nep-sbm New Economics Papers
on Small Business Management
Issue of 2021‒05‒03
thirteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Detecting the labour-friendly nature of AI product innovation By Giacomo Damioli; Vincent Van Roy; Daniel Vertesy; Marco Vivarelli
  2. Artificial intelligence and industrial innovation: Evidence from firm-level data By Rammer, Christian; Fernández, Gastón P.; Czarnitzki, Dirk
  3. The Transmission of Sectoral Shocks Across the Innovation Network By Fons-Rosen, Christian; Pu, Zhaoxin
  4. Stakeholder dynamics in residential solar energy adoption: findings from focus group discussions in Germany By Fabian Scheller; Isabel Doser; Emily Schulte; Simon Johanning; Russell McKenna; Thomas Bruckner
  5. Innovation and Human Capital Policy By John Van Reenen
  6. What is Risk to Managers? By Jeppe Christoffersen; Felix Holzmeister; Thomas Plenborg
  7. Wired in? Genetic traits and entrepreneurship around the world By Krammer, Sorin; Gören, Erkan
  8. Keeping up with the Joneses: economic impacts of overconfidence in micro-entrepreneurs By Julia Seither
  9. Technological & innovation challenges for industry: New science for policy insights By Maria Teresa Álvarez; Salvador Barrios; Andrea Bellucci; Mark Boden; Giacomo Damioli; Nestor Duch-Brown; Gianluca Gucciardi; Anabela Marques-Santos; Robert Marschinski; David Martínez-Turégano; Pietro Moncada-Paternò-Castello; Daniel Nepelski; Dimitris Pontikakis; Emanuele Pugliese; Giuseppina Testa; Alexander Tübke
  10. Four Decades of Canadian Earnings Inequality and Dynamics Across Workers and Firms By Audra Bowlus; Émilien Gouin-Bonenfant; Huju Liu; Lance Lochner; Youngmin Park
  11. Human Capital and Startup Financing By Mauricio Medeiros Jr; Bernardus Van Doornik
  12. Social capital and small business productivity: The mediating roles of financing and customer relationships By Christopher Boudreaux; George Clarke; Anand Jha
  13. The Impact of Fintech Startups on Financial Institutions' Performance and Default Risk By Christian Haddad; Lars Hornuf

  1. By: Giacomo Damioli (European Commission, Joint Research Centre, Ispra, Italy); Vincent Van Roy (European Commission, Joint Research Centre, Seville, Spain); Daniel Vertesy (International Telecommunication Union, Geneva, Switzerland – UNU-MERIT, Maastricht, The Netherlands); Marco Vivarelli (Dipartimento di Politica Economica, DISCE, Università Cattolica del Sacro Cuore – UNU-MERIT, Maastricht, The Netherlands – IZA, Bonn, Germany)
    Abstract: This study investigates the possible job-creation impact of AI technologies, focusing on the supply side, namely the providers of the new knowledge base. The empirical analysis is based on a worldwide longitudinal dataset of 3,500 front-runner companies that patented the relevant technologies over the period 2000-2016. Obtained from GMM-SYS estimates, our results show a positive and significant impact of AI patent families on employment, supporting the labour-friendly nature of product innovation in the AI supply industries. However, this effect is small in magnitude and limited to service sectors and younger firms, which are the leading actors of the AI revolution. Finally, some evidence of increasing returns seems to emerge; indeed, the innovative companies which are more focused on AI technologies are those obtaining the larger impacts in terms of job creation.
    Keywords: Innovation, technological change, patents, employment, job-creation
    JEL: O33
    Date: 2021–04
  2. By: Rammer, Christian; Fernández, Gastón P.; Czarnitzki, Dirk
    Abstract: Artificial Intelligence (AI) represents a set of techniques that enable new ways of innovation and allows firms to offer new features of products and services, to improve production, marketing and administration processes, and to introduce new business models. This paper analyses the extent to which the use of AI contributes to the innovation performance of firms. Based on firm-level data from the German part of the Community Innovation Survey (CIS) 2018, we examine the contribution of different AI methods and applications to product and process innovation outcomes. The representative nature of the survey allows extrapolating the findings to the macroeconomic level. The results show that 5.8% of firms in Germany were actively using AI in their business operations or products and services in 2019. The use of AI generated additional sales with world-first product innovations in these firms of about €16 billion, which corresponds to 18% of total sales of world-first innovations in the German business sector. Firms that developed AI by combining in-house and external resources obtained significantly higher innovation results. The same is true for firms that apply AI in a broad way and have already several years of experience in using AI.
    Keywords: Artificial Intelligence,Innovation,CIS data,Germany
    JEL: O14 O31 O32 O33 L25 M15
    Date: 2021
  3. By: Fons-Rosen, Christian (University of California, Merced); Pu, Zhaoxin (MPI-IC Munich)
    Abstract: Recent innovation literature has documented the benefits of cross-pollination of ideas across a wide set of industries and technology fields in an economy. Industrial and trade policies, by contrast, tend to favor economic specialization through the promotion of selected sectors. In this paper we use a firm-level panel of 13 European countries to assess whether an industry-specific policy propagates across the network of innovating firms through technological linkages. Following the competition shock to the European textile sector, triggered by the 2001 removal of import quotas on Chinese textiles, we find that patenting and knowledge sourcing behavior of non-textile firms are negatively affected. At the aggregate regional level, this indirect effect on non-textile firms can be around three to five times larger than the direct effect.
    Keywords: technological linkages; spillovers; patents; knowledge sourcing; industrial policy;
    JEL: D57 L25 L60 O33 O38
    Date: 2020–01–22
  4. By: Fabian Scheller; Isabel Doser; Emily Schulte; Simon Johanning; Russell McKenna; Thomas Bruckner
    Abstract: Although there is a clear indication that stages of residential decision making are characterized by their own stakeholders, activities, and outcomes, many studies on residential low-carbon technology adoption only implicitly address stage-specific dynamics. This paper explores stakeholder influences on residential photovoltaic adoption from a procedural perspective, so-called stakeholder dynamics. The major objective is the understanding of underlying mechanisms to better exploit the potential for residential photovoltaic uptake. Four focus groups have been conducted in close collaboration with the independent institute for social science research SINUS Markt- und Sozialforschung in East Germany. By applying a qualitative content analysis, major influence dynamics within three decision stages are synthesized with the help of egocentric network maps from the perspective of residential decision-makers. Results indicate that actors closest in terms of emotional and spatial proximity such as members of the social network represent the major influence on residential PV decision-making throughout the stages. Furthermore, decision-makers with a higher level of knowledge are more likely to move on to the subsequent stage. A shift from passive exposure to proactive search takes place through the process, but this shift is less pronounced among risk-averse decision-makers who continuously request proactive influences. The discussions revealed largely unexploited potential regarding the stakeholders local utilities and local governments who are perceived as independent, trustworthy and credible stakeholders. Public stakeholders must fulfill their responsibility in achieving climate goals by advising, assisting, and financing services for low-carbon technology adoption at the local level. Supporting community initiatives through political frameworks appears to be another promising step.
    Date: 2021–04
  5. By: John Van Reenen
    Abstract: If innovation is to be subsidized, a natural place to start is to increase the quantity and quality of human capital. Innovation, after all, begins with people. Simply stimulating the “demand side” through R&D subsidies and tax breaks may only drive up the price, rather than the volume of research activity. By contrast, increasing the supply of potential inventors can both directly increase innovation and reduce its cost. This paper examines the evidence on human capital policies for stimulating innovation such as expanding the home-grown workforce, fostering immigration, boosting universities and reducing barriers to entry into inventor careers, especially for under-represented groups. The evidence suggests targeting high ability but disadvantaged potential inventors at an early age is likely to have the largest long-run effects on growth.
    JEL: O31 O32
    Date: 2021–04
  6. By: Jeppe Christoffersen; Felix Holzmeister; Thomas Plenborg
    Abstract: We systematically examine which characteristics of a business opportunity – such as the likelihoods of potential gains and losses – affect managers' perception of risk and attractiveness. In an online experiment with a sample of 4,287 managers from small- and medium-sized enterprises in Denmark, we present participants with a hypothetical investment prospect in a business context, and elicit their perception of risk associated with the project and their perception of the investment's attractiveness. The experimental data is merged with a set of background variables on the company, which allows controlling for firm-specific effects. We find that risk perception is driven by the likeli hood and the return associated with the worst-case scenario as well as the size of the required investment. Managers' perception of attractiveness is affected not only by the worst-case scenario but also by the characteristics of the base-case and the best-case outcomes. Furthermore, we provide evidence that managers' perception of the project's attractiveness is significantly affected by their individual-level risk preferences and the interaction effect with risk perception. This implies that not only the characteristics of the different scenarios but also individuals' risk preferences play an important role when assessing the attractiveness of a business opportunity.
    Keywords: risk perception, risk preferences, attractiveness of investment project, business opportunity
    JEL: D81 D91 M10
    Date: 2021
  7. By: Krammer, Sorin; Gören, Erkan
    Abstract: Entrepreneurship is a cornerstone of technological innovation and economic development. We posit that the genetic make-up of countries (populations) will affect the extent of their engagement in entrepreneurial activities, in addition to the factors showcased by prior literature (e.g., institutions, culture, socio-economic, demographic, or historical). To test this conjecture we employ a country-level genetic measure that is commonly associated with novelty- and risk- seeking behaviours using the frequency of the 2- and 7-repeat allele variants of the DRD4 exon III gene. Our results confirm a systematic, positive association between genetics and entrepreneurial activities across 97 countries using a large set of controls and battery of robustness tests. These findings reconcile the “nature versus nurture” debate with respect to entrepreneurial activities around the world and provide some valuable insights on the significance of different determinants of entrepreneurship.
    Keywords: Entrepreneurship, Genetic Diversity, Novelty-Seeking, DRD4 Exon III
    JEL: D02 L26 O31
    Date: 2021–04–08
  8. By: Julia Seither
    Abstract: This paper investigates the effects of incorrect beliefs over relative firm performance on micro-firm outputs through a randomized field experiment in Mozambique. At baseline, 76% of firm owners in the bottom of the distribution are overconfident about their firm’s performance. The estimates reveal that correcting these beliefs through a simple, easily scalable information experiment closes the performance gap between treated firms in the bottom of the distribution at baseline and average and top firms by almost 43%. Moreover, the treatment increases the time a firm owner allocates to her business, improves strategic cooperation with the most important business partners, and affects the pricing strategy of treated firm owners. My results suggest that incorrect beliefs about relative performance are a binding constraint to firm growth that have large implications for managerial behavior and firm outcomes.
    JEL: D22 D91 O12
    Date: 2021
  9. By: Maria Teresa Álvarez (European Commission - JRC); Salvador Barrios (European Commission - JRC); Andrea Bellucci (European Commission - JRC); Mark Boden (European Commission - JRC); Giacomo Damioli (European Commission - JRC); Nestor Duch-Brown (European Commission - JRC); Gianluca Gucciardi (European Commission - JRC); Anabela Marques-Santos (European Commission - JRC); Robert Marschinski (European Commission - JRC); David Martínez-Turégano (European Commission - JRC); Pietro Moncada-Paternò-Castello (European Commission - JRC); Daniel Nepelski (European Commission - JRC); Dimitris Pontikakis (European Commission - JRC); Emanuele Pugliese (European Commission - JRC); Giuseppina Testa (European Commission - JRC); Alexander Tübke (European Commission - JRC)
    Abstract: This report holds the results of a selection of European Commission’s JRC activities which aim to support EU policies to tackle the technological and innovation challenges of the European industry in the next decade. It addresses some of these challenges by implementing novel scientific analyses within the following themes: Technology diffusion and industrial dynamics; innovation and company value chains; Financing innovation; Industrial innovation for transitions and transformation; Employment and skills for industrial transformations; Integration of global to local industrial innovation perspectives; and new data, standards and methods. The outcomes obtained provide insights relevant to EU policy initiatives dealing with innovation and industry and aiming to achieve the priorities of the European Commission's "Green Deal" and "A stronger Europe in the world", and in general the EU industrial competitiveness & sustainability.
    Keywords: Research, technology and innovation challenges; Industrial transitions and transformation; science for policy; Industrial and innovation policy; European Union
    Date: 2021–04
  10. By: Audra Bowlus; Émilien Gouin-Bonenfant; Huju Liu; Lance Lochner; Youngmin Park
    Abstract: This paper studies the evolution of individual earnings inequality and dynamics in Canada from 1983 to 2016 using tax files and administrative records. Linking these individuals to their employers (and rich administrative records on firms) beginning in 2001, it also documents the relationship between the earnings dynamics of workers and the size and growth of their employers. It highlights three main patterns over this period: First, with a few exceptions (sharp increase in top 1% and declining gender gap), Canada experienced relatively modest changes in overall earnings inequality, volatility, and mobility between 1983 and 2016. Second, there is considerable variability in earnings inequality and volatility over the business cycle. Third, the earnings dynamics of individuals are strongly related to the size and employment growth of their employers.
    Keywords: Econometric and statistical methods; Firm dynamics; Labour markets; Potential output; Productivity
    JEL: D22 D31 E24 J24 J31 J63
    Date: 2021–04
  11. By: Mauricio Medeiros Jr; Bernardus Van Doornik
    Abstract: We establish the relevance of human capital to startup financing. Using administrative databases from the Central Bank of Brazil, we obtain information on private firms, their founders and their access to bank credit. Our empirical strategy is based on the premature death of founders, which allows us to identify how losing founders’ human capital affects startup financing. The results show that once a founder dies unexpectedly, there is a decrease in the amount of credit and an increase in interest rates and default rates. These findings are mainly driven by the death of founders who are also managers in the firm, which is consistent with the theory of founders contributing critical resources to their firms.
    Date: 2021–04
  12. By: Christopher Boudreaux; George Clarke; Anand Jha
    Abstract: How does an entrepreneur's social capital improve small informal business productivity? Although studies have investigated this relationship, we still know little about the underlying theoretical mechanisms driving these findings. Using a unique Zambian Business Survey of 1,971 entrepreneurs administered by the World Bank, we find an entrepreneur's social capital facilitates small business productivity through the mediating channels of firm financing and customer relationships. Our findings identify specific mechanisms that channel social capital toward an informal business' productivity, which prior studies have overlooked.
    Date: 2021–04
  13. By: Christian Haddad; Lars Hornuf
    Abstract: We study the impact fintech startups have on the performance and the default risk of traditional financial institutions. We find a positive relationship between fintech startup formations and incumbent institutions’ performance for the period from 2005 to 2018 and a large sample of financial institutions from 87 countries. We further analyze the link between fintech startup formations and the default risk of traditional financial institutions. Fintech startup formations decreases stock return volatility of incumbent institutions and decreases the systemic risk exposure of financial institutions. Our findings indicate that the development of fintech startups should be monitored very closely by legislators and financial supervisory authorities, because fintechs not only have a positive effect on the financial sector’s performance, but can also improve financial stability relative to the status quo.
    Keywords: fintech, bank performance, default risk, financial stability
    JEL: K00 L26 O30
    Date: 2021

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