nep-sbm New Economics Papers
on Small Business Management
Issue of 2022‒10‒10
nineteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Transforming Regional Knowledge Bases: A Network and Machine Learning Approach to Link Entrepreneurial Experimentation and Regional Absorptive Capacity By Jessica Birkholz
  2. Discovering pre-entry knowledge complexity with patent topic modeling and the post-entry growth of Italian firms By Marco Guerzoni; Massimiliano Nuccio; Federico Tamagni
  3. Exploration or Exploitation: Innovation Behavior of SMEs and Large Firms during the COVID-19 Crisis By Jessica Birkholz; Jarina Kühn; Mariia Shkolnykova
  4. Persistence of Regional Entrepreneurship Patterns: Quantity and Quality of Regional Business Opportunity Perception By Jessica Birkholz
  5. The Role of Non-R&D Expenditures in Promoting Innovation in Europe By Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio
  6. Windfall gains and entrepreneurial activity: Evidence from the Spanish Christmas lottery By Vicente J. Bermejo; Miguel A. Ferreira; Daniel Wolfenzon; Rafael Zambrana
  7. European funds and firm performance: Evidence from a natural experiment By Gabriel, José Mesquita; dos Santos, João Pereira; Tavares, José
  8. Which entrepreneurs are financially constrained? By Miguel A. Ferreira; Marta C. Lopes; Francisco Queiro; Hugo Reis
  9. The Development of Al in Multinational Enterprises - Effects upon Technological Trajectories and Innovation Performance By Matheus Eduardo Leusin
  10. Race and Gender in Entrepreneurial Finance By Michael Ewens
  11. Technology policy evaluation: The interaction between the financial constraint of firms and level of financial additionality By Sancho-Bosch, Diego; Guerrero, Alex J.; Heijs, Joost
  12. Outward FDI, restructuring, performance upgrading and resilience: Firm-level evidence from Portugal By Natália Barbosa
  13. Revisiting the knowledge-capital model of foreign direct investment: New multi-country evidence By Kox, Henk L.M.
  14. The Impact of the European Carbon Market on Firm Productivity: Evidence from Italian Manufacturing Firms By Filippo Maria D’Arcangelo; Giulia Pavan; Sara Calligaris
  15. The real effects of FinTech lending on SMEs: Evidence from loan applications By Afonso Eca; Miguel A. Ferreira; Melissa Porras Prado; A. Emanuele Rizzo
  16. Firm adaptation in COVID-19 times: The case of Portuguese exporting firms By João Capella-Ramos; Romina Guri
  17. Factors that affect the technological transition of firms toward the industry 4.0 technologies By Seung Hwan Kim; Jeong hwan Jeon; Anwar Aridi; Bogang Jun
  18. The impact of a rise in transportation costs on firm performance and behaviour By Catarina Branco; Dirk C. Dohse; João Pereira Santos; José Tavares
  19. Attracting Profit Shifting or Fostering Innovation? On Patent Boxes and RD Subsidies By Haufler, Andreas; Schindler, Dirk

  1. By: Jessica Birkholz
    Abstract: This study explores the regional innovation system characteristics that build the basis for the regional absorptive capacity of entrepreneurial knowledge. Regionalized patent data is combined with firm level and regional information for German regions over the period 1995 until 2015. Network analysis is applied to identify regional innovation system characteristics on three different layers: 1) cooperation between incumbent firms, 2) learning regimes, and 3) the technological knowledge base. Random forest analyses on basis of conditional inference classification trees are used to identify the most important characteristics for the regional absorption of entrepreneurial knowledge in general and on different efficiency levels. It is shown that characteristics on all three layers impact the regional absorption of entrepreneurial knowledge. Further, the direction and magnitude of the effect regional innovation system characteristics have on the regional knowledge absorption vary across different levels of absorption rates. It is concluded that for a successful implementation of policies to increase the impact of entrepreneurial knowledge on regional development, the regional innovation system needs to be monitored and adapted continuously.
    Keywords: Entrepreneurship, Regional absorptive capacity, Smart specialization
    JEL: L26 O33 D85
    Date: 2022–04
  2. By: Marco Guerzoni; Massimiliano Nuccio; Federico Tamagni
    Abstract: Innovation studies have largely recognized the role of knowledge in fostering innovation and growth of entrants. Previous literature has focused on entrepreneurial and managerial capabilities and education and knowledge incorporated in material and immaterial resources. We assume that new firms need to possess different pieces of knowledge, but beyond diversity, business performance relies also on knowledge distinctiveness. In other words, the complexity of a knowledge base is not simply the recombination of homogeneous pieces of knowledge but it also depends on the specific nature of each of them. This paper develops a new complexity indicator able to capture the complexity of the knowledge base by applying a topic modeling approach to the analysis of patent text. We explore the empirical relation between pre-entry complexity of knowledge, as measured by our complexity index, and post-entry growth performance of a sample of Italian firms entering the market in 2009-2011, which we then follow over the period 2012-2021. Baseline results show a significant and positive association between knowledge complexity and growth, even after controlling for firm characteristics and year, sector and region fixed-effects. Robustness analysis reveal this positive effect is stronger in the medium-long run while relatively weaker for innovative SMEs.
    Keywords: pre-entry knowledge base; complexity; text analysis; patents; firm growth; post-entry performance.
    Date: 2022–09–21
  3. By: Jessica Birkholz; Jarina Kühn; Mariia Shkolnykova
    Abstract: This paper contributes to the discussion on exploration and exploitation by analyzing the innovation behavior of SMEs and large firms during the first year of the COVID-19 pandemic in Germany. It provides a novel way to measure the type of firm innovation behavior in a dynamically changing environment. After collecting news articles about innovation activities conducted by firms, we applied text mining techniques to identify the positioning of each firm on the continuum from exploitation to exploration. The results of our analyses indicate three main dynamics: 1) all studied firms tend to conduct more explorative innovation activities during the COVID-19 crisis, 2) large and "technology-intensive" firms are more prone to perform explorative innovation activities than SMEs and firms that are not "technology-intensive", and 3) technology intensity is associated with explorative innovation behavior during the crisis. Our results suggest that considering technology intensity and the size of firms is important for designing effective policies during crises.
    Keywords: COVID-19, Crisis, Innovation, SME, Text Mining, News Data, Exploration, Exploitation
    JEL: O31 O33 L25
    Date: 2022–04
  4. By: Jessica Birkholz
    Abstract: The recognition of regional business opportunities is the crucial starting point of the entrepreneurial process that governs the persistence of regional entrepreneurship patterns. This persistence depends on the quantity of perceived opportunities and the quality of opportunities perceived by regional inhabitants. However, it is unclear which region-individual interactions relate to the quantity regional business opportunity perception and how long-standing regional entrepreneurship patterns are reflected in conceptions of entrepreneurship that govern the quality of perceived opportunities. A primary data collection in German regions with distinct long-standing entrepreneurship patterns assessed two main aspects. First, the regional embeddedness of respondents on four levels - actor, network, environmental, and cultural - is set in relation to the likelihood of opportunity perception. Second, an implicit measurement of mental representations of entrepreneurship is examined. The mental representations of entrepreneurship, reflecting the conceptions of entrepreneurship, are investigated to identify differences between the conceptions of entrepreneurship that come along with the long-standing regional entrepreneurship patterns and to detect differences between opportunity-perceivers and non-perceivers. The results suggest that regions reinforce long-standing entrepreneurship patterns with distinct individual-region relations that impact the quantity of perceived regional opportunities and distinct conceptualizations of entrepreneurship that shape the quality of perceived opportunities. Differences are observed for the perception of opportunities that are characterized by innovativeness versus those that are general in nature, showing that innovative opportunity perception is less dependent on the regional context than general opportunity perception.
    Keywords: Entrepreneurship; Opportunity Perception; Regional innovation system
    JEL: D91 L26 O33 R11
    Date: 2022–04
  5. By: Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio
    Abstract: In this article we estimate the value of “Non-R&D Innovation Expenditures” in Europe. We use data from the European Innovation Scoreboard-EIS of the European Commission from the period 2010-2019. We test data with the following econometric models i.e.: Pooled OLS, Dynamic Panel, Panel Data with Fixed Effects, Panel Data with Random Effects, WLS. We found that “Non-R&D Innovation Expenditures” is positively associated among others to “Innovation Index” and “Firm Investments” and negatively associated among others to “Human Resources” and “Government Procurement of Advanced Technology Products”. We use the k-Means algorithm with either the Silhouette Coefficient and the Elbow Method in a confrontation with the network analysis optimized with the Distance of Manhattan and we find that the optimal number of clusters is four. Furthermore, we propose a confrontation among eight machine learning algorithms to predict the level of “Non-R&D Innovation Expenditures” either with Original Data-OD either with Augmented Data-AD. We found that Gradient Boost Trees Regression is the best predictor for OD while Tree Ensemble Regression is the best Predictor for AD. Finally, we verify that the prediction with AD is more efficient of that with OD with a reduction in the average value of statistical errors equal to 40,50%.
    Keywords: Innovation, and Invention: Processes and Incentives; Management of Technological Innovation and R&D; Diffusion Processes; Open Innovation.
    JEL: O30 O31 O32 O33 O34
    Date: 2022–09–11
  6. By: Vicente J. Bermejo; Miguel A. Ferreira; Daniel Wolfenzon; Rafael Zambrana
    Abstract: We estimate the effect of cash windfalls arising from the Spanish Christmas Lottery on entrepreneurship. This lottery provides a unique setting as prizes are geographically concentrated and distributed among thousands of households. We find that lottery prizes lead to higher firm creation, startup job creation, and self-employment. The entrepreneurial response is more pronounced in regions with poorer access to finance. Firms created in winning provinces are larger, more profitable, and more likely to survive longer. Incumbent firms in winning provinces do not benefit but increase wages, suggesting a local labor market tightening. Our results suggests that regional cash windfalls can have long-lasting effects on business activity.
    Keywords: Entrepreneurship, Firm creation, Job creation, Cash windfall, Economic conditions, Disposable income, Aggregate effects, Financial constraints
    JEL: D14 G30 L26
    Date: 2022
  7. By: Gabriel, José Mesquita; dos Santos, João Pereira; Tavares, José
    Abstract: Expanding regional eligibility in the access to grants can have important consequences for the performance of firms. We examine a quasi-natural experiment that consisted of a redrawing of administrative areas intended to increase accessibility to European Union (EU) funds using a rich administrative dataset that covers the universe of Portuguese private firms between 2003 and 2010. Our results uncover a positive causal impact of increased eligibility on firms' sales. In contrast, employment and labour productivity do not seem to be significantly impacted by the reform. The effects are heterogeneous: while sales of firms in the services and non-tradable sectors are positively impacted, sales of firms in more competitive sectors are not affected.
    Keywords: Grants,regional policy,private firm,municipalities,Portugal
    JEL: C21 R10
    Date: 2022
  8. By: Miguel A. Ferreira; Marta C. Lopes; Francisco Queiro; Hugo Reis
    Abstract: We study what type of entrepreneurs are a ected by financial constraints by exploiting age-based discontinuities in the amount of funding available through a public program for unemployed workers. Our sample links administrative data on 2.1 million eligible workers to the firms they create, spanning a wide range of skills, sectors and outcomes. We find that access to funding increases the rate of entrepreneurship and that the e ect is stronger for entrepreneurs who incorporate their business, especially for those who were in the top decile of the wage distribution before unemployment. Among incorporated entrepreneurs, the effect is strongest in the information and communication sector, followed by manufacturing. In terms of ex-post outcomes, we find that the effect is more pronounced for businesses in the upper half of the size, growth and profitability distributions. Our findings suggest that financial constraints hamper growth-oriented entrepreneurship.
    Keywords: Entrepreneurship, Unemployment insurance, Financial constraints, Incorporated firms
    JEL: G38 H74 J65 J68 L26
    Date: 2022
  9. By: Matheus Eduardo Leusin
    Abstract: This paper investigates how the development of AI-related inventions by Multinational Enterprises (MNEs) affects their technological trajectories and innovative performance. I combine a matched-pair analysis with an extension of the Difference-in-Difference method to analyse these effects over a novel panel dataset of MNEs. This dataset links over 30 thousand MNEs to more than 10 million patents that these companies owned directly or indirectly (i.e., through their subsidiaries) in the period from 2011 to 2019. The results indicate that MNEs introducing AI-related inventions increase the relatedness of subsequent inventions by about 10 per cent compared to a control group. These results are robust when accounting for a self-selection bias. AI is thus being used to reinforce the existing technological trajectories, rather than to disrupt them. The results also suggest that the number of subsequent inventions is about 40 per cent higher for MNEs that introduce AI during the observation period compared to the control group, without significant effects on the intensity of R&D expenditures per invention. It is argued that this increase in innovative performance is linked not only to knowledge dynamics created by learning about AI but also by AI's technical potential to be used for learning.
    Keywords: Technological trajectory; Relatedness; Artificial Intelligence; Innovative performance
    JEL: D22 O14 O33 L25
    Date: 2022–02
  10. By: Michael Ewens
    Abstract: Economic frictions pervade the founding, financing, growing, and exiting of high-growth entrepreneurial firms. This article considers one friction that currently affects a small, but important, set of entrepreneurs: racial and gender discrimination. I first collect facts from a large empirical literature that show clear gender and race gaps in participation and financing of startups. Female founders manage 16-25% of all startups, while Black entrepreneurs rarely exceed 3% of the startup population. Conditioning on startups that successfully raise external finance has little impact on these gaps. The complexity of the entrepreneurial process presents several opportunities for discrimination to manifest itself and produce this gap. The article details the major discrimination theories and the empirical methods used to test for their presence. It then provides an extensive review of a growing empirical literature in entrepreneurial finance that tests these models. The pattern of evidence reveals a nuanced and incomplete story about bias, information asymmetry, and differential treatment of underrepresented founders. The article ends with an extensive set of research ideas motivated by the gaps in the entrepreneurship literature and recent developments in theory and measurement of discrimination.
    JEL: G24 J7 L26
    Date: 2022–09
  11. By: Sancho-Bosch, Diego; Guerrero, Alex J.; Heijs, Joost
    Abstract: This study analyses the differentiated effects of the public support for private R&D and innovation considering the financial situation of the firm. Two main questions are analyzed. Firstly, do the firms that have less access to funds for RDI –and therefore could depend more on the public support- get more frequently support? And, secondly, do such firms show a higher level of financial additionality than the firms with less financial restrictions? Despite of the fact that market failures imply basically that firms underinvest in R&D and often lack access to financial markets, only a few papers were detected that analyze the above-mentioned questions and present contradictory non-conclusive results. All of them used only one or two –often dummy- variables as indicator to measure the financial restrictions. Moreover, only four studies analyzed the intermediating role of the financial restriction on the policy impact in terms of the financial additionality and five measures its effect on the degree of participation. The main novelty of this paper is the simultaneous use of a broad set 17 different indicators (reflecting quantitative data on the firm’s liabilities or indebtedness, assets, and liquidity) directly derived from the firms’ balance sheet. These were clustered by a factor analysis in 7 synthetic indicators, which are used in an innovation policy evaluation framework based on the Propensity Score Matching Method. The main findings show that in Spain financial constraints negatively affect the access to public funds. There are significant differences between the level and cost of debt for both probability and financial additionality. Solvency indicators report that solvent firms are negatively discriminated for the likelihood of participation, however we find different effects for the impact depending on the public support that firms receive and their size.
    Keywords: Public policy, innovation, financial constraints, evaluation, financial additionality
    JEL: G32 H25 M48 O38
    Date: 2022–06–03
  12. By: Natália Barbosa
    Abstract: This paper assesses the causal relationship between outward foreign direct investment (FDI) and various sides of firm performance, using micro data from Portuguese manufacturing firms during 2006-2012 and 2017-2020. Our analysis shows that the learning effects for Portuguese parent firms depend on the underlying outward FDI strategy. In particular, those learning effects seem to be mostly visible when firms engage in vertical outward FDI. Further, vertical or horizontal outward FDI appear to enhance the integration of Portuguese firms into the global economy through increased export intensity. Overall, the findings supports the argument that outward FDI can indeed be at root of upgrading performance and firm’s restructuring in a small, open and peripheral economy such as Portugal. Nonetheless, the capability to be resilient and deal with sudden and external shocks - such as COVID-19 pandemic - is not supported by the available preliminary data.
    Keywords: Productivity. Scale. Outward FDI. Portugal. Firm-level data. Difference-in-difference. COVID-19 pandemic
    JEL: D24 F23
    Date: 2022–09
  13. By: Kox, Henk L.M.
    Abstract: The knowledge capital (KC) model explains the international distribution of foreign direct investment (FDI). It assumes that firms own knowledge assets that may also be exploited via foreign subsidiaries. Do countries with much outward FDI indeed have a relative abundance of proprietary knowledge assets? This has not yet been adequately tested due to a lack of data on knowledge assets. Our paper proposes a new testing procedure. It extends the KC model by a module that formalises the encapsulation of publicly created knowledge into firm-owned knowledge assets. We use a large new dataset for public and private knowledge creation in 200 countries, covering the period 2000-2020. National knowledge assets do indeed explain patterns of outward FDI, and the role of public knowledge assets of the firm's origin countries is of paramount importance. Robustness tests show the stability of these findings. National KC assets also have an impact on inward FDI, but much weaker than their impact on outward FDI. Our results support the original KC model and extends its explanatory power.
    Keywords: foreign direct investment, knowledge capital assets, empirical test, world-wide
    JEL: D22 D83 F23 O31 O34
    Date: 2022–09–14
  14. By: Filippo Maria D’Arcangelo (OECD); Giulia Pavan (Compass Lexecon); Sara Calligaris
    Abstract: The European Union Emissions Trading System has raised concerns about possible detrimental effects on firms production through an increase in polluting costs, unless firms change inputs or increase the efficiency in the way they produce. We provide evidence of the causal impact of this policy on firms’ input choices and on total factor productivity on Italian manufacturing firms. Our empirical strategy combines structural estimation of firms’ production function and techniques for policy evaluation. Moreover, we argue that a commonly used strategy in this literature, consisting in using propensity score matching on the productivity obtained from estimating the production function, does not provide valid inference. We rely instead on an innovative structural approach. We find that the policy has a small negative effect on productivity that is heterogeneous across industries. We show that these findings are consistent with firms switching fuels in production, rather than undergoing a substantial process change.
    Keywords: Emission trading, EU ETS, Environmental Policy, Manufacturing, Productivity, Production Function
    JEL: Q58 L23 L26
    Date: 2022–09
  15. By: Afonso Eca; Miguel A. Ferreira; Melissa Porras Prado; A. Emanuele Rizzo
    Abstract: We examine the effects of FinTech lending on firm policies using proprietary data on loan applications and loans granted from a peer-to-business platform. We find that FinTech serves high quality and creditworthy small businesses who already have access to bank credit. Firms access FinTech to obtain long-term unsecured loans and reduce their exposure to banks with less liquid assets, stable funds, and capital. We find that firms with access to FinTech loans significantly increase investment, employment, and sales growth relative to firms that get their loan application rejected. We identify these effects by exploiting the number of banks in each municipality as a source of exogenous variation in the probability of obtaining a FinTech loan. Our findings suggest that FinTech allows firms to improve their financial flexibility and reduce bank dependence.
    Keywords: FinTech, SMEs, Small business lending, Lending relationships, Firm growth, Investment, Leverage, Debt structure
    JEL: G21 G23 O33
    Date: 2022
  16. By: João Capella-Ramos; Romina Guri
    Abstract: The COVID-19 crisis has severely impacted firms across the world, with some showing greater resilience than others. Engaging in international markets, in particular, increases firms’ exposure to such a global adverse shock, while also providing firms with opportunities for resilience-enhancing responses to the crisis. Operating in a small open economy, Portuguese firms were particularly vulnerable to disruptions in international trade and global value chains. In this paper we investigate how Portuguese exporting firms have adapted their business activities on the back of the COVID-19 crisis, and whether these adaptations depended on their intrinsic characteristics, notably firm size. Furthermore, we analyse the role of government support measures taken in response to the COVID-19 crisis in the adaptation processes of both exporting and domestic firms. We use the recently available Fast and Exceptional Enterprise Survey – COVID-19 (‘Inquérito Rápido e Excecional ’Empresas’, COVID-IREE) and complement it with balance sheet data from the Integrated Corporate Accounts System (‘Sistema de Contas Integradas das Empresas’, SCIE), covering a sample of approximately 7,000 Portuguese firms. The results suggest that exporting firms were more likely to adapt their business activities in the face of the COVID-19 crisis. We also found evidence that the adaptation processes of exporting firms tended to be multi-dimensional, operating through different adaptation mechanisms, and contingent upon firm size. The results also suggest that government support measures have enhanced the likelihood of both exporting and domestic firms to adapt, providing evidence of their effectiveness and highlighting the importance of firm-oriented policies that promote economic resilience.
    Keywords: COVID-19, firm adaptation, exporting firms, internationalisation, digitalisation
    JEL: H53 H72 O47 O52
    Date: 2022–09
  17. By: Seung Hwan Kim; Jeong hwan Jeon; Anwar Aridi; Bogang Jun
    Abstract: This research aims to identify factors that affect the technological transition of firms toward industry 4.0 technologies (I4Ts) focusing on firm capabilities and policy impact using relatedness and complexity measures. For the analysis, a unique dataset of Korean manufacturing firms' patent and their financial and market information was used. Following the Principle of Relatedness, which is a recently shaped empirical principle in the field of economic complexity, economic geography, and regional studies, we build a technology space and then trace each firm's footprint on the space. Using the technology space of firms, we can identify firms that successfully develop a new industry 4.0 technology and examine whether their accumulated capabilities in their previous technology domains positively affect their technological diversification and which factors play a critical role in their transition towards industry 4.0. In addition, by combining data on whether the firms received government support for R&D activities, we further analyzed the role of government policy in supporting firms' knowledge activity in new industry 4.0 technologies. We found that firms with higher related technologies and more government support are more likely to enter new I4Ts. We expect our research to inform policymakers who aim to diversify firms' technological capabilities into I4Ts.
    Date: 2022–09
  18. By: Catarina Branco; Dirk C. Dohse; João Pereira Santos; José Tavares
    Abstract: This paper uses micro-level data encompassing the universe of Portuguese private firms for the period 2006-2016 to analyse the effect of the introduction of tolls on previously toll-free highways. To establish causality, we rely on a natural experiment which resulted from Portuguese authorities being forced to in- crease these transportation costs in some highways during the sovereign debt crisis. Difference-in-differences results show a 10.7% decrease of turnover in firms located in affected municipalities vis-Ã -vis firms in the remaining areas, on average. Firm profits were also severely hit and reduced by more than 15%. Both sales and purchases to/from the internal market and abroad (especially to/from EU countries) were affected. Furthermore, employment reduced 2% in treated areas. Importantly, our findings do not uncover induced inter-regional firm migration, suggesting that the tolls have induced a substantial net loss to the Portuguese economy.
    Keywords: Road tolls, Turnover, Expenses, Value Added, Exports, Imports, Competitiveness, Portugal
    JEL: R48 L25 R12
    Date: 2022–09
  19. By: Haufler, Andreas (LMU Munich and CESifo); Schindler, Dirk (Erasmus University Rotterdam)
    Abstract: Many countries have introduced patent box regimes in recent years, offering a reduced tax rate to businesses for their IP-related income. In this paper, we analyze the effects of patent box regimes when countries can simultaneously use patent boxes and R&D subsidies to promote innovation. We show that when countries set their tax policies non-cooperatively, innovation is fostered, at the margin, only by the R&D subsidy, whereas the patent box tax rate is targeted at attracting international profit shifting. In equilibrium, patent box regimes emerge endogenously under policy competition, but never under policy coordination. We also compare the competition for mobile patents with the competition for mobile R&D units and show that enforcing a nexus principle is likely to reduce the aggressiveness of patent box regimes.
    Keywords: corporate taxation; profit shifting; patent boxes; R&D tax credits; tax competition;
    JEL: H25 H87 F23
    Date: 2022–09–09

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