nep-sbm New Economics Papers
on Small Business Management
Issue of 2021‒01‒25
seventeen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Public subsidies and the sources of venture capital By Berger, Marius; Hottenrott, Hanna
  2. A Theory of Debt Maturity and Innovation By Yuliyan Mitkov
  3. Harnessing Digital Technologies to Promote SMEs in the MENAP Region By Inutu Lukonga
  4. Eco-Innovation and Employment: A Task-Based Analysis By Elliott, Robert J. R.; Kuai, Wenjing; Maddison, David; Ozgen, Ceren
  5. Is the German Mittelstand More Resistant to Crises? Empirical Evidence from the Great Recession By Michael Berlemann; Vera Jahn; Robert Lehmann
  6. Are firms withdrawing from basic research? An analysis of firm-level publication behaviour in Germany By Krieger, Bastian; Pellens, Maikel; Blind, Knut; Schubert, Torben
  8. The impact of regulation on innovation By Philippe Aghion; Antonin Bergeaud; John Van Reenen
  9. The age distribution of business firms By Flavio Calvino; Daniele Giachini; Mattia Guerini
  10. Immigration and Entrepreneurship in the United States By Pierre Azoulay; Benjamin F. Jones; J. Daniel Kim; Javier Miranda
  11. Entrepreneurial Teams: Diversity of Skills and Early-Stage Growth By Francesco D’Acunto; Geoffrey Tate; Liu Yang
  12. Public R&D investment in economic crises By Pellens, Maikel; Peters, Bettina; Hud, Martin; Rammer, Christian; Licht, Georg
  13. Quantifying the importance of firms by means of reputation and network control By Yan Zhang; Frank Schweitzer
  14. Financial Constraints: a Propagation Mechanism of Foreign Shocks By Rosario Aldunate
  15. COVID-19 and SME Failures By ; Pierre-Olivier Gourinchas; Sebnem Kalemli-Ozcan; Veronika Penciakova
  16. Kirzner and Rothbard on an Austrian theory of entrepreneurship: the heirs of both Menger and Mises discuss action and the role of institutions. By Gilles Campagnolo; Christel Vivel
  17. The effects of Entrepreneurship and Sectoral Outputs on three Dimensions of Sustainable Development: A Literature Review and an Empirical Assessment for Developed Countries By Daly, Saida; Garroud, Chadia

  1. By: Berger, Marius; Hottenrott, Hanna
    Abstract: Research suggests that public subsidies for newly founded firms have a positive effect on follow-on financing, in particular, Venture Capital (VC). This study differentiates between Government VC, Independent VC, Corporate VC, and Business Angels and shows that public subsidies are not relevant for all of these sources. When accounting for firm characteristics that drive both selection into public subsidies as well as into VC financing through econometric matching techniques, we find that subsidies are only linked to Government VC and Business Angel financing.
    Keywords: Start-up Subsidies,Entrepreneurship Policy,Entrepreneurial Finance,Venture Capital,Business Angels
    JEL: G24 L26 O25 O31
    Date: 2020
  2. By: Yuliyan Mitkov (University of Bonn)
    Abstract: I propose a theory of debt maturity as an incentive device to motivate innovation when contracts are fundamentally incomplete and shaped by ex-post renegotiation. The financing of innovative firms must balance two goals. On the one hand, since innovation is inherently risky, the entrepreneur must receive adequate protection after failure. Simultaneously, the firm must be liquidated when its assets can be redeployed more efficiently elsewhere. Meeting these two goals can be especially challenging when contracts are incomplete. I show how an appropriate choice of debt maturity, together with ex-post contract renegotiation, embeds a "put option" into the firm's capital structure. The put is exercised when liquidation is efficient, and it partially insures the entrepreneur against failure and thus motivates innovation. The theory has novel empirical implications for the financing patterns of innovative firms.
    Keywords: Innovation, Debt maturity, Incomplete contracts, Renegotiation
    JEL: C78 D82 D86 G32 G33 O31
    Date: 2020–12
  3. By: Inutu Lukonga
    Abstract: Policy makers in the MENAP region have been formulating policies and designing programs to develop small and medium sized enterprises (SMEs) with a view to create jobs and achieve inclusive growth. But while the programs have helped increase the number of enterprises, growth of SMEs continues to face barriers to growth. As a result, microenterprises predominate and SMEs contribution to employment remains below potential. Partial implementation of reforms explain some of the underperformance, but frictions in strategy design also played an important role. Sustaining current reforms is, therefore, not sufficient to achieve inclusive growth. Digital technologies have potential to boost SMEs productivity and growth and economies are rapidly digitalizing, thus SMEs need to embrace digital solutions to compete and survive. Therefore, for SMEs to be effective engines of inclusive growth, a rethinking of the SME development strategy is needed that makes SMEs’ digital transformation a priority.
    Keywords: Technology;Small and medium enterprises;Employment;Business environment;Digitalization;WP,SME growth,MENAP country,financing SMEs,SME sector,SME support policy,SMEs in MENAP
    Date: 2020–07–24
  4. By: Elliott, Robert J. R. (University of Birmingham); Kuai, Wenjing (University of Birmingham); Maddison, David (University of Birmingham); Ozgen, Ceren (University of Birmingham)
    Abstract: This paper provides some of the first evidence of the relationship between eco-innovation and employment. Adopting a O*NET based task approach, in a study of the Dutch firms, we show that eco-innovation has no impact on overall employment. However, compared to non- eco-innovators there is an 18.2% increase in the number of green jobs (equivalent to 12 new green workers for the average firm). This means an average increase in the share of green workers of around 3.3%. Broadly speaking, the increase in the share of green jobs was driven by a reduction in non-green workers and a smaller but still significant increase in the number of green workers. We further show that subsidy-driven policies, rather than regulation-driven policies positively correlate with the number of green workers.
    Keywords: eco-innovation, green jobs, subsidies
    JEL: Q52 Q55 J23
    Date: 2021–01
  5. By: Michael Berlemann; Vera Jahn; Robert Lehmann
    Abstract: Germany’s comparatively good economic performance throughout the Great Recession of the years 2008/2009 is often attributed to the business model of the German Mittelstand firm. Somewhat surprisingly, this claim has never been backed by empirical evidence. In this paper we use micro panel data from the ifo Business Survey to study the comparative performance of Mittelstand enterprises, defined as owner-managed SMEs. We present supporting evidence for the hypothesis that Mittelstand firms performed more stable throughout the Great Recession than non-Mittelstand firms. We also show that owner-managed SMEs performed significantly better than SMEs and owner-managed large enterprises. Thus, it is rather the combination of firm-size and owner-management that leads to more crisis resistance.
    Keywords: Mittelstand firms, Great Recession, crisis resistance
    JEL: E31 G12
    Date: 2020
  6. By: Krieger, Bastian; Pellens, Maikel; Blind, Knut; Schubert, Torben
    Abstract: Previous research has expressed concerns about firms engaging less in basic research. We contribute to this debate by studying trends in the scientific publishing activities of firms located in Germany. Our results do not confirm a declining trend in raw numbers with numbers indicating that firms' aggregate volume of scientific publications stayed constant between 2008 and 2016. However, the number of publishing firms declined, in particular in high-tech and knowledge-intensive industries. Beyond that, we observe positive trends in publishing in basic research journals compared to journals focused on applied research, and publishing in collaboration with academic partners compared to publishing alone. Thus, our results paint an ambiguous picture. While they do not confirm a decrease in firms' basic research engagement in the aggregate, the figures document a concentration of publishing activities on fewer firms. We argue that this concentration of basic research activities in firms may pose a threat to the longer term innovativeness of the German economy.
    Keywords: Corporate publishing,Basic research,R&D strategy
    JEL: O32 O33 O34 O36
    Date: 2020
  7. By: Wioleta Kucharska (Gdansk University of Technology, Gdansk, Poland); G. Scott Erickson (Ithaca College, Ithaca, NY, USA)
    Abstract: This study measures the relationship between tacit knowledge and innovation in the Polish and US information technology (IT) industries. Large samples were obtained, allowing quantitative modeling not possible in many tacit knowledge studies focused on more qualitative analysis. Conceptually, the study identifies the potential sources of tacit knowledge (learning-by-doing and/or learning-by-interaction), individual tacit knowledge development leading to a willingness to share, and the consequent correlation to process and/or product/service innovation. The important role of critical thinking as a control variable in tacit knowledge development in individuals is also identified as is the connection of process innovation as a mediator between tacit knowledge sharing and product/service innovation. The model is supported across both samples though with interesting differences across countries, particularly in sources of tacit knowledge (more learn-by-doing in the US), the link between awareness and sharing (stronger in US), and innovation (process as a full mediator in Poland, complementary in the US). The main theoretical contribution is empirical support for tacit knowledge's role in innovation, including the step-by-step details of how everything connects as well as details on how the model can differ by national context. The managerial implications include the care that must be taken to evaluate national circumstances and their potential impact on a firm's management of tacit knowledge.
    Keywords: Tacit knowledge, knowledge awareness, knowledge sharing, innovation, IT industry, Poland, USA
    Date: 2021–01
  8. By: Philippe Aghion; Antonin Bergeaud; John Van Reenen
    Abstract: Does regulation affect the pace and nature of innovation and if so, by how much? We build a tractable and quantifiable endogenous growth model with size-contingent regulations. We apply this to population administrative firm panel data from France, where many labor regulations apply to firms with 50 or more employees. Nonparametrically, we find that there is a sharp fall in the fraction of innovating firms just to the left of the regulatory threshold. Further, a dynamic analysis shows a sharp reduction in the firm's innovation response to exogenous demand shocks for firms just below the regulatory threshold. We then quantitatively fit the parameters of the model to the data, finding that innovation at the macro level is about 5.4% lower due to the regulation, a 2.2% consumption equivalent welfare loss. Four-fifths of this loss is due to lower innovation intensity per firm rather than just a misallocation towards smaller firms and lower entry. We generalize the theory to allow for changes in the direction of R&D, and find that regulation's negative effects only matter for incremental innovation (as measured by citations and text-based measures of novelty). A more regulated economy may have less innovation, but when firms do innovate they tend to "swing for the fence" with more radical (and labor saving) breakthroughs.
    Keywords: innovation, regulation, patents, firm size
    JEL: O31 L11 L51 J8 L25 O31 L11 L51 J8 L25 O31 L11 L51 J8 L25
    Date: 2021–01
  9. By: Flavio Calvino (OCDE - Organisation de Coopération et de Développement Economiques); Daniele Giachini (Institute of Economics of Sant'Anna [Pisa] - SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa]); Mattia Guerini (COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019), 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 - UCA - Université Côte d'Azur, Institute of Economics of Sant'Anna [Pisa] - SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa])
    Abstract: We investigate upon the shape and the determinants of the age distribution of business firms. By employing a novel dataset covering the population of French businesses, we highlight that a geometric law provides a reasonable approximation for the age distribution. However, relevant systematic deviations and sectoral heterogeneity appear. We develop a stochastic model of firm dynamics to explain the mechanisms behind this evidence and relate them to business dynamism. Results reveal a long-term decline in entry rates and lower survival probabilities of young firms. Our findings bear important implications for aggregate outcomes, notably employment growth.
    Keywords: Firm demographics,age distribution,business dynamism
    Date: 2020–12–04
  10. By: Pierre Azoulay; Benjamin F. Jones; J. Daniel Kim; Javier Miranda
    Abstract: Immigrants can expand labor supply and compete for jobs with native-born workers. But immigrants may also start new firms, expanding labor demand. This paper uses U.S. administrative data and other data sources to study the role of immigrants in entrepreneurship. We ask how often immigrants start companies, how many jobs these firms create, and how firms founded by native-born individuals compare. A simple model provides a measurement framework for addressing the dual roles of immigrants as founders and workers. The findings suggest that immigrants act more as “job creators” than “job takers” and play outsized roles in U.S. high-growth entrepreneurship.
    Date: 2020–12
  11. By: Francesco D’Acunto; Geoffrey Tate; Liu Yang
    Abstract: We use employer-employee linked data to track the employment histories of team members prior to startup formation for a full cohort of new firms in the U.S. Using pre-startup industry experience to measure skillsets, we find that startups that have founding teams with more diverse collective skillsets grow faster than peer firms in the same industries and local economies. A one standard deviation increase in teams’ skill diversity is associated with an increase in five-year employment (sales) growth of 16% (10%) from the mean. The effects are stronger among startups in innovative industries and among startups facing greater ex-ante uncertainty. Moreover, the results are robust to a variety of approaches to address the endogeneity of team composition. Overall, our results suggest that teams with more diverse collective skillsets adapt their strategies more successfully in the uncertain environments faced by (innovative) startup firms.
    Keywords: Economic Growth, Startups, Teams, Diversity, Innovation, Personnel Economics
    JEL: L25 L26 J24 M51
    Date: 2020–12
  12. By: Pellens, Maikel; Peters, Bettina; Hud, Martin; Rammer, Christian; Licht, Georg
    Abstract: We study the cyclicality of public R&D in 28 OECD countries (1995-2017). While procyclical on average, public R&D reacts asymmetrically over different phases of the business cycle and becomes acyclical during recessions. It is also heterogeneous across countries: Innovation leaders and followers behave countercyclically during recessions while moderate innovators behave procyclically. Furthermore, the share of public R&D allocated to the business sector is countercyclical, but the thematic composition remains stable. These results, not driven by countries' financial constraints, imply that countries behind the innovation frontier might strengthen their resilience to economic crises by adopting countercyclical R&D strategies.
    Keywords: R&D,Public Policy,Business Cycle
    JEL: O38 H50 H12 E32
    Date: 2020
  13. By: Yan Zhang; Frank Schweitzer
    Abstract: The reputation of firms is largely channeled through their ownership structure. We use this relation to determine reputation spillovers between transnational companies and their participated companies in an ownership network core of 1318 firms. We then apply concepts of network controllability to identify minimum sets of driver nodes (MDS) of 314 firms in this network. The importance of these driver nodes is classified regarding their control contribution, their operating revenue, and their reputation. The latter two are also taken as proxies for the access costs when utilizing firms as driver nodes. Using an enrichment analysis, we find that firms with high reputation maintain the controllability of the network, but rarely become top drivers, whereas firms with medium reputation most likely become top driver nodes. We further show that MDSs with lower access costs can be used to control the reputation dynamics in the whole network.
    Date: 2021–01
  14. By: Rosario Aldunate
    Abstract: This essay seeks to contribute to the credit-channel literature by studying how the effects of foreign shocks can be amplified in the economy due to the existence of financial constraints at the firm-level in a small open economy as Chile. For this purpose, this study analyzes the evolution of Chilean manufacturing firms between 1995 and 2005 thanks to a panel based on the Annual National Survey of Industries, measures of financial constraints built on the work by Rajan and Zingales (1998) and pays special attention to the Asian crisis, an episode that hit particularly hard the Chilean economy in terms of contraction of the credit flow. Regarding the exit probability, during the Asian crisis firms with liquidity needs were more likely to leave the market. On the intensive margin side, the number of workers, wage-bill, total income, and value-added were more negatively affected by this crisis in financially constrained firms.
    Date: 2021–01
  15. By: ; Pierre-Olivier Gourinchas; Sebnem Kalemli-Ozcan; Veronika Penciakova
    Abstract: We estimate the impact of the COVID-19 crisis on business failures among small and medium-size enterprises (SMEs) in seventeen countries using a large representative firm-level database. We use a simple model of firm cost minimization and measure each firm’s liquidity shortfall during and after COVID-19. Our framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks. Accommodation and food services; arts, entertainment, and recreation; education; and other services are among the sectors most affected. The SME jobs at risk due to business failures related to COVID-19 represent 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimate only moderate effects on the financial sector: the share of nonperforming loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks’ assets, and would result in a 0.75 percentage point decline in the common equity tier 1 capital ratio. We also evaluate the cost and effectiveness of various policy interventions. The fiscal cost of an intervention that narrowly targets at-risk firms can be modest (0.54 percent of gross domestic product). However, at a similar level of effectiveness, nontargeted subsidies can be substantially more expensive (1.82 percent of gross domestic product). Our results have important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery.
    Keywords: COVID-19; business failures; liquidity; small business
    JEL: D2 E65 G33
    Date: 2020–12–03
  16. By: Gilles Campagnolo (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Christel Vivel (Esdes Business School of the Catholic University of Lyon, France.)
    Abstract: This paper is the last part of a trilogy on the theory and history of entrepreneurship in Austrian school of economics. The triptych ends with contemporary members by comparing Israel Kirzner and Murray Rothbard. The migration of the Austrian school induced a new assessment of Austrian traits in a new setting. While we do not focus on the history of the Austrian school in America as such, we will stress how Kirzner focused his view of entrepreneurship on the concepts of alertness, discovery by opportunity and the equilibrating action of the entrepreneur – while Rothbard’s contribution was more ideologically engaged.
    Keywords: Austrian School of Economics, entrepreneurship, institutions, Kirzner (Israel), methodology, Rothbard (Murray)
    Date: 2021–01
  17. By: Daly, Saida; Garroud, Chadia
    Abstract: Sustainable development is the normative objective to follow a development trajectory viable in the long-term by balancing economic, environmental and social needs. There is a shared consensus that entrepreneurship and sectorial outputs are considered as a principal canal to create sustainable products and services and implement new projects that address many environmental and social concerns. Therefore, this paper examines what entrepreneurship and sectoral outputs contribute with regard to sustainability. More precisely, the specific focus of this paper is to examine the influence of entrepreneurship and sectoral outputs on different dimensions of sustainable development. As for the empirical data, they were gathered from a panel of 21 development countries covering the 2001-2016 period. In fact, using the FMOLS technique, the empirical evidence indicates that entrepreneurship and sectoral outputs have a significant positive impact on the economic, ecological and social sustainable development dimensions.
    Keywords: Sustainable development dimensions; entrepreneurship; sectorial outputs; development countries.
    JEL: L26 O1 O44 Q01
    Date: 2020–08–25

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