nep-sbm New Economics Papers
on Small Business Management
Issue of 2021‒03‒29
twenty papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Founding Teams and Startup Performance By Joonkyu Choi; Nathan Goldschlag; John C. Haltiwanger; J. Daniel Kim
  2. Exploring Recent Phenomena in Entrepreneurial Finance By Hackober, Christian
  3. On Immigration and Native Entrepreneurship By Harriet Duleep; David A. Jaeger; Peter McHenry
  4. Financial structure and bank relationships of Italian multinational firms By Raffaello Bronzini; Alessio D’Ignazio; Davide Revelli
  5. Does the Legal Form Matter for Firm Performance in the MENA Region? By Ahmad, Issam Abdo; Fakih, Ali
  6. Does a local knowledge base in Industry 3.0 foster diversification in Industry 4.0 technologies? Evidence from European regions By Matteo Laffi; Ron Boschma;
  7. Corporate Entrepreneurship Performance from an Attention-based View Perspective By Latasri Hazarika; M.K. Nandakumar
  8. Post-M&A Innovation in Indian firms – An Empirical Investigation By Sandeep Yadav; M.K. Nandakumar
  9. Timing and speed of small and young firm’s internationalization: A critical review and future research agenda By Sandeep Yadav; Rajesh Srivinas Upadhyayula
  10. Industrial Relatedness in MNE Spillovers over Geographical Space By Nicola Cortinovis; Zhiling Wang; Hengky Kurniawan
  11. Determinants of Corporate Entrepreneurship: A meta analysis By Latasri Hazarika; Sandeep Yadav; M.K. Nandakumar
  12. Sales Losses in the First Quarter of the COVID-19 Pandemic: Evidence from California Administrative Data By Robert W. Fairlie; Frank M. Fossen
  13. Regional differences in the generation of green technologies: the role of local recombinant capabilities and academic inventors By Gianluca Orsatti; Francesco Quatraro; Alessandra Scandura
  14. Geographic cluster or global linkages? What accelerate emerging market firms foreign entry speed By Sandeep Yadav; Rajesh Srivinas Upadhyayula
  15. The asymmetric impact of economic policy uncertainty on firm-level investment in South Africa: Firm-level evidence from administrative tax data By Keagile Lesame
  16. The missing link: international migration in global clusters of innovation By Massimiliano Coda Zabetta; Christian Mauricio Chacua Delgado; Francesco Lissoni; Ernest Miguelez; J. Raffo; Deyun Yin
  17. Smart Specialisation Strategies and Regional Productivity: A preliminary assessment in Portugal By Anabela Santos; John Edwards; Paulo Neto
  18. Financial innovation for a sustainable economy By Andrés Alonso; José Manuel Marqués
  19. Characterization success critical factors for the strengthening of rural enterprises: a literature review By J. García-Rojas; J. Reyes-Rodríguez
  20. COVID-19 and SMEs: A 2021 "Time Bomb"? By Pierre-Olivier Gourinchas; Ṣebnem Kalemli-Özcan; Veronika Penciakova; Nick Sander

  1. By: Joonkyu Choi; Nathan Goldschlag; John C. Haltiwanger; J. Daniel Kim
    Abstract: We explore the role of founding teams in accounting for the post-entry dynamics of startups. While the entrepreneurship literature has largely focused on business founders, we broaden this view by considering founding teams as both the founders and early joiners. We investigate the idea that the success of a startup may derive from the organizational capital that is created at firm formation and is inalienable from the founding team itself. To test this hypothesis, we exploit premature deaths to identify the causal impact of losing a founding team member on startup performance. We find that the exogenous separation of a founding team member due to premature death has a persistently large, negative, and statistically significant impact on post-entry size, survival, and productivity of startups. Consistent with our organizational capital hypothesis, effects are stronger for firms with small founding teams and those operating in business-to-business (B2B) oriented sectors. Moreover, while we find that the loss of a founder has an especially large adverse effect, the loss of an early joiner nonetheless exhibits a significant negative effect, lending support to our inclusive definition of founding teams.
    JEL: J24 L23 L26
    Date: 2021–01
  2. By: Hackober, Christian
    Abstract: This dissertation consists of three essays that address important and very recent issues in the field of entrepreneurial finance. The first essay, examines the reasons that drive recently emerging multibillion-dollar valuation levels of so-called ‘unicorns’. The second essay, investigates the current status of collaborations between incumbent firms and ventures in order to cope with the ongoing digital transformation. Based on empirical findings, this dissertation develops a collaboration model between incumbents and ventures depending on the venture’s development stage. The third essay, draws from Initial Coin Offering (ICO) data to explore how early stage investors influence the outcomes of ICOs and the overall survival rate of blockchain technology-based firms. This dissertation contributes to the research on entrepreneurial finance and entrepreneurship and more specifically to the understanding on recent phenomena concerning the influence of investors’ characteristics on finance decisions and collaborations and subsequently their influence on ventures’ success. First, it is presented that being founded within a cluster region and in particular within the Silicon Valley area, increases significantly the chances for ventures to achieve ultra-high valuation levels. Furthermore, the results show empirically that a considerable share of ultra-high valuation levels is devoted to aggressive and inorganic growth strategies in order to gain large market shares rapidly and achieve a market-dominating role. Thereby, it is found that corporate investors play a decisive role for ventures to become successful. Second, this dissertation provides evidence from the German market that corporate investments are mainly driven by the ambition of incumbents to gain momentum within the digital transformation of existing business models. However, based on the empirical findings, the trend is identified that incumbents collaborate increasingly with more nascent ventures and apply non-equity-based approaches. Third, it is demonstrated that the beneficial influences of venture capital investors hold also in the context of the blockchain technology. Particularly, evidence is provided that the specialization and the reputation of investors has a positive influence on the success probability of blockchain technology-based firms. Thereby, it is show again the dispositive role of corporate investors. Each essay, discusses the theoretical and practical contributions and provides novel insights on recent phenomena in the area of entrepreneurial finance.
    Date: 2021
  3. By: Harriet Duleep (William & Mary, IZA, and GLO); David A. Jaeger (University of St. Andrews, CReAM, IZA, and CEPR); Peter McHenry (William & Mary and GLO)
    Abstract: We present a novel theory that immigrants facilitate innovation and entrepreneurship by being willing and able to invest in new skills. Immigrants whose human capital is not immediately transferable to the host country face lower opportunity costs of investing in new skills or methods and will be more exible in their human capital investments than observationally equivalent natives. Areas with large numbers of immigrants may therefore lead to more entrepreneurship and innovation, even among natives. We provide empirical evidence from the United States that is consistent with the theory's predictions.
    Keywords: immigration, innovation, entrepreneurship, human capital
    JEL: J15 J24 J39 J61 L26
    Date: 2021–03
  4. By: Raffaello Bronzini (Bank of Italy, Rome Branch); Alessio D’Ignazio (Bank of Italy, Directorate General for Economics, Statistics and Research); Davide Revelli (Bank of Italy, Genoa Branch)
    Abstract: This paper examines the financial structure and the bank relationships of Italian multinational firms. We show that multinationals are on average more leveraged than non-internationalized firms. Moreover, they have a larger share of financial and bank debt out of total debt, maintain more bank relationships, are less dependent on the main bank for the firm, and benefit from lower interest rates. Lastly, multinationals take greater advantage of intra-group financing than non-internationalized firms. These results are robust to estimation methods that tackle the potential endogeneity of the choice to go international, such as matching and instrumental variables estimation.
    Keywords: multinational companies, foreign direct investment, financial structure, bank-firm relationships
    JEL: D22 F21 F23 G30 L25
    Date: 2021–03
  5. By: Ahmad, Issam Abdo (Lebanese American University); Fakih, Ali (Lebanese American University)
    Abstract: This paper attempts to study the relationship between firm legal form and firm performance in the Middle East and North Africa Region (MENA) using the World Bank Enterprise Survey (WBES) database. Our analysis shows that open shareholding, closed shareholding, partnership, and limited partnership companies demonstrate an advantage in terms of annual sales and annual productivity growth rates over sole proprietorship firms, and that medium-sized and large-sized firms also demonstrate an advantage over small ones. Our analysis also shows that foreign ownership, exporting activities, the usage of the web in communication with clients and suppliers, and the presence of full-time workers positively affect firm performance. These findings are robust when running the analysis for firms with female participation in ownership. This paper provides directions for strategists targeting at improving the performance of firms.
    Keywords: legal form, firm performance, MENA region
    JEL: C10 G30 L25
    Date: 2021–03
  6. By: Matteo Laffi; Ron Boschma;
    Abstract: The aim of the paper is to shed light on the role played by regional knowledge bases in Industry 3.0 in fostering new technologies in Industry 4.0 in European regions (NUTS3) over the period 1991-2015. We find that 4.0 technologies appear to be quite related to 3.0 technologies, with some heterogeneity among different technology fields. The paper investigates the geographical implications. We find that the probability of developing Industry 4.0 technologies is higher in regions that are specialised in Industry 3.0 technologies. However, other types of knowledge bases also sustain regional diversification in Industry 4.0 technologies.
    Keywords: Fourth Industrial Revolution, Industry 4.0, regional innovation, patents, knowledge space, relatedness, EU regions
    JEL: B52 O33 R11
    Date: 2021–03
  7. By: Latasri Hazarika (Indian Institute of Management Kozhikode); M.K. Nandakumar (Indian Institute of Management Kozhikode)
    Abstract: Leading organizations use corporate entrepreneurship as a key growth strategy. Many researchers have examined this phenomenon resulting in many publications in top tier journals. To understand the current state of the literature and to identify the key gaps, we did a comprehensive review of the papers on corporate entrepreneurship published in leading journals. We found that researchers by and large have used theoretical perspectives namely knowledge-based view, organizational theory, agency theory, entrepreneurial thinking, upper echelons theory, leadership theory, structural contingency, behavioral theory, network theory, and resource-based view to examine this phenomenon. Attention based view presents a theoretical model to understand the behavior of an organization from the attentional pattern of its decision makers and hence we found a need to examine corporate entrepreneurship from this perspective. Based on our assessment, we have identified some antecedents of corporate entrepreneurship and developed some propositions. We have presented a conceptual framework depicting the propositions we have developed.
    Keywords: Coorporate entrepreneurship, Growth strategy, Organizational theory
    Date: 2020–03
  8. By: Sandeep Yadav (Indian Institute of Management Kozhikode); M.K. Nandakumar (Indian Institute of Management Kozhikode)
    Abstract: A large number of studies have examined the antecedents of post-M&A performance especially in the case of cross-border acquisitions. However the literature on post-M&A innovation is very limited. Furthermore, not many studies examining M&As in the Indian context have been published in leading journals. We try to fill this gap by conducting an empirical study on postM&A innovation. We analyzed a sample of 85 domestic M&As by Indian firms during the period between 2000 and 2015. We found a positive relationship between relative absorptive capacity of the acquirer and post-M&A innovation performance. Size of the firm positively moderated the relationship between relative absorptive capacity and post-merger innovation performance. The M&A activities between firms in the same industry increased post-merger innovation performance.
    Keywords: Post M&A innovations, Indian firms
    Date: 2020–03
  9. By: Sandeep Yadav (Indian Institute of Management Kozhikode); Rajesh Srivinas Upadhyayula (Indian Institute of Management Kozhikode)
    Abstract: The literature on the importance of time in the internationalization process of entrepreneurial firms has pulled the attention of international business researchers in the last two decades. The phenomenon of internationalization speed as a time-based dimension is studied both in the context of young entrepreneurial firms and large multinationals. Yet, the theoretical foundations and synthesis of empirical literature remain absent, thus call for a critical assessment and review of the literature. We examine 67 articles in 34 scholarly journals from 2000 to the current period. We use an inductive approach and qualitative content analysis for a comprehensive and critical assessment of literature. First, we define the concept of internationalization speed and highlighted its multidimensionality. We provide a synthesis of literature based on antecedents and outcomes of internationalization speed to identify ambiguity in the empirical literature. Further, we discuss the issues of conceptualization and operationalization of speed along with methodological issues in the empirical literature. Finally, we provide future research agendas based on the gaps in the theoretical literature.
    Keywords: Rapid internationalization; early internationalization; international new ventures; born-global firms; SME exporters; speed
    Date: 2021–01
  10. By: Nicola Cortinovis; Zhiling Wang; Hengky Kurniawan
    Abstract: In this paper, we explore how spillovers from multinational enterprises (MNEs) spread and impact domestic firms through different channels and at various spatial scales. Taking a firm-level approach, we test whether industrial relatedness mediates spillover effects from MNEs over and above horizontal and vertical linkages traditionally identified by the literature. Thanks to fine- grained geographical information, we further investigate the spatial reach of the spillovers and how they are associated with domestic firms’ characteristics such as absorptive capacity and technological sophistication. Our hypotheses are tested on a panel data set of Indonesian manufacturing firms census between 2002 to 2009. We find that domestic firms have higher total factor productivity when being exposed to a higher share of output from multinational firms in related industries, on top of the widely acknowledged horizontal and vertical MNE spillovers. We also show that MNE spillovers are sensitive to distance, with relatedness-mediated ones being detected between 30 and 60 km from the municipality of the MNE. Regarding heterogeneity, large firms benefit from productivity-enhancing relatedness spillovers at a wider spatial distance (up to 90km), and firms in less-advanced industries benefit from relatedness mediated effects as much as those in more advanced industries.
    Keywords: Multinational enterprises, spillovers, industrial relatedness, spatial effects.
    JEL: D24 F23 O33 R10
    Date: 2021–03
  11. By: Latasri Hazarika (Indian Institute of Management Kozhikode); Sandeep Yadav (Indian Institute of Management Kozhikode); M.K. Nandakumar (Indian Institute of Management Kozhikode)
    Abstract: Many scholars have enriched the corporate entrepreneurship literature by conducting empirical studies examining key research questions. There have been a few meta-analytic studies examining the impact of corporate entrepreneurship on organizational performance. However, ours is the first meta-analytic study conducting an integrative analysis of the determinants of corporate entrepreneurship. The current study therefore integrates the quantitative studies done to estimate the determinants of corporate entrepreneurship through a meta-analytic approach.We found that some meta factorslikemanagement support, environmental dynamism and reward system contributedsignificantly towards corporate entrepreneurship within established firms.
    Keywords: Coorporate entrepreneurship, Growth strategy, Organizational theory
    Date: 2020–03
  12. By: Robert W. Fairlie; Frank M. Fossen
    Abstract: COVID-19 led to a massive shutdown of businesses in the second quarter of 2020. Estimates from the CPS, for example, indicate that the number of active business owners dropped by 22 percent from February to April 2020. In this descriptive research note, we provide the first analysis of losses in sales and revenues among the universe of businesses in California using administrative data from the California Department of Tax and Fee Administration. The losses in sales average 17 percent in the second quarter of 2020 relative to the second quarter of 2019 even though year-over-year sales typically grow by 3-4 percent. We find that sales losses were largest in businesses affected by mandatory lockdowns such as Accommodations, which lost 91 percent, whereas online sales grew by 180 percent. Losses also differed substantially across counties with large losses in San Francisco (50 percent) and Los Angeles (24 percent) whereas some counties experienced small gains in sales. Placing business types into different categories based on whether they were essential or non-essential (and thus subject to early lockdowns) and whether they have a moderate or high level of person-to-person contact, we find interesting correlations between sales losses and COVID-19 cases per capita across counties in California. The results suggest that local implementation and enforcement of lockdown restrictions and voluntary behavioral responses as reactions to the perceived local COVID-19 spread both played a role, but enforcement of mandatory restrictions may have had a larger impact on sales losses.
    JEL: H25 I18 L26
    Date: 2021–01
  13. By: Gianluca Orsatti; Francesco Quatraro; Alessandra Scandura
    Abstract: This paper investigates the association between region-level recombinant capabilities and the generation of green technologies (GTs), together with their interplay with the intensity of academic involvement in innovation dynamics. The analysis focuses on Italian NUTS 3 regions, over the period 1998-2009. We show that the local capacity to introduce novel combinations is positively and strongly associated to the generation of GTs, while the involvement of academic inventors in local innovation dynamics shows an interesting compensatory role when local contexts lack such capacity.
    Keywords: green technologies, academic inventors, recombinant novelty.
    JEL: O33 R11
    Date: 2020
  14. By: Sandeep Yadav (Indian Institute of Management Kozhikode); Rajesh Srivinas Upadhyayula (Indian Institute of Management Kozhikode)
    Abstract: This study examines, whether emerging market firms use global linkages as a substitute to the location in geographical clusters to promote the speed of foreign market entry. Drawing from economic geography, we find a slower speed of foreign market entry by firms located outside geographical clusters in the home country as compared to firms inside clusters. This relationship is further moderated by the firm's cognitive proximity in the foreign markets (measured as a firm’s extent of informal global linkages). Cognitive proximity increases the transfer of tacit knowledge and weakens the negative impact of firm cluster absence on the speed of foreign entry. We test the proposed hypotheses using the cox proportional hazard model based on a longitudinal sample of 747 Indian firms in the information technology industry (IT) from 2000 to 2019.
    Keywords: Emerging markets; emerging market firm; theory of EMNE; clusters; cognitive proximity
    Date: 2021–01
  15. By: Keagile Lesame
    Abstract: This paper uses firm-level data and a news-based measure of economic policy uncertainty to provide empirical evidence that economic policy uncertainty has a negative impact on firm-level investment in South Africa. Firms' investment decisions in response to uncertainty reflect firms' heterogeneity. Medium-sized firms and, to a different extent, small firms reduce their investment by much more than large firms in response to increased policy uncertainty.
    Keywords: Economic policy, policy uncertainty, Investment, South Africa, Firm heterogeneity
    Date: 2021
  16. By: Massimiliano Coda Zabetta (GREThA - Groupe de Recherche en Economie Théorique et Appliquée - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Christian Mauricio Chacua Delgado (GREThA - Groupe de Recherche en Economie Théorique et Appliquée - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Francesco Lissoni (GREThA - Groupe de Recherche en Economie Théorique et Appliquée - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Ernest Miguelez (GREThA - Groupe de Recherche en Economie Théorique et Appliquée - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); J. Raffo (WIPO - World Intellectual Property Organization); Deyun Yin (HIT - Harbin Institute of Technology, WIPO - World Intellectual Property Organization)
    Abstract: In this chapter we look at the global network of innovative agglomerations, with a focus on their degree of internationalization and on the actors behind it – particularly high-skilled migrants. Using worldwide patent and publication geo-localized data, we identify all Global Hotspots of Innovation (GIHs) and Niche Clusters (NCs) worldwide, and study their success as a function of their international connections. In particular, we compare organizational ones, such as international collaborations orchestrated by multinational firms' collaborations, to personal ones, which may derive from migration to/from the GIHs and NCs. We find a strong role of the latter, always comparable and sometimes larger than the former.
    Keywords: patents,publications,agglomeration,internationalization,migration
    Date: 2021–03–08
  17. By: Anabela Santos (European Commission - JRC); John Edwards (Policy Experimentation and Evaluation Platform); Paulo Neto
    Abstract: Smart Specialisation is a place-based approach to innovation policy that underpins a significant amount of EU funding. The origins of the concept lie in the transatlantic productivity gap and a concern that previous investments in Research and Innovation (R&I) had failed to deliver commercial benefits. Following more than five years of implementation, this report contributes to the evaluation of the smart specialisation approach through quantitative analysis. As part of the Stairway to Excellence project, it is one of the first to assess its impact on regional productivity, based on the case of Portugal. This is done using the country’s main instrument to support corporate Research and Development (R&D) that was launched in 2007 and adapted to accommodate smart specialisation in 2014. An analysis of project characteristics reveals that during the programming period 2014-2020, financial support to corporate R&D investment aligned with S3 priorities has been more concentrated on cooperation between regions and sectors. A higher diversification of R&D and Innovation funds across sectors, regions and beneficiaries, in comparison with 2007-2013, is also observed. As more cooperation and diversification are two important features of smart specialisation, these findings suggest improved investment choices in the programming period 2014-2020. Furthermore, after controlling for the existence of potential geographical spillover effects by applying a spatial econometric analysis, the results display a positive effect on regional productivity from the R&D and Innovation subsidies over the last two programming periods. Furthermore, a higher rate of return of RDI subsidy in the second period is also observed, which suggests that smart specialisation was able to generate an additional effect in comparison with a situation without this place-based policy. Nevertheless, we also found that – in the case of Portugal - smart specialisation has only been able to generate this additional effect in regional productivity when the R&D funding instrument is combined with other types of innovation subsidies. This finding provides additional weight to the argument for broader and more integrated smart specialization policy mixes in the new programming period.
    Keywords: Productivity, Innovation, Smart Specialisation Strategies, Portugal
    JEL: O31 R11 H71
    Date: 2021–03
  18. By: Andrés Alonso (Banco de España); José Manuel Marqués (Banco de España)
    Abstract: Climate change and its management and mitigation are unquestionably among the main risks facing our society in the coming decades. The financial sector plays a key role in this challenge, firstly because of its exposure and the consequent capital shocks if this risk crystallises, and secondly because it has the task of financing the investments needed to transform our economy into a sustainable one. This article reviews various initiatives under way in the private financial sector to introduce the variable “sustainability” into its decision-making process in order to achieve a balance sheet with a smaller carbon footprint (transformation of stock) and to develop a business strategy aligned with responsible investment principles and international standards (transformation of flow). We analyse the innovations emerging along the path to sustainable finance, looking particularly at: 1) new suppliers and services in the market, 2) the creation of sustainability-linked financial instruments, 3) the adaptation of financial risk management policies, and 4) the interaction of technological progress with climate change.
    Keywords: fintech, sustainable development goals, climate change, sustainability, green bonds, innovation, artificial intelligence
    JEL: Q54 Q55 Q56
    Date: 2019–10
  19. By: J. García-Rojas (Universidad Pontificia Bolivariana); J. Reyes-Rodríguez (Universidad Pontificia Bolivariana)
    Abstract: Rural entrepreneurship corresponds to the creation of business in rural settings, with the purpose of generating value and wealth from small and medium non-formalized productive units to the formality of small, medium and large business. Therefore, rural entrepreneurship is considered one of the great strategies to reduce poverty in the world. For that reason, countries work on entrepreneurial initiatives to generate progress through their different economic activities. The above, highlights the importance of investigating the critical success factors that contribute to sustainability over time and generation of wealth of rural entrepreneurship, contributing to the local and regional development of nations. The purpose of this research is to characterize the critical factors of rural entrepreneurship identified following a literature review of empirical scientific articles related to this field of research in the last ten years framed in a proposed new rural entrepreneurship development model that draws on two existing theories of entrepreneurship: Paturel's 3E model and Freire's inverted triangle. The proposed model has four dimensions: the entrepreneur, the idea, the resources, and the environment. The results show equality and differences between factors but they can organize and characterized by the rural entrepreneurship development model.
    Abstract: El emprendimiento rural corresponde a aquellas iniciativas que se desarrollen en la ruralidad de los territorios con el objetivo de generar valor y riqueza desde las pequeñas y medianas unidades productivas no formalizadas hasta la formalidad de pequeños, medianos y grandes negocios. Por lo tanto, es considerado como una de las grandes estrategias para mitigar la pobreza en el mundo. Es por ello, que los países trabajan en iniciativas emprendedoras que generen progreso a través de sus distintas actividades económicas. Lo anterior, realza la importancia de investigar los factores críticos de éxito que contribuyen a la sostenibilidad en el tiempo y generación de riqueza de los emprendimientos rurales contribuyendo al desarrollo local y regional de las naciones. La presente investigación tiene como propósito caracterizar los factores críticos de éxito de los emprendimientos rurales identificados mediante la revisión literaria de artículos científicos empíricos relacionados con este campo de investigación en los últimos diez años a la luz de un nuevo modelo propuesto que permita el desarrollo del emprendimiento rural, éste modelo fue creado a partir de la revisión literaria de dos teorías existentes sobre emprendimiento: el modelo de las 3E de Paturel y el triángulo invertido de Freire. Los resultados evidencian similitudes y diferencias entre los factores encontrados por los autores, pero cuyas similitudes permiten realizar una mejor clasificación. El modelo planteado comprende cuatro dimensiones correspondientes a: el emprendedor, la idea, los recursos y el ambiente.
    Keywords: Rural entrepreneurship model,Critical factors,Rural entrepreneurship,Rural entrepreneurship dimensions,Emprendimiento rural,Factores críticos,Modelo para el emprendimiento rural,Dimensiones del emprendimiento rural
    Date: 2020
  20. By: Pierre-Olivier Gourinchas; Ṣebnem Kalemli-Özcan; Veronika Penciakova; Nick Sander
    Abstract: This paper assesses the prospects of a 2021 time bomb in SME failures triggered by the generous support policies enacted during the 2020 COVID-19 crisis. Policies implemented in 2020, on their own, do not create a 2021 “time-bomb” for SMEs. Rather, business failures and policy costs remain modest. By contrast, credit contraction poses a significant risk. Such a contraction would disproportionately impact firms that could survive COVID-19 in 2020 without any fiscal support. Even in that scenario, most business failures would not arise from excessively generous 2020 policies, but rather from the contraction of credit to the corporate sector.
    JEL: D2 E65 G33
    Date: 2021–01

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