticated goods, at which German firms tend to generally be at disadvantage. In this case, there are no incentives to invest in innovation and productivity and firms tend to decline in sales and employment.
    Keywords: productivity,multi-product firms,import competition
    JEL: F14 L25 D22 D24 F61
    Date: 2020
  7. By: Gries, Thomas (University of Paderborn); Naudé, Wim (RWTH Aachen University)
    Abstract: In light of the COVID-19 pandemic, we scrutinize what has been established in the literature on whether entrepreneurship can cause and resolve extreme events, the immediate and long-run impacts of extreme events on entrepreneurship, and whether extreme events can positively impact (some) entrepreneurship and innovation. Based on this, we propose a partial equilibrium model to provide several conjectures on the impact of COVID-19 on entrepreneurship and derive policy recommendations for recovery. Our model's comparative statics shows that entrepreneurship recovery will benefit from aggregate demand-side support measures, combined with direct subsidies for start-ups, firms' revenue losses, and loan liabilities, as well as from actions that promote income redistribution.
    Keywords: entrepreneurship, innovation, COVID-19, extreme events, development
    JEL: I18 L26 L53 M13
    Date: 2020–11
  8. By: Gang, Ira N. (Rutgers University); Natarajan, Rajesh Raj (Sikkim University); Sen, Kunal (University of Manchester)
    Abstract: How does informal economic activity respond to increased financial inclusion? Does it become more entrepreneurial? Does access to new financing options change the gender configuration of informal economic activity and, if so, in what ways and what directions? We take advantage of nationwide data collected in 2010/11 and 2015/16 by India's National Sample Survey Office on unorganized (informal) enterprises. This period was one of rapid expansion of banking availability aimed particularly at the unbanked, under-banked, and women. We find strong empirical evidence supporting the crucial role of financial access in promoting entrepreneurship among informal sector firms in India. Our results are robust to alternative specifications and alternative measures of financial constraints using an approach combining propensity score matching and difference-in-differences. However, we do not find conclusive evidence that increased financial inclusion leads to a higher likelihood of women becoming entrepreneurs than men in the informal sector.
    Keywords: entrepreneurship, financial constraints, gender, informal sector, difference-in-differences, India
    JEL: O12 G28 L26
    Date: 2020–11
  9. By: Link, Albert (University of North Carolina at Greensboro, Department of Economics)
    Abstract: The relationship between investments in research and development (R&D) and innovative behavior, measured in terms of new products or services being delivered to the market, is well documented in the literature. This paper departs from the extant literature in that the unit of observation is a country rather than a firm. Using World Bank aggregate data, this level of analysis thus allows for a systematic study of cross-country observations on an R&D Innovation relationship.
    Keywords: R&D; Innovation; Developed Economy; Transition Economy; Developing Economy;
    JEL: O31 O32 O57
    Date: 2020–11–09
  10. By: Sophie-Charlotte Klose
    Abstract: This paper identifies latent group structures in the effect of motherhood on employment by employing the C-Lasso, a recently developed, purely data-driven classification method. Moreover, I assess how the introduction of the generous German parental benefit reform in 2007 affects the different cluster groups by taking advantage of an identification strategy that combines the sharp regression discontinuity design and hypothesis testing of predicted employment probabilities. The C-Lasso approach enables heterogeneous employment effects across mothers, which are classified into an a priori unknown number of cluster groups, each with its own group-specific effect. Using novel German administrative data, the C-Lasso identifies three different cluster groups pre- and post-reform. My findings reveal marked unobserved heterogeneity in maternal employment and that the reform affects the identified cluster groups' employment patterns differently.
    Date: 2020–11
  11. By: Duc Anh Dang; Hai Anh La
    Abstract: The literature shows that political connections have different effects on firms' activities. However, the question of how political connections affect firms' formalization has not been explored. Using data from three waves of the Vietnam Small and Medium Enterprise Survey for the period from 2007 to 2011, this paper aims to examine the relationship between political connections and firms' formalization in Viet Nam. We find that firms with political connections increase their share of formal workers.
    Keywords: Political connections, formalization, Viet Nam
    Date: 2020
  12. By: Schmutzler, Armin; Letina, Igor; Seibel, Regina
    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
  13. By: Krenz, Astrid
    Abstract: Almost 30 years after German reunification, a persistent gap in different firm performance measures exists between East and West Germany. In this paper I focus on the differences in new German manufacturing plants' location choices across the German district-free cities and districts and investigate its regional determinants. For that purpose, I construct a novel, rich regional- and plant-level dataset based on the Official Firm Statistics from the German Federal Statistical Office and the Offices of the Laender. The analysis provides first-time evidence regarding how in particular the location decision of plants in the German economy is in uenced by regional road infrastructure as well as regional structural funding. The effects are economically important and significant. The results reveal that a 10 percent increase in plant agglomeration increases the odds of a new plant to locate in the region by 12 percent. A 10 percent decrease of travel time on roads increases the odds of a plant to locate by 4 percent in Germany overall, by 7.6 percent among East German regions and by 26.5 percent in particular for large plants in the East German regions. A 10 percent larger population increases the odds to locate by 8.7 percent. A 10 percent increase in regional structural funding for infrastructure purposes increases the odds to locate in a region in East Germany by 8.3 percent in particular for large plants. Policy implications emerge that address in particular the improvement of infrastructure and support to reap the benefits that arise from agglomeration externalities.
    Keywords: Firm location choice,regional road infrastructure,Germany,agglomeration economies,regional structural funding,East-West gap,conditional logit,nested logit.
    JEL: D22 L25 R11 R12
    Date: 2020
  14. By: Antoine Blanchard (UB - Université de Bordeaux); Hélène Schwalm (UB - Université de Bordeaux)
    Date: 2020–09–22
  15. By: Olivier Coussi (CEREGE - CEntre de REcherche en GEstion - EA 1722 - IAE Poitiers - Institut d'Administration des Entreprises (IAE) - Poitiers - Université de Poitiers - Université de Poitiers - ULR - Université de La Rochelle); Alsones Balestrin; Kadigia Faccin; Felipe Zarpelon
    Abstract: The development of inter-firm cooperation is a major issue in government policies to support economic competitiveness. In order to optimize the spread and impact of these policies, the public authorities deploy specific mechanisms in which universities can play a central role. While the latter have every legitimacy to be active within the framework of support mechanisms for innovation or technology transfer, it seems less natural to involve them in operations outside these activities. We present the lessons learned from a longitudinal case study of an inter-firm cooperation program conducted in a state in southern Brazil through a partnership between the government and community universities in charge of its operational implementation. From a relational perspective, we analyze the determinants of this partnership in order to identify the relational rents produced by the networks of SMEs built into authentic territorial ecosystems: community access and propagation. We show that these rents are confronted with obstacles that constitute relational losses that must be minimized in order to optimize the effectiveness of the public policy pursued: inflexibility and distance from the target.
    Abstract: Le développement de la coopération inter-entreprises est un enjeu majeur des politiques gouvernementales de soutien à la compétitivité économique. Afin d'optimiser la diffusion et l'impact de ces politiques, les pouvoirs publics déploient des dispositifs spécifiques au sein desquels les universités peuvent avoir une place centrale. Si ces dernières ont toute légitimité d'être actives dans le cadre de dispositifs de soutien à l'innovation ou au transfert de technologies, il semble moins naturel de les impliquer pour des opérations en dehors de ces champs. Nous présentons les enseignements issus d'une étude de cas longitudinale sur un programme de coopération inter-entreprises déployée dans un Etat au sud du Brésil par le biais d'un partenariat entre le gouvernement et des universités communautaires en charge de sa mise en oeuvre opérationnelle. En nous inscrivant dans une perspective relationnelle, nous analysons les déterminants de ce partenariat afin d'identifier les rentes relationnelles produites par les réseaux de PME construits en véritables écosystèmes territoriaux : l'accès à la communauté et la propagation. Nous démontrons que ces rentes sont confrontées à des obstacles, constituant de fait des pertes relationnelles à minimiser afin d'optimiser l'efficacité de la politique publique poursuivie : l'inflexibilité ainsi que la distance par rapport à la cible.
    Keywords: Perspective relationnelle,université,coopération,étude de cas,Brésil,Politique publique.
    Date: 2020–04–01

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