nep-sbm New Economics Papers
on Small Business Management
Issue of 2021‒06‒14
eighteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Venture Capital Booms and Startup Financing By Janeway, W.; Nanda, R.; Rhodes-Kropf, M.
  2. Small Changes with Big Impact: Experimental Evidence of a Scientific Approach to the Decision-Making of Entrepreneurial Firms By Camuffo, Arnaldo; Gambardella, Alfonso; Spina, Chiara
  3. Transnational experience and high-performing entrepreneurs in emerging economies: evidence from Vietnam By Klingler-Vidra, Robyn; Tran, Ba Linh; Chalmers, Adam William
  4. Are importing and exporting complements or substitues in an emerging economy? The case of Colombia. By Andrés Mauricio Gómez-Sánchez; Juan A. Máñez; Juan A. Sanchis
  5. Financing Constraints, Home Equity and Selection into Entrepreneurship By Thais Laerkholm Jensen; Søren Leth-Petersen; Ramana Nanda
  6. Barriers to Entry and Regional Economic Growth in China By Brandt, Loren; Kambourov, Gueorgui; Storesletten, Kjetil
  7. WP 05-21 - Business dynamism and productivity growth in Belgium By Michel Dumont
  8. The birth of new high growth enterprises: Internationalisation through new digital technologies By Teruel Carrizosa, Mercedes; Coad, Alexander; Domnick, Clemens; Flachenecker, Florian; Harasztosi, Péter; Janiri, Mario Lorenzo; Pál, Rozália
  9. Biopharmaceutical R&D outsourcing: Short-term gain for long-term pain? By Billette de Villemeur, Etienne; Scannell, Jack; Versaevel, Bruno
  10. Stepping-up innovation in manufacturing firms: Knowledge combinations in an Italian local production system By Plechero, Monica; Grillitsch, Markus
  11. Boosting social entrepreneurship and social enterprise development in Brandenburg, Germany: In-depth policy review By OECD
  12. New Survey Evidence on COVID-19 and Irish SMEs: Measuring the Impact and Policy Response By Kren, Janez; Lawless, Martina; McCann, Fergal; McQuinn, John; O'Toole, Conor
  13. Informing employees in small and medium sized firms about training: results of a randomized field experiment By Berg, Gerard van den; Dauth, Christine; Homrighausen, Pia; Stephan, Gesine
  14. The Cash Flow Sensitivity of Cash: Replication, Extension, and Robustness By Almeida, Heitor; Campello, Murillo; Weisbach, Michael S.
  15. Supporting Small Business Owners of Color By Patrick T. Harker
  16. Measuring Small and Medium-Size Enterprises Contribution to Trade in Value Added: The case of Chile 2013-2016 By Mario Marcel; Diego Vivanco
  17. Simulating business failures through the liquidity and solvency channels: a framework with applications to COVID-19 By McCann, Fergal; Yao, Fang
  18. Disclosure, Firm Growth, and the JOBS Act By Divakaruni, Anantha; Jones, Howard

  1. By: Janeway, W.; Nanda, R.; Rhodes-Kropf, M.
    Abstract: We review the growing literature on the relationship between venture capital booms and startup financing, focusing on three broad areas: First, we discuss the drivers of large inflows into the venture capital asset class, particularly in recent years -- which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of venture capital financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VCs choose to fund and terms at which they are funded, independent of investment opportunities -- thereby shaping the trajectory of innovation being conducted by startups. Third, an important insight from recent research is that booms in venture capital financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the US over the past forty years in just two broad areas – information and communication technologies (ICT) and biotechnology. We conclude by highlighting promising areas of further research.
    Keywords: Venture capital, start-ups, innovation
    JEL: G24 L26 M13 O30
    Date: 2021–06–03
  2. By: Camuffo, Arnaldo; Gambardella, Alfonso; Spina, Chiara
    Abstract: Identifying the most promising business ideas is key to the introduction of novel firms, but predicting their success can be difficult. We argue that if entrepreneurs adopt a scientific approach by formulating problems clearly, developing theories about the implications of their actions, and testing these theories, they make better decisions. In particular, this approach helps entrepreneurs make more precise predictions of the value of their idea and to spot new ideas with higher expected returns. We also examine the mechanisms with which the scientific approach works. Specifically, we posit that scientific entrepreneurs are more precise initially, and less precise later on because they envision new version of their business idea that are worth assessing. Using a field experiment with 250 nascent entrepreneurs attending a pre-acceleration program, we provide evidence consistent with these mechanisms. We teach the treated group to formulate the problem scientifically and to develop and test theories about their actions, while the control group follows a standard training approach. We collect 18 data points on the decision-making and performance of all entrepreneurs for 14 months. Results show that increased precision in the assessment of the value of the business idea of treated entrepreneurs raises the probability that they close their start-ups. Scientific entrepreneurs are also more likely to see new opportunities with higher positive outcomes which prompt them to pivot to these new ideas and perform better.
    Keywords: entrepreneurship; field experiment; RCT; scientific approach
    JEL: L21 L26 M13 M21
    Date: 2020–06
  3. By: Klingler-Vidra, Robyn; Tran, Ba Linh; Chalmers, Adam William
    Abstract: Do high-performing entrepreneurs in the technology sector in emerging economies have more, or different, transnational experience than the founders of high-performing non-technology businesses? Employing Vietnam as a case study, we find that they do; the founders of high-performing technology-oriented businesses are 15 times more likely to have transnational experience in the U.S. compared to their non-technology peers, and are 35 times more likely to be graduates of American universities compared to founders of high-performing, non-technology-oriented business. The founders of high-performing non-technology businesses are more ‘place-based’, as they have predominantly lived and studied in Vietnam. Our data and methods are comprised of a logistic regression analysis of the biographical details of Vietnam's 143 highest-performing entrepreneurs; the founders of the 76 Vietnam's (non-technology-based) companies with the highest market capitalizations and the 67 founders of Vietnam's highest performing technology-oriented companies, in terms of private equity fundraising, as of April 2020. The paper's theoretical contribution is the advance it makes in analytical explanations of why technology-based entrepreneurs have more transnational experience, especially in the U.S., than high-performing founders of businesses in other sectors; this helps extend theory on the relationship between social and human capital and entrepreneurial performance, specifically in the technology sector.
    Keywords: entrepreneurship; innovation; returnees; social capital; transnational experience; Vietnam; Impact Acceleration Account research grant
    JEL: R14 J01
    Date: 2021–08–01
  4. By: Andrés Mauricio Gómez-Sánchez (Universidad del Cauca and Universitat de València); Juan A. Máñez (Universitat de València and ERICES); Juan A. Sanchis (Universitat de València and ERICES)
    Abstract: The aim of this paper is investigating the impact of two firm trading strategies (exporting and importing) on total factor productivity (TFP) and the potential complementarity/substitutability effects of these strategies. To assess these effects, we obtain robust estimates of TFP using a GMM approach that explicitly reckons the ability of firms’ trading experience to affect productivity. We use data for Colombian manufacturing firms from the Annual Manufacturing Survey spanning from 2007-2016. Our estimations results suggest that, regardless of the technological intensity of the industry in which the firm operates, active trading strategies (only exporting, only importing, both importing and exporting) pay positive rewards in terms of productivity. Nevertheless, whilst we find positive synergies (complementary) between exporting and importing for firms in med-high tech sectors, for firms operating in low-tech and med-low tech sectors, importing and exporting appear to be substitutes.
    Keywords: imports, export, productivity, complementarity, substitutability
    JEL: F14 D24
    Date: 2021–05
  5. By: Thais Laerkholm Jensen (Danmarks Nationalbank); Søren Leth-Petersen (CEBI, Department of Economics, University of Copenhagen, CEPR); Ramana Nanda (Harvard Business School, NBER)
    Abstract: We exploit a mortgage reform that differentially unlocked home equity across the Danish population and study how this impacted selection into entrepreneurship. We find that increased entry was concentrated among entrepreneurs whose firms were founded in industries where they had no prior work experience. In addition, we find that marginal entrants benefiting from the reform had higher pre-entry earnings and that a significant share of entrants started longer-lasting firms. Our results are most consistent with the view that housing collateral enabled high ability individuals with less-well-established track records to overcome credit rationing and start new firms, rather than just leading to `frivolous entry' by those without prior industry experience.
    Keywords: credit constraints, entrepreneurship, household wealth, mortgage finance
    JEL: D14 D31 G21 L25 L26
    Date: 2021–06–03
  6. By: Brandt, Loren; Kambourov, Gueorgui; Storesletten, Kjetil
    Abstract: Labor productivity in manufacturing differs starkly across regions in China. We document that productivity, wages, and start-up rates of non-state firms have nevertheless experienced rapid regional convergence after 1995. To analyze these patterns, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and entry barriers. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance and growth across prefectures. Entry barriers explain most of the differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector.
    Keywords: capital distortions; China; convergence; Entry Barriers; Firm entry; growth; output distortions; SOE reform; transition
    JEL: D22 D24 E24 O11 O14 O16 O40 O53 P25 R13
    Date: 2020–06
  7. By: Michel Dumont
    Abstract: This paper considers the evolution in business dynamism and its potential link with productivity growth in Belgium. Statistics on business creation, the exit of enterprises and within-industry reallocation are presented. Data on Belgian firms, covering the period 2003-2017, are used for a decomposition of productivity growth. The paper provides robust indications of the substantial contribution of productivity growth of startups in the early years after entry.
    Keywords: Start-ups, Young firms, Reallocation, Efficiency, Productivity growth
    JEL: D22 D24 L25 L26 M13
    Date: 2021–05–28
  8. By: Teruel Carrizosa, Mercedes; Coad, Alexander; Domnick, Clemens; Flachenecker, Florian; Harasztosi, Péter; Janiri, Mario Lorenzo; Pál, Rozália
    Abstract: This paper explores the relationship between new digital technologies, internationalisation activity and its impact on High Growth Enterprises (HGEs), using the EIB Group Survey of Investment and Investment Finance and ORBIS data for 27 EU Member States and the United Kingdom. After controlling for sample selection bias, our results suggest that being a HGE is positively associated with the probability that a firm conducts international activities, particularly FDI. Conversely, the internationalisation process seems to trigger strong subsequent firm-growth for FDI. Furthermore, we show evidence on the positive association between firms that are internationalised and those adopting new digital technologies. The adoption of new digital technologies is indirectly related to the status of being a HGE via internationalisation activity in the current period. Our results highlight the complex influence of exporting and FDI on the capacity to become a HGE and the role of new digital technologies in this process.
    Keywords: Digital technologies,export,FDI,HGE,internationalisation
    JEL: F14 L21 O31
    Date: 2021
  9. By: Billette de Villemeur, Etienne; Scannell, Jack; Versaevel, Bruno
    Abstract: From the perspective of pharmaceutical companies, R&D outsourcing offers a range of benefits. For example, costs that were otherwise fixed can become variable, and firms can gain rapid access to a large set of new technologies. Recent theoretical work has added to the list by connecting R&D activities characterized by economies of scope and knowledge spillovers -- those that are likely to have the biggest effect on industry economics and social welfare – to the ability of large drug companies to capture a disproportionate share of economic value from, and transfer a disproportionate share of financial risk to, small new technology providers. The low profitability and high risk associated with the provision of such outsourced R&D activities reduce incentives to invest in new for-profit ventures that specialize in the most promising early-stage projects. We hypothesize that the short- to medium-term efficiency gains from R&D outsourcing may, therefore, be offset by slower innovation in the long run.
    Keywords: research; development; biotechnology; pharmaceuticals; externalities
    JEL: L13 L65 O31
    Date: 2021
  10. By: Plechero, Monica (Ca’ Foscari University of Venice); Grillitsch, Markus (CIRCLE, Lund University)
    Abstract: Industry 4.0 requires from manufacturing firms to become more innovative in order to remain relevant and competitive. To step-up firm innovation, several studies in Innovation and Economic Geography foreground that firms need to combine knowledge in novel ways either within local industrial structures or over distance. The contribution of this paper is to investigate in-depth how manufacturing firms with traditional roots combine new generative knowledge in and beyond a local production system (LPS), what enables them to access and integrate such knowledge from external sources, and how this relates to the firms’ innovation performance, with a focus on radical and varied forms of innovation. The contribution of this paper lies also in a mixed-methods research approach, which combines a population-based survey of mechatronics firms in an Italian LPS, with in-depth interviews. This allows for a qualitative interpretation of the causes of the identified distributions and correlations. The main finding of the paper is that firms generating radical innovations and varied forms of innovation combine unrelated types of knowledge in-house and through external sources. The pattern is that the traditional manufacturing knowledge of mechatronics firms still prevails but that firms increasingly complement this with new knowledge, in particular science-based analytical knowledge. Firms that have acquired complementary knowledge in-house are able to access new knowledge nationally or internationally. Even though firms source knowledge relatively frequently within the local production system, the firms who access new knowledge nationally and internationally stand out in terms of their innovation performance.
    Keywords: Industry 4.0; knowledge bases; local productive system; innovation; manufacturing firms
    JEL: O33 R11
    Date: 2021–06–02
  11. By: OECD
    Abstract: This report provides an in-depth analysis of the policy ecosystem in place for social entrepreneurship and social enterprises in the state of Brandenburg, Germany. It identifies the state’s key strengths and challenges and provides policy recommendations to support the development of a stronger policy ecosystem.It includes a conceptual framework for social entrepreneurship and social innovation (Chapter 2); with recommendations and analyses to build institutional and legal frameworks for social enterprises (Chapter 3), improve access to finance for social entrepreneurship development (Chapter 4), promote access to private and public markets for social entrepreneurship development (Chapter 5), and strengthen social impact measurement and reporting for social enterprise development (Chapter 6).
    Keywords: local development, policy ecosystem, social economy, social enterprises, social entrepreneurship, social impact, social innovation
    JEL: L31 L33
    Date: 2021–06–04
  12. By: Kren, Janez (Central Bank of Ireland); Lawless, Martina (Central Bank of Ireland); McCann, Fergal (Central Bank of Ireland); McQuinn, John (Central Bank of Ireland); O'Toole, Conor (Central Bank of Ireland)
    Abstract: In this paper, we use new survey data on the Irish SME population to trace out the impact of the pandemic on revenues, firms’ capacity to adjust their cost base and their usage of policy supports. Over 70 per cent of firms experienced some fall in turnover with a median fall of 25 per cent. The impact of the shock appears uncorrelated with past firm performance which highlights its exogenous nature. Expenditure fell by 8.5 per cent on average with 40 per cent of firms cutting spending. Losses were incurred in over 30 per cent of enterprises with a further 30 per cent just breaking even. We find that about 61 per cent of SMEs received wage subsidies, 20 per cent of firms used tax warehousing while fewer than 6 per cent of firms used lending initiatives. Policy support take-up is more likely among those more affected by the downturn, while the smallest firms appear less likely to use support than larger firms.
    Keywords: Small and Medium-sized Enterprises, COVID-19, Survey Evidence, Policy Supports
    JEL: D22 L25 D04 H25
    Date: 2021–04
  13. By: Berg, Gerard van den; Dauth, Christine; Homrighausen, Pia; Stephan, Gesine
    Abstract: We mailed brochures to 10,000 randomly chosen employed German workers eligible for a subsizided occupational training program called WeGebAU, informing them about the importance of skill-upgrading occupational training in general and about WeGebAU in particular. Using survey and register data, we estimate effects of the information treatment brochure on awareness of the program, on take-up of WeGebAU and other training, and on subsequent employment. The brochure more than doubles awareness of the program. There are no effects on WeGebAU take-up but participation in other (unsubsidized) training increases among employees aged below 45. Short-term labor market outcomes are not affected.
    Keywords: employment; information treatment; randomized controlled trial; skills; wages
    JEL: J24 J65
    Date: 2020–07
  14. By: Almeida, Heitor (U of Illinois at Urbana-Champaign); Campello, Murillo (Cornell U); Weisbach, Michael S. (Ohio State U)
    Abstract: This paper reexamines the empirical evidence on the cash flow sensitivity of cash presented by Almeida, Campello, and Weisbach (2004). The original paper introduces a model in which financially constrained firms choose to save cash out of incremental cash flows but financially unconstrained do not. The authors find evidence consistent with this hypothesis on a sample of U.S. public firms between 1971 and 2000. This paper extends that analysis in a number of ways. In particular, it uses a larger sample covering the 1971-2019 window, considers a number of alternative definitions of financial constraints, and incorporates new methods and tests suggested by Welch (2020), Almeida, Campello, and Galvao (2010), and Grieser and Hadlock (2019). The original empirical findings are robust to these alternative specifications.
    JEL: G30
    Date: 2021–01
  15. By: Patrick T. Harker
    Abstract: At the Fed’s virtual Racism and the Economy: Focus on Entrepreneurship event, Philadelphia Fed President Patrick T. Harker emphasized the economic importance of small businesses and the barriers that limit minority entrepreneurs from accessing capital. Harker said that’s why the Philadelphia Fed is helping “to spark an equitable small business recovery and to strengthen support for small business owners of color.”
    Date: 2021–06–02
  16. By: Mario Marcel; Diego Vivanco
    Abstract: For many years, policymakers in Chile and elsewhere have been struggling to develop exporting-SMEs, aiming at broadening benefits of trade openness and globalization. Progress in this area, however, has been elusive due to the large entry costs to international trade networks. Still, involvement in international trade is not limited to being the direct exporter. Many firms may contribute and benefit from foreign trade as suppliers or contractors of other exporting firms. This can be measured as a firm´s contribution to Trade in Value Added using an Extended Supply and Use Table framework. Following recent empirical work led by the OECD, we show for Chile, using the 2013-2016 sample span, that (a) the total contribution of SMEs to exported value added is 33%, considerably larger than their share as final exporters (21%); (b) the indirect contribution of SMEs more than doubles the direct one; (c) most of the indirect contribution of SMEs to exported value added takes place through large exporting firms, and (d) even after considering the total SMEs contribution, such share is smaller than in most OECD countries and has remained relatively stagnant over time. Yet, since improving on the latter may happen through increasing the SMEs value contribution to other exporters as much as exporting themselves, policymakers should broaden the scope of public policies aimed at this end.
    Date: 2021–04
  17. By: McCann, Fergal (Central Bank of Ireland); Yao, Fang (Central Bank of Ireland)
    Abstract: We develop a microsimulation model that can identify Small and Medium Enterprises (SMEs) as financially distressed due to their inability to meet short term losses with cash (liquidity distress) or to meet their debt repayments (solvency distress). We estimate that – on these metrics – around one-in-six Irish SMEs may have been financially distressed at the end of 2020, or 14 per cent when weighted by debt balances. The model can be used for policy assessment: we calibrate the model to fiscal support implemented in Ireland during the first three quarters of 2020 and estimate that it reduced the share of distressed SME debt by two-fifths. On targeting, we show that a hypothetical scheme selecting firms with the smallest losses first could reduce distress rates from 19 to 7 per cent – albeit we do not suggest this is the welfare-optimising approach. On policy design, we show that debt-based support schemes reduce distress rates by less than grants, and this is driven by the greater role played by solvency over liquidity concerns in a debt-based support regime.
    Date: 2021–04
  18. By: Divakaruni, Anantha; Jones, Howard
    Abstract: We study the effects of regulatory disclosure on investment and growth by comparing newly public firms before and after they lose disclosure exemptions under the Jumpstart Our Business Startups (JOBS) Act. Exempt firms invest more in physical assets, innovation, and acquisitions than firms that lose exemptions, but experience steeper declines in growth opportunities over time. Firms that lose exemptions exhibit better allocation of equity to investments and utilization of existing assets, which improves their Tobin’s q. Relaxing disclosure requirements seems to induce inefficiencies in managerial investment decisions and hence inhibits firms from exploiting or replenishing their growth opportunities.
    Date: 2021–05–23

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