nep-sbm New Economics Papers
on Small Business Management
Issue of 2021‒07‒12
eighteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. The drivers of SME innovation in the regions of the EU By Jose Luis Hervas-Oliver; Mario Davide Parrilli; Andres Rodriguez-Pose; Francisca Sempere-Ripoll
  2. The Impact of Subsidies for Strengthening the Competitiveness of SMEs in Service Sectors (Japanese) By MAKIOKA Ryo
  3. Schumpeterian Entrepreneurship: Coveted by Policymakers but Impervious to Top-Down Policymaking By Henrekson, Magnus; Kärnä, Anders; Sanandaji, Tino
  4. Financial distress and the role of management in micro and small-sized firms By Fernando Alexandre; Sara Cruz; Miguel Portela
  5. Give it Another Shot: Startup Experience and the Mobilization of Human Resources in New Ventures By Rocha, Vera; Pozzoli, Dario
  6. R&D Tax Credits across the European Union:Divergences and convergence By Laurence Jacquet; Stéphane Robin
  7. Heterogeneous Firms, R&D Policies and the Long Shadow of Business Cycles By Cristiana Benedetti-Fasil; Giammario Impullitti; Omar Licandro; Petr Sedlacek
  8. Small and smaller: How the economic outlook of small firms relates to size By Chris D'Souza; James Fudurich; Farrukh Suvankulov
  9. Covid-19 Effect in Firms' Innovation and Growth in the EU By MARQUES SANTOS Anabela; HAEGEMAN Karel; MONCADA PATERNO' CASTELLO Pietro
  10. Back in Business? WA Small Businesses and the Impact of COVID-19 By Rebecca Cassells; Alan S Duncan; Daniel Kiely
  11. Organizing Library Intrapreneurship By Chatterjee, Sidharta; Samanta, Mousumi
  12. Innovation policy and performance of Eastern European Countries By Foreman-Peck, James; Zhou, Peng
  13. The strength of weak and strong ties in bridging geographic and cognitive distances By Abbasiharofteh, Milad; Kinne, Jan; Krüger, Miriam
  14. Productivity and human capital: The Italian case By Camilla Andretta; Irene Brunetti; Anna Rosso
  15. Searching through the Haystack: The relatedness and complexity of priorities in smart specialisation strategies By Jason Deegan; Tom Broekel; Rune Dahl Fitjar
  16. Institutional Investors, Climate Policy Risk, and Directed Innovation By Marie-Theres Schickfus von; Marie-Theres von Schickfus
  17. A longitudinal overview of the European national innovation systems through the lenses of the Community Innovation Survey By Makrevska Disoska, Elena; Toshevska-Trpchevska, Katerina; Tevdovski, Dragan; Jolakoski, Petar; Stojkoski, Viktor
  18. Calling Baumol: What Telephones Can Tell Us about the Allocation of Entrepreneurial Talent in the Face of Radical Institutional Changes By Sorgner, Alina; Wyrwich, Michael

  1. By: Jose Luis Hervas-Oliver; Mario Davide Parrilli; Andres Rodriguez-Pose; Francisca Sempere-Ripoll
    Abstract: European Union (EU) innovation policies have for long remained mostly research driven. The fundamental goal has been to achieve a rate of R&D investment of 3% of GDP. Small and medium-sized enterprise (SME) innovation, however, relies on a variety of internal sources —both R&D and non-R&D based— and external drivers, such as collaboration with other firms and research centres, and is profoundly influence by location and context. Given this multiplicity of innovation activities, this study argues that innovation policies fundamentally based on a place-blind increase of R&D investment may not deliver the best outcomes in regions where the capacity of SMEs is to benefit from R&D is limited. We posit that collaboration and regional specificities can play a greater role in determining SME innovation, beyond just R&D activities. Using data from the Regional Innovation Scoreboard (RIS), covering 220 regions across 22 European countries, we find that regions in Europe differ significantly in terms of SME innovation depending on their location. SMEs in more innovative regions benefit to a far greater extent from a combination of internal R&D, external collaboration of all sorts, and non-R&D inputs. SMEs in less innovative regions rely fundamentally on external sources and, particularly, on collaboration with other firms. Greater investment in public R&D does not always lead to improvements in regional SME innovation, regardless of context. Collaboration is a central innovation activity that can complement R&D, showing an even stronger effect on SME innovation than R&D. Hence, a more collaboration-based and place-sensitive policy is required to maximise SME innovation across the variety of European regional contexts.
    Keywords: regional innovation; SMEs; R&D; place-based; collaboration; EU regions
    JEL: O31 O32 L11
    Date: 2021–06
  2. By: MAKIOKA Ryo
    Abstract: This paper analyzes the effects of the subsidies provided by the Japanese Small and Medium Enterprise Agency on the competitiveness of small and medium-sized enterprises (SMEs) in service sectors in Japan. We construct a dataset that combines firm information data from Tokyo Shoko Research with a list of firms applying for the subsidies provided by the Small and Medium Business Administration, and use a difference-in-differences approach with propensity score matching. The results show the following two findings. First, we find statistically significant positive estimates on the sales and the number of employees after the end of the subsidy project, while observing some pre-treatment trends. Second, the effect for firms collaborating with universities or public research institutions is not statistically different from that for firms collaborating with other institutions.
    Date: 2021–06
  3. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Kärnä, Anders (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research)
    Abstract: Differentiating various types of entrepreneurs provides clues to the puzzle of why top-down policies often fail to create Schumpeterian entrepreneurship and the ecosystems where it thrives. Schumpeterian entrepreneurship is intrinsically contrarian, whereas public policy has a bias toward incremental innovation and replication of past success. If central planners knew what the next radical innovation would be, there would be no need for Schumpeterian entrepreneurs. Schumpeterian entrepreneurs create not only companies but also institutions in the entrepreneurial support system. These ever-evolving structures are too complex to design, and central planning instead reduces the space for organic institutional innovation.
    Keywords: Entrepreneurship policy; High-impact entrepreneurship; Innovation; Institutions; Schumpeterian entrepreneurship
    JEL: M13 O31 P14
    Date: 2021–06–24
  4. By: Fernando Alexandre; Sara Cruz; Miguel Portela
    Abstract: In this paper, we focus on the managerial characteristics of micro and small-sized firms. Using linked employer-employee data on the Portuguese economy for the 2010-2018 period, we estimate the impact of management teams’ human capital on the probability of firms becoming financially distressed and their subsequent recovery. Our estimates show that the relevance of management teams’ formal education on the probability of firms becoming financially distressed depends on firms’ size and the type of education. We show that management teams’ formal education and tenure reduce the probability of micro and small-sized firms becoming financially distressed and increases the probability of their subsequent recovery. The estimates also suggest that those impacts are stronger for micro and small-sized firms. Additionally, our results show that functional experience previously acquired in other firms, namely in foreign-owned and in exporting firms and in the area of finance, may reduce the probability of micro firms becoming financially distressed. On the other hand, previous functional experience in other firms seems to have a strong and highly significant impact on increasing the odds of recovery of financially distressed firms. We conclude that policies that induce an improvement in the managerial human capital of micro and small-sized firms have significant scope to improve their financial condition, enhancing the economy’s resilience against shocks.
    Keywords: Financial distress, firm performance, human capital
    JEL: G32 J24 L25
    Date: 2021–07–08
  5. By: Rocha, Vera (Department of Strategy and Innovation, Copenhagen Business School); Pozzoli, Dario (Department of Economics, Copenhagen Business School)
    Abstract: Human resources can provide a competitive advantage to firms, but we still know little about how newly-founded ventures start mobilizing these resources. Given the central role of entrepreneurs’ background in designing the strategy of new firms, we investigate whether and how startup experience, namely past performance as entrepreneurs, influences employee mobilization strategies in new ventures. Integrating behavioral theories of the firm with regulatory focus theory, we postulate that serial entrepreneurs who failed in the past are more likely to be prevention oriented and change their employee mobilization strategies towards a more targeted hiring approach in subsequent ventures. Using Danish register data, we compare the employee sourcing practices of serial entrepreneurs with their former practices as novice entrepreneurs, as well as with a control group of first-time entrepreneurs who engage in serial venturing later on. We find that entrepreneurs who have already failed (i.e. discontinued a former business) select their employees from fewer sources in the labor market. Our tests lend support for learning as a key mechanism driving these differences. Alternative mechanisms such as selection effects, stigma of failure, and demand-side constraints are not empirically supported.
    Keywords: Failure; Hiring; New Ventures; Startup Experience; Human Capital
    JEL: J24 L21 L26 M13
    Date: 2021–06–18
  6. By: Laurence Jacquet; Stéphane Robin (CY Cergy Paris Université, THEMA)
    Abstract: We examine the R&D, innovation and productivity effects of R&D tax credits (R&DTC) in 8 EU countries, in the context of a proposed EU-wide "super deduction" on R&D expenditures. Our econometric analysis, performed on industry-level panel data, shows that past R&D feeds current R&D, whether it is conducted under an R&DTC or not. Our estimate of additionality during an R&DTC phase is generally close to 1. R&D intensity also affects patenting intensity positively in Belgium, Czech Republic, France, Spain and the UK, but this relationship is R&DTC-related only in Belgium, France and Spain. Only in France and the UK do we observe a full (yet fragile) R&D – innovation – productivity relationship. In the UK, this relationship is not affected by the R&DTC scheme. In France, a 1% increase in R&D conducted under the second to fourth phases of R&DTC (1999-2017) entails a cumulated 0.37% increase in patenting intensity, which translates to a 0.16% increase in productivity. The main policy implication of these results is that a "super-deduction" on R&D is likely to help the EU reach its "R&D at 3% of GDP" objective, but only time will tell how generous it must be to really spur innovation and productivity.
    Keywords: R&D Tax Credits, Public Support to R&D, Science and Technology Policy, European Policy
    JEL: O38 H25 H54
    Date: 2021
  7. By: Cristiana Benedetti-Fasil (European Commission - JRC); Giammario Impullitti (School of Economics, University of Nottingham); Omar Licandro (School of Economics, University of Nottingham); Petr Sedlacek (Department of Economics, Oxford University)
    Abstract: Growth and business cycles have a long tradition of being studied separately. However, events such as the Great Recession raise concerns that severe downturns may have detrimental implications for growth. If so, what policies may help alleviate such long-lasting effects of large recessions? To study these questions, we develop a tractable general equilibrium model of endogenous growth featuring heterogeneous firms, financial constraints and a range of innovation policies. A preliminary analysis suggests that counter-cyclical tax credits may serve as a powerful automatic stabilizer alleviating the long-lasting negative effects of severe cyclical downturns.
    Keywords: Firm dynamics, innovation policy, endogenous growth, business cycles
    JEL: F12 F13 O31 O41
    Date: 2021–06
  8. By: Chris D'Souza; James Fudurich; Farrukh Suvankulov
    Abstract: Firms with fewer than 100 workers employ about 65 percent of the total labour force in Canada. An online survey experiment was conducted with firms of this size in Canada in 2018–19. We compare the responses of small and micro firms to explore how their characteristics and economic outlooks relate to their size.
    Keywords: Business fluctuations and cycles; Firm dynamics
    JEL: C8 C83 D2 D22 E3 E32
    Date: 2021–07
  9. By: MARQUES SANTOS Anabela (European Commission - JRC); HAEGEMAN Karel (European Commission - JRC); MONCADA PATERNO' CASTELLO Pietro (European Commission - JRC)
    Abstract: Innovation and growth of firms in the EU were more affected by the Covid-19 pandemic (year 2020) than by the previous economic downturn (2009). The economic performance of innovative firms was considerably less affected by the pandemic than that of non-innovative ones. The pandemic made innovation twice as critical for companies to have potential turnover growth than before the crisis. Innovating firms focused on organisational and marketing innovation to increase demand and reduce costs in the short term. EU instruments such as the Recovery and Resilience Facility and Horizon Europe offer wide opportunities for firms to exit from the Covid-19 crisis and boost their future competitiveness. The full completion and exploitation of the (Digital) Single Market appears crucial for stimulating short and long term demand for innovative goods/services and investments in intangibles.
    Keywords: Covid-19, Innovation, Growth, Europe
    Date: 2021–06
  10. By: Rebecca Cassells (Bankwest Curtin Economics Centre (BCEC), Curtin University); Alan S Duncan (Bankwest Curtin Economics Centre (BCEC), Curtin University); Daniel Kiely (Bankwest Curtin Economics Centre, Curtin Business School)
    Abstract: The impact of COVID-19 has been felt across the economy and business sector, but for small businesses these shocks can be more challenging to deal with, with fewer resources to draw from. The latest lockdown is a set-back for WA’s small businesses, with business closures and restrictions putting a hopefully temporary halt to the small business sector’s recovery. But we now know what supports can help small businesses the most. The Bankwest Curtin Economics Centre has captured new data to understand the impact COVID-19 has had on small businesses, whether they have the supports needed to succeed and how they see the future outlook. This new report, the fourteenth in the Focus on WA series, covers findings from the 2020 BCEC Small Business Survey including the significant costs, workforce and other pressures businesses have experienced and their expectations for the year ahead.
    Keywords: Western Australia, WA economy, small business, small and medium enterprises, productivity and innovation, economic growth, health of small business owners
    JEL: M1 M13 L25 L26 M21
    Date: 2021–02
  11. By: Chatterjee, Sidharta; Samanta, Mousumi
    Abstract: The goal of this paper is to analyze and evaluate how librarians could help transform their libraries into productive, innovative knowledge organizations. Libraries must be able to attract new users to increase footfalls through innovation. They should learn how to adopt entrepreneurial models of operation to maximize user satisfaction and attract investments from private sectors. Library professionals should take the initiatives to help design and foster entrepreneurship business models to make libraries economically independent and socially competent organization. They should adopt a model of knowledge entrepreneurship where librarians, besides being knowledge managers, would also act as intrapreneur within their organization.
    Keywords: Library, knowledge organization, entrepreneurship, intrapreneurship model, LIS professional
    JEL: Z00
    Date: 2021–07–02
  12. By: Foreman-Peck, James (Cardiff Business School); Zhou, Peng (Cardiff Business School)
    Abstract: This paper shows that EU and national innovation subsidy policies stimulated Central and East-ern Europe Countries (CEEC) productivity in the years after their entry to the EU. However, the average effectiveness of national funding was higher for the Western control group coun-tries than for the CEEC sample. EU innovation subsidies partly compensated the CEEC for the greater innovation effectiveness and impact of western economies. Although they crowded out innovation projects or funding of local governments at the country level, the subsidies crowded in national and local projects at the firm level. Local/regional state innovation aid to enterprises encouraged no increase in labour productivity in all but one of sample CEEC countries. These impacts are assessed in a sequential structural econometric model estimated using Eurostat’s collection of Community Innovation Surveys covering the years 2006-2014.
    Keywords: innovation policy; European Union; R&D; subsidies
    JEL: L53 L21 H71 H25
    Date: 2021–07
  13. By: Abbasiharofteh, Milad; Kinne, Jan; Krüger, Miriam
    Abstract: The proximity framework has attracted considerable attention in a scholarly discourse on the driving forces of knowledge exchange tie formation. It has been discussed that too much proximity is negatively associated with the effectiveness of a knowledge exchange relation. However, little is known about the key factors that trigger the formation of the boundaryspanning knowledge ties. Going beyond the "dyadic" perspective on proximity dimensions, this paper argues that the key factor in bridging distances may reside at the "triadic" level. We build on the notion of "the strength of weak ties" and its recent development by investigating the innovative performance and relations of more than 600,000 German firms. We explored and extracted information from the textual and relational content of firms' websites by using machine learning techniques and hyperlink analysis. We thereby proxied the innovative performance of firms using a deep learning text analysis approach and showed that the triadic property of bridging dyadic relations is a reliable predictor of firms' innovativeness. Relations embedded in cliques (i.e., strong ties) that connect cognitively distant firms are more strongly associated with firms' innovation, whereas inter-regional relations connecting different parts of a network (i.e., weak ties) are positively associated with firms' innovative performance. Also, the results suggest that a combination of strong inter-community and weak inter-regional relations are more positively related with firms' innovativeness compared to the combination of other relation types.
    Keywords: weak and strong ties,proximity,knowledge exchange,innovation,web mining,natural language processing
    JEL: C81 D83 L14 O31
    Date: 2021
  14. By: Camilla Andretta; Irene Brunetti; Anna Rosso
    Abstract: This paper investigates whether and how worker composition, ownership and management affect the productivity of firms. To this aim, we use a dataset obtained by integrating the micro-data drawn from Rilevazione su Imprese e Lavoro (RIL), a survey conducted by Inapp in 2010 and 2015 on a representative sample of Italian limited liability and partnership firms, with the AIDA archive containing comprehensive information on the balance sheets of almost all the Italian corporations. We apply different regression models and the findings reveal that a higher share of skilled workers within firms and more experienced managers are associated with higher productivity levels. In addition, firms run by managers with higher education are more likely to introduce innovation. Finally, family ownership and the coincidence of management with ownership are negatively related with firm productivity.
    Keywords: firm, Human capital, productivity
    JEL: J24 D24
    Date: 2021–07–08
  15. By: Jason Deegan; Tom Broekel; Rune Dahl Fitjar
    Abstract: This paper examines which economic domains regional policy-makers aim to develop in regional innovation strategies, focusing in particular on the complexity of those economic domains and their relatedness to other economic domains in the region. We build on the economic geography literature that advises policy-makers to target related and complex economic domains (e.g. Balland et al. (2018a), and assess the extent to which regions actually do this. The paper draws on data from the smart specialisation strategies of 128 NUTS-2 regions across Europe. While regions are more likely to select complex economic domains related to their current economic domain portfolio, complexity and relatedness figure independently, rather than in combination, in choosing priorities. We also find that regions in the same country tend to select the same priorities, contrary to the idea of a division of labour across regions that smart specialisation implies. Overall, these findings suggest that smart specialisation may be considerably less place-based in practice than it is in theory. There is a need to develop better tools to inform regions’ priority choices, given the importance of priority selection in smart specialisation strategies and regional innovation policy more broadly.
    Keywords: Smart Specialisation, Regional Policy, Complexity, Relatedness, Innovation Policy, European Cohesion Policy
    JEL: O25 O38 R11
    Date: 2021–06
  16. By: Marie-Theres Schickfus von; Marie-Theres von Schickfus
    Abstract: The tightening of climate policies may cause technologies based on fossil fuels to lose value compared to “green” technologies. For firms with significant fossil-based knowledge, this implies that their firm (market) value is at risk. This technological risk is also relevant for financial market actors, in particular institutional investors following long-term investment strategies. Measuring technological knowledge using patent data at the firm level, this paper uses a dynamic patent count data model and explores whether institutional investors address technological transition risk via engagement activities. Despite robust evidence for a positive influence of institutional investors on overall innovation, no evidence can be found that institutional ownership is associated with a change in the direction of innovation.
    Keywords: Green innovation, climate policy, green finance, climate risk, institutional investors
    JEL: Q55 G23 O34
    Date: 2021
  17. By: Makrevska Disoska, Elena; Toshevska-Trpchevska, Katerina; Tevdovski, Dragan; Jolakoski, Petar; Stojkoski, Viktor
    Abstract: In this paper, we perform a detailed longitudinal analysis on the innovation performance in nine European countries by using data stemming from the Community Innovation Survey. The temporal dimension of our dataset includes the period during the financial crisis of 2008 as well as the period after the crisis. As such, it allows us to fully evaluate the changes in the innovation processes within the countries during and after the crisis. Our findings suggest that there are no significant differences between the countries in the determinants for firms which decide to enter the innovation process. However, the effect of innovation output over labor productivity varies between economies: there is a positive relationship in the more developed economies compared to a negative or neutral relationship in the less developed. We use these results to speculate that the national innovation system in developing economies becomes more vulnerable in periods of financial crises.
    Keywords: CIS, European countries, national innovation systems, longitudinal studies, labor productivity
    JEL: C33 C36 O31 O33
    Date: 2021–06–21
  18. By: Sorgner, Alina (John Cabot University); Wyrwich, Michael (University of Jena)
    Abstract: The aim of this paper is to test a key aspect of Baumol's theory that the allocation of entrepreneurial efforts toward its productive (e.g., start-up activity) or unproductive (e.g., rent-seeking) use depends on institutional conditions. In contrast to previous research, we study a context where a radical and exogenous institutional change took place that dramatically changed the rewards and opportunities of running a firm. We analyze at the individual level who decides to start a venture in East Germany after the fall of the Berlin Wall. We find that a significant number of people that demonstrated a strong commitment to the anti-entrepreneurial socialist regime were active in launching new ventures soon after the fall of the Berlin Wall. This pattern cannot be explained by having elite status during the socialist regime. We argue that this commitment to socialism reflects rent-seeking, a type of unproductive entrepreneurship. Once institutions change radically, their entrepreneurial efforts are redirected towards productive entrepreneurship (start-up activity). Regime commitment is captured by information from the 1990 wave of the German Socioeconomic Panel (GSOEP) that includes information on whether East German respondents had a telephone during the socialist era, a typical reward for pronounced efforts for the socialist regime. We find that this group of people were more likely to have an entrepreneurship- prone personality profile, had a higher propensity of becoming selfemployed, and were more successful entrepreneurs. Our results confirm Baumol's theory in a setting that resembles the historical examples Baumol used to make his general argument.
    Keywords: entrepreneurship, transition, institutional conditions
    JEL: L26 P20 P31
    Date: 2021–06

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