nep-sbm New Economics Papers
on Small Business Management
Issue of 2022‒09‒26
eighteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Of Academics and Creative Destruction: Startup Advantage in the Process of Innovation By Julian Kolev; Alexis Haughey; Fiona Murray; Scott Stern
  2. Credit constraints and open innovation strategies By Pierluigi Murro; Valentina Peruzzi
  3. A Descriptive Method of Firm Size Transition Dynamics Using Markov Chain By Boyang You; Kerry Papps
  4. COVID-19 and entrepreneurship entry and exit: Opportunity amidst adversity By Otrachshenko, Vladimir; Popova, Olga; Nikolova, Milena; Tyurina, Elena
  5. Is it all the same? Types of innovation and their relationship with direct control, technical control and algorithmic management across European firms By Marta Fana; Davide Villani
  6. Entrepreneurship in the long-run: Empirical evidence and historical mechanisms By Michael Fritsch; Michael Wyrwich
  7. A Snapshot on the Characteristics and Dynamics of Austrian Exporting Firms By Bernhard Dachs; Robert Stehrer; Maria Yoveska
  8. Working Conditions, Export Decisions, and Firm Constraints-Evidence from Vietnamese Small and Medium Enterprises By Phan, Trang Hoai
  9. Dynamics of First-Time Patenting Firms By Nilsen, Øivind A.; Raknerud, Arvid
  10. Benchmarking New Zealand's frontier firms By Guanyu Zheng; Hoang Minh Duy; Gail Pacheco
  11. Growth expectations and the dynamics of firm entry By Enisse Kharroubi
  12. Focused innovation policy: Lessons from international experience By Ron Crawford
  13. The role of small and medium agrifood enterprises in rural transformation – The case of rice processors in Kenya By ​Ilie, Elena Teodora; Hickey, Amanda; Kelly, Siobhan
  14. Implementing the OECD Frascati Manual: Proposed reference items for business R&D surveys By Fernando Galindo-Rueda; Vladimir López-Bassols
  15. China’s VAT Reform, Enterprises Tax Burden and Innovation By Feng, Haibo; Liu, Sheng; Xu, Fei
  16. The UK Gender Pay Gap: Does Firm Size Matter? By Jones, Melanie; Kaya, Ezgi
  17. Innovation union:Costs and benefits of innovation policy coordination By Teodora Borota Milicevic; Fabrice Defever; Giammario Impullitti; Adam Hal Spencer
  18. Reallocation of Mutual Fund Managers and Capital Raising Ability By Yue Xu

  1. By: Julian Kolev; Alexis Haughey; Fiona Murray; Scott Stern
    Abstract: What is the role of startups within the innovation ecosystem? Since 2000, startups have grown in their share of commercializing research from top U.S. universities; however, prior work has little to say on the particular advantages of startup ventures in the innovation process relative to more traditional alternatives such as academia and established private-sector incumbents. We develop a simple model of startup advantage based on private information held by the initial inventor, and generate predictions related to the value and impact of startup innovation. We then explore these predictions using patents granted within the regional ecosystems of top-25 research universities from 2000 to 2015. Our results show a significant startup advantage in terms of forward citations and outlier-patent rates. Further, startup innovation is both more original and more general than innovation by incumbent firms. Moreover, startups that survive to become “scale-ups” quickly grow to dominate their regional innovation ecosystems. Our findings have important implications for innovation policy.
    JEL: L24 L26 M13 O31 O32 O34
    Date: 2022–08
  2. By: Pierluigi Murro (LUISS University); Valentina Peruzzi (Sapienza University of Rome)
    Abstract: We investigate whether credit constraints affect firms' reliance on open innovation strategies. Using data on 7,000 Italian small and medium-sized enterprises, we find that credit restricted firms are 26\% more likely to collaborate for innovation than firms not suffering from credit constraints. This result is confirmed both for product and process innovators. However, when accounting for the intensity of the product innovation, we find a negative impact of credit rationing on open innovation for firms introducing completely new products in the market. This confirms the relevance of opportunity costs in the choice between internal and open innovation in presence of credit restrictions. We also look at the role played by innovation partners. In particular, we show that the existence of credit constraints positively affects the probability of firms innovating with their suppliers. Finally, we provide evidence that the impact of credit frictions on innovation collaborations varies with the innovation environment and with the socio-economic conditions of the province where firms are located.
    Keywords: credit constraints; open innovation; product innovation; process innovation
    JEL: O36 G32 D22
    Date: 2022–09
  3. By: Boyang You; Kerry Papps
    Abstract: Social employment, which is mostly carried by firms of different types, determines the prosperity and stability of a country. As time passing, the fluctuations of firm employment can reflect the process of creating or destroying jobs. Therefore, it is instructive to investigate the firm employment (size) dynamics. Drawing on the firm-level panel data extracted from the Chinese Industrial Enterprises Database 1998-2013, this paper proposes a Markov-chain-based descriptive approach to clearly demonstrate the firm size transfer dynamics between different size categories. With this method, any firm size transition path in a short time period can be intuitively demonstrated. Furthermore, by utilizing the properties of Markov transfer matrices, the definition of transition trend and the transition entropy are introduced and estimated. As a result, the tendency of firm size transfer between small, medium and large can be exactly revealed, and the uncertainty of size change can be quantified. Generally from the evidence of this paper, it can be inferred that small and medium manufacturing firms in China have greater job creation potentials compared to large firms over this time period.
    Date: 2022–08
  4. By: Otrachshenko, Vladimir; Popova, Olga; Nikolova, Milena; Tyurina, Elena
    Abstract: We theoretically and empirically examine how acquiring new skills and increased financial worries influenced entrepreneurship entry and exit intentions during the pandemic. To that end, we analyze primary survey data we collected in the aftermath of the COVID-19's first wave in Russia, which has had one of the highest COVID-19 infection rates globally. Our results show that acquiring new skills during the pandemic helps maintain an existing business and encourages start-ups in sectors other than information technology (IT). For IT start-ups, having previous experience matters more than new skills. While the pandemic-driven financial worries are associated with business closure intentions, they also inspire new business start-ups, highlighting the creative destruction power of the pandemic. Furthermore, preferences for formal employment and remote work also matter for entrepreneurial intentions. Our findings enhance the understanding of entrepreneurship formation and closure in a time of adversity and suggest that implementing entrepreneurship training and upskilling policies during the pandemic can be an important policy tool for innovative small business development.
    Keywords: business entry,information technology (IT),business closure,COVID-19,entrepreneurship intentions,self-employment,Russia
    JEL: E24 J24 L26 P20
    Date: 2022
  5. By: Marta Fana (European Commission - JRC); Davide Villani (European Commission - JRC)
    Abstract: Using firm-level data from 28 European countries, this paper explores the relationship between two types of innovation (process and digital) and different forms of control (direct and indirect) at the workplace. We find that (1) digital innovation is more common than process innovation; (2) more innovative firms record higher levels of indirect control (especially related to algorithmic management) and lower level of direct control (3) the relationship between innovation and control is not uniform across European countries. These findings nurture the debate on the future of work as the process of digitalisation may promote a shift towards indirect forms of control and contribute to reduce the degree of direct control. Moreover, these changes may also affect the bargaining process and lead to a redefinition of managerial roles, though it should be acknowledged that social and institutional factors play an important role in shaping this process.
    Keywords: Process innovation; Digital innovation; Algorithmic management; Control, European firms.
    Date: 2022–09
  6. By: Michael Fritsch; Michael Wyrwich
    Abstract: We review and discuss research on the development of regional entrepreneurship over time. A particular focus is on the long-term persistence of regional levels of entrepreneurship, its explanation, and its meaning for economic development. What is the state of empirical research in this field, and what can explain the empirical findings? How are long-term trends of entrepreneurial activity linked to regional performance in terms of employment, gross domestic product (GDP), and innovative activity? Based on our assessments we derive conclusions for theory, policy implications, and avenues for further research.
    Keywords: Entrepreneurship, self-employment, regional growth, entrepreneurial culture, historical analysis
    JEL: L26 M13 O1 O33 R11
    Date: 2022–08
  7. By: Bernhard Dachs; Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Maria Yoveska
    Abstract: In view of the importance of the export economy for Austria this study examines the role and characteristics of Austrian exporting firms compared with non-exporting firms. Specifically, it assesses how the share of exporting firms has developed in recent years, whether exports have become more important for firms over time and to what extent exporters have an advantage over other firms (export premium). The results show that about two third of the Austrian manufacturing firms are engaged in exporting activities and indicate that – in line with existing literature - exporting firms are larger, more productive, generate higher surpluses, invest more, and spend more on environmental protection than non-exporters. Further, the results highlight that only a small number of firms account for a large share of Austrian manufacturing exports. Finally, the results point towards a mutual positive relationship between export behaviour, productivity, and R&D expenditures.
    Keywords: export premium, firm-level analysis, productivity and exporting
    JEL: D22 F14
    Date: 2022–09
  8. By: Phan, Trang Hoai
    Abstract: Better working conditions promote employee creativity and loyalty. Meanwhile, a stable and skilled workforce contributes to a firm’s sustainable growth. Therefore, providing favorable working conditions is one of the critical sustainable goals of many countries worldwide. However, some critics are concerned participating in international trade causes worsening employment conditions in developing countries. Driven by these concerns, the relationship between exports and labor conditions is worth illuminating. This study adopts the data from Vietnam’s small and medium-sized manufacturing enterprises (SMEs). The dataset was collected by the Ministry of Labour, Invalids and Social Affairs (MOLISA) and the University of Copenhagen, UNU-WIDER from 2011 to 2015. Unlike previous studies, this study clusters firms by export status, including four groups: non-exporting, consecutive exporting, start-exporting, and exit-exporting. Observing dynamic exports sheds light on the effects of export decisions more thoroughly than the static export. Another contribution, this study focuses on an essential aspect of working conditions: providing fringe benefits. Subsequently, the analysis is upgraded by controlling for firm constraints as interaction variables. A major constraint and financial constraint are adopted to proxy for a firm’s constraints. This work promotes assessments to be more accurate, thereby providing more valuable information to policymakers. Finally, a robustness test is applied to each type of fringe benefit. Instrumental variables are used to solve the problem of endogeneity. The results found that exporting firms provide better working conditions. Additionally, constrained firms have worse working conditions.
    Date: 2022
  9. By: Nilsen, Øivind A. (Dept. of Economics, Norwegian School of Economics and Business Administration); Raknerud, Arvid (SSB)
    Abstract: This paper investigates firm dynamics in the period before, during, and after an event consisting of a first published patent application. The analysis is based on patent data from the Norwegian Industrial Property Office merged with data from several business registers covering a period of almost 20 years. We apply an event study design and use matching to control for confounding factors. The first patent application by a young firm is associated with significant growth in employment, output, assets and public research funding. Moreover, our results indicate that economic activity starts to increase at least three years ahead of the first patent application. However, we find no evidence of additional firm growth after patent approval for successful applicants. Our findings indicate that the existence of a properly functioning patenting system supports innovation activities, especially early in the life cycle of firms.
    Keywords: Patenting; Firm performance; Panel data; Event study design
    JEL: C33 D22 O34
    Date: 2022–08–30
  10. By: Guanyu Zheng (Productivity Commission); Hoang Minh Duy (National University of Singapore); Gail Pacheco (Productivity Commission and AUT Work Research Institute)
    Abstract: New Zealand has experienced poor productivity performance over the last two decades. Factors often cited as reasons behind this are the small size of the domestic market and distance to international partners and markets. While the distance reason is one that is fairly insurmountable, there are a number of other small advanced economies that also face similar domestic market constraints. This study compares the relative performance of New Zealand's firms to those economies using novel cross-country microdata from CompNet. We present stylised facts for New Zealand relative to the economies of Belgium, Denmark, Finland, Netherlands and Sweden based on average productivity levels, as well as benchmarking laggard, median and frontier firms. This research also employs an analytical framework of technology diffusion to evaluate the extent of productivity convergence, and the impact of the productivity frontier on non-frontier firm performance. Additionally, both labour and capital resource allocation are compared between New Zealand and the other small advanced economies. Results show that New Zealand's firms have comparatively low productivity levels and that its frontier firms are not benefiting from the diffusion of best technologies outside the nation. Furthermore, there is evidence of labour misallocation in New Zealand based on less labour-productive firms having disproportionally larger employment shares than their more productive counterparts. Counter-factual analysis illustrates that improving both technology diffusion from abroad toward New Zealand's frontier firms, and labour allocation across firms within New Zealand will see sizable productivity gains in New Zealand.
    JEL: L25 O33 O47
    Date: 2021–02
  11. By: Enisse Kharroubi
    Abstract: How do aggregate conditions affect the dynamics of firm entry? Do recessions force more firms out, allowing for more firms to enter subsequently? Or does this process require other circumstances to thrive? I look into these questions using sectoral data on firm entry and exit for the main economies of the Euro Area over 2009-2019. My main finding is that expected, rather than current, GDP growth shapes the dynamics of firm entry. Specifically, I find that entry increases with past exits at the sector-level, but only when aggregate GDP growth is forecasted to be strong. Also, with strong growth forecasts, past entry developments weight less on the subsequent sectoral entry dynamics. Periods of low entry and high exit, can therefore be followed by strong entry subsequently, when the economy is expected to grow strongly. These findings are robust to the inclusion of several controls. This includes the quality of insolvency proceedings, firms' ability to obtain credit or the presence of barriers to entry. Finally, I show that expectations of private and public investment drive the impact of growth expectations on the dynamics of firm entry.
    Keywords: firm entry, exit, growth expectations, private and public investment
    JEL: D25 D84 E32 E62 H32 M13
    Date: 2022–08
  12. By: Ron Crawford (Productivity Commission)
    Abstract: Focused innovation policy is a means for governments to work with industry, knowledge institutions and other stakeholders to realise the potential for productivity growth and export success in chosen areas of the economy. Governments in most small advanced economies (SAEs) take a more deliberate approach to such policy than does New Zealand. They typically draw on decades of experience in using and adapting such a policy to changing circumstances. Lessons that New Zealand can take from other SAEs include using high-level multistakeholder governance to develop and oversee the implementation of strategy (including choice of areas for focus); devolving governance of policy implementation in chosen areas of focus to independent multistakeholder bodies, and, together with other participants, marshalling sufficiently large and enduring resources to "shift the dial" on the outcomes sought. Areas of focus do not necessarily or usually correspond to standard industry classifications. They could, instead, be technologies spanning more than one industry, diverse technologies serving specific industries, or innovation in linked upstream and downstream industries. Governments employ focused innovation policies with a variety of objectives. For instance, mission-oriented policies address societal challenges such as those arising from climate change, technological disruption and social inequality. Focused innovation policies to enhance productivity will only be durable if they are also consistent with environmental and social objectives.
    Date: 2021–04
  13. By: ​Ilie, Elena Teodora; Hickey, Amanda; Kelly, Siobhan
    Abstract: This study looks at the business models of small and medium-sized rice processors in Kenya in order to better understand the policy and technical support they need to grow and fulfill their role in agrifood systems transformation. More specifically, by employing semi-structured interviews with Kenyan rice millers, the technical study identifies challenges in their day-to-day business activities, including procurement, inbound and outbound logistics, in-house operations, financing, and human resources management. Additionally, the publication looks at opportunities for improving the business enabling environment in which these enterprises operate, providing a set of policy options to foster their role. The methodology cross fertilizes different disciplinary perspectives in order to gather evidence for formulating policy in a way that integrates several policy fields and cross-cutting issues such as food safety, quality and nutrition; farmer-market linkages; decent rural employment and gender equality; or rural investment. The paper showcases how small and medium agrifood manufacturers respond to the business-enabling environment and also contribute to local development from multiple angles.
    Keywords: Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development
    Date: 2022–08–18
  14. By: Fernando Galindo-Rueda; Vladimir López-Bassols
    Abstract: This working paper contains guidance, of a voluntary and indicative nature, on the implementation of business R&D surveys, consistent with the standards and proposals contained in the OECD Frascati Manual. The document is oriented towards experts in charge of designing and implementing official R&D surveys, but may be also valuable to academics and researchers with a similar practical orientation. It aims to promote widespread testing and implementation in view of a potential future revision of the Frascati Manual or release of complementary annexes.
    Keywords: Business, Reference questions, Research and development, Survey design
    JEL: C83 O3
    Date: 2022–09–07
  15. By: Feng, Haibo (Jinan University, College of Economics); Liu, Sheng (Guangdong University of Foreign Studies, School of Economics and Trade); Xu, Fei (Department of Economics, Umeå University)
    Abstract: The impact of China’s VAT reform on enterprise innovation is the result of the combination of tax cuts and endogenous incentives. We find evidence that China’ VAT reform generally reduced the tax burden of firms but had a different impact on the manufacturing and the service industry. The tax burden of the manufacturing dropped significantly, but that of the service industry did not change markedly. Furthermore, we show that China’s VAT reform had also a significant positive impact on corporate innovation for both the service industry and the manufacturing. However, these effects were significantly greater in the manufacturing. Meanwhile, China’s VAT reform did not alleviate the tax burden of all the enterprises. For the enterprises facing the increased burden of tax, the reform can still stimulate the enterprise innovation if it has sufficient own capital, whereas the impact coefficient and significant level reduced significantly compared with the enterprises that the burden of tax reduced. If the enterprise’s own capital is insufficient, VAT reform has little effect on enterprise innovation. Finally, we show that China’s VAT reform exerted different influences on the innovative behavior of heterogeneous enterprises.
    Keywords: China’s VAT reform; Tax Burden; Innovation
    JEL: H25 H32 O31
    Date: 2022–09–06
  16. By: Jones, Melanie; Kaya, Ezgi
    Abstract: Motivated by the introduction of the UK Gender Pay Gap Reporting legislation to large firms, defined as over 250 employees, we use linked employee-employer panel data from the Annual Survey of Hours and Earnings to explore pre-legislation variation in the gender pay gap by firm size. In doing so, we integrate two prominent but distinct empirical regularities in the labour economics literature, namely the gender pay gap and firm-size wage premium. We find evidence of both a larger raw and unexplained gender pay gap among large relative to smaller firms in the UK private sector even after controlling for unobserved worker heterogeneity, consistent with the legislation being effectively targeted. However, this conclusion changes after accounting for unobserved firm level heterogeneity and focusing on within-firm gender pay gaps. Large firms have smaller within-firm raw gender pay gaps and similar unexplained gender pay gaps when compared to smaller firms. We find that this conclusion is not specific to the current firm size threshold of 250 employees but holds more generally, including at proposed extensions of the legislation to smaller firms.
    Keywords: gender pay gap,firm-size wage premium,linked employee-employer panel data,pay transparency
    JEL: J31 J71 J78
    Date: 2022
  17. By: Teodora Borota Milicevic; Fabrice Defever; Giammario Impullitti; Adam Hal Spencer
    Abstract: We build a two-region endogenous growth model to analyse the gains from innovation policy cooperation in an economic union. The model is calibrated to two blocks of the EU: the old and new members. R&D subsidy coordination is motivated by the distortion from subsidy competition, the strategic motive, and by intertemporal knowledge spillovers, which drive growth. The ideas production function features decreasing returns, making growth semi-endogenous, where policy affects growth temporarily. We compute gains from harmonised subsidies, chosen in each region to maximise EU welfare, with respect to competitive and observed subsidies. First, we find substantial gains to coordination, which derive exclusively from the strategic motive. Second, extending to include endogenous idea flows via FDI gives knowledge spillovers as the main driver of coordination gains. Third, extending to fully endogenous growth gives similar results. Fourth, conclusions based on steady state analysis have misleading optimal subsidies and overstate the estimated gains.
    Keywords: Optimal innovation policy, growth theory, international policy coordination, EU integration, FDI spillovers.
    Date: 2022
  18. By: Yue Xu (Aarhus University, Department of Economics and Business Economics, and CREATES)
    Abstract: This paper establishes the fund manager’s capital raising ability as an important managerial skill that fund firms exploit to generate higher firm revenues. Fund firms reallocate fund managers with high capital raising ability to other funds with large outflows. Investors demand the capital raising ability of managers and reward it by investing more capital despite lower future alphas. A team with a larger experience difference between reallocated managers and existing managers attracts more capital inflows, suggesting that there is a synergy effect on the fund manager’s capital raising ability. JEL classification: G11, G14, G23 Key words: Mutual Fund, Manager, Fund Firm, Reallocation, Revenue
    Date: 2022–08–31

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