nep-sbm New Economics Papers
on Small Business Management
Issue of 2022‒10‒17
nineteen papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. Entrepreneurship in the long-run: Empirical evidence and historical mechanisms By Michael Fritsch; Michael Wyrwich
  2. A Lasting Crisis Affects R&D Decisions of Smaller Firms: The Greek Experience By Ioannis Giotopoulos; Alexander S. Kritikos; Aggelos Tsakanikas
  3. An urban-rural divide (or not?): Small firm location and the use of digital technologies By Thomä, Jörg
  4. Determinants and Effects of Foreign Direct Investment in Austria: Spillovers to Novel Innovative Environmental Technologies By Mahdi Ghodsi; Branimir Jovanović
  5. A question of regulation or motivation? Environmental innovation activities in transition economies By Katharina Friz
  6. Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications By Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
  7. Do not judge a business idea by its cover: The relation between topics in business ideas and incorporation probability By Jessica Birkholz
  8. Do not neglect the periphery?! - the emergence and diffusion of radical innovations By Dirk Fornahl; Nils Grashof; Alexander Kopka
  9. Using Topic Modeling in Innovation Studies: The Case of a Small Innovation System under Conditions of Pandemic Related Change By Jessica Birkholz; Jutta Günther; Mariia Shkolnykova
  10. The Impact of Firm-level Covid Rescue Policies on Productivity Growth and Reallocation By Jozef Konings; Glenn Magerman; Dieter Van Esbroeck
  11. Persistence in firm growth: inference from conditional quantile transition matrice By Giulio Bottazzi; Taewon Kang; Federico Tamagni
  12. The Impact of Public Procurement on Financial Barriers to Green Innovation: Evidence from European Community Innovation Survey By Dorothea Schäfer; Andreas Stephan; Sören Fuhrmeister
  13. Once bitten, twice shy: Failed deals and subsequent M&A cautiousness By Campbell, Robert J.; Limbach, Peter; Reusche, Johannes
  14. Are Entrepreneurs More Upwardly Mobile? By Matthew J. Lindquist; Theodor Vladasel
  15. Looking Backward, Innovating Forward: A Theory of Competitive Cascades By Kevin Lim; Daniel Trefler; Miaojie Yu
  16. Collateral value and entrepreneurship: Evidence from a property tax reform By Miguel A. Ferreira; Joao Pereira dos Santos; Ines Venancio
  17. "Personality Traits of Women Entrepreneurs for Sustainable Food Businesses " By Norrina Din
  18. Spillovers of PE Investments By Truong, Huynh Sang; Walz, Uwe
  19. Entrepreneurship Perception during the first COVID-19 Shock: Mental Representations of Entrepreneurship and Preferences of Business Models during the Pandemic By Jessica Birkholz; Jarina Kühn

  1. By: Michael Fritsch (Friedrich Schiller University Jena and Halle Institute for Economic Research (IWH), Germany); Michael Wyrwich (University of Groningen, The Netherlands and Friedrich Schiller University Jena, Germany)
    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: 2022–09–16
  2. By: Ioannis Giotopoulos; Alexander S. Kritikos; Aggelos Tsakanikas
    Abstract: We use the prolonged Greek crisis as a case study to understand how a lasting economic shock affects the innovation strategies of firms in economies with moderate innovation activities. Adopting the 3-stage CDM model, we explore the link between R&D, innovation, and productivity for different size groups of Greek manufacturing firms during the prolonged crisis. At the first stage, we find that the continuation of the crisis is harmful for the R&D engagement of smaller firms while it increased the willingness for R&D activities among the larger ones. At the second stage, among smaller firms the knowledge production remains unaffected by R&D investments, while among larger firms the R&D decision is positively correlated with the probability of producing innovation, albeit the relationship is weakened as the crisis continues. At the third stage, innovation output benefits only larger firms in terms of labor productivity, while the innovation-productivity nexus is insignificant for smaller firms during the lasting crisis.
    Keywords: Small firms, large firms, R&D, innovation, productivity, long-term crisis
    JEL: L25 L60 O31 O33
    Date: 2022
  3. By: Thomä, Jörg
    Abstract: Regarding the spatial impact of digitalization, the concern is often expressed that rural areas and the companies located there are disadvantaged by a digital divide compared to urban regions. Against this background, this paper explores the role of the urban/rural location of a small firm in the use of digital communication and information technologies (ICT). With the help of a cluster analysis approach, different modes of digitalization in the German small enterprise sector are identified. According to this, four groups of small firms can be distinguished in accordance to the maturity level concept of digital transformation: non-digital firms, digital beginners, platform-oriented firms and digital manufacturers. From a spatial perspective, it can be seen that the members of the platform-oriented group are relatively often located in urban regions, whereas the digital manufacturers are relatively often found in rural areas. These findings are interpreted as an indication that small firms at least partially consciously assign themselves to one of these digitalization modes, depending on which business model is most effective in the respective (urban or rural) business environment. By contrast, whether a small firm has not yet done anything in terms of digitalization or is only at the beginning of the digital transformation process does not significantly depend on the location of the company. The paper concludes with implications for policy and research.
    Keywords: Digitalization,Rural regions,Digital divide,Urban-rural typology,SMEs
    JEL: D22 O33 R11 R12
    Date: 2022
  4. By: Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This study investigates the determinants of FDI in Austria, as well as their spillovers to innovating technologies, productivity, and employment, using firm-level data, for the period 2008-2018. The findings point out that a decrease in the costs of trade increases investment in foreign-owned subsidiaries in Austria, and that FDI is pre-dominantly carried out in industries characterised by greater capital-intensity, higher wages, more agglomeration and regional concentration. Furthermore, FDI is higher in regions with a larger GDP and with a larger share of the population with upper secondary and post-secondary non-tertiary education. The study also finds that there are positive spillovers of FDI to the domestic economy, which are strongest and most positive for innovative activities in environmental technologies. In other words, FDI helps Austrian firms to become more innovative in major environmental technologies. Such innovative efforts are best supported at the firm-level by supporting the total assets and investment of domestic firms, and at the regional level by increasing the share of the population with higher levels of education and employing more R&D personnel. The active presence of innovative foreign MNEs that enjoy extensive technological capacities, high-skilled labour, experienced management, and large-scale resources are also conducive to innovative activities.
    Keywords: FDI, Austria, spillovers, innovation, environmental technologies
    JEL: F21 F23 O30 Q55
    Date: 2022–10
  5. By: Katharina Friz
    Abstract: Environmental innovation (EI) plays an important role in decoupling economic growth and environmental harm. This paper focuses on the environmental innovation behavior of companies in transition countries of Eastern Europe and Central Asia, which have been little studied so far. These countries share the Soviet legacy of environmental mismanagement, and have restructured their innovation systems relatively recently in the course of transition. The EBRD-EIB-WB Enterprise Survey (2018-2020) allows us to examine the determinants of environmental innovation in 29 transition countries. Although the theory places a greater emphasis on external sources of knowledge in EI, the results indicate that collaborative R&D is still quite weak in these countries. Moreover, environmental regulation increases the likelihood of adopting energy efficiency measures, while customers demanding environmental standards increase the likelihood across all innovation activities, indicating an increasing sustainability awareness among consumers.
    Keywords: Environmental innovation, transition economies, firm-level data, logit model
    JEL: O12 O31 O32 O5 Q55
    Date: 2021–09
  6. By: Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
    Abstract: We provide a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long-run macroeconomic outcomes. We start by using a newly created panel dataset of administrative data that merges Spanish credit register loan data, quasi-census firm-level data, and public procurement projects to study firm selection into procurement and the effects of procurement on credit growth and firm growth. We show evidence consistent with the hypotheses that there is selection of large firms into procurement, that procurement contracts provide useful collateral for firms -more so than sales to the private sector- and that procurement contracts facilitate firm growth beyond the contract duration. We next build a model of firm dynamics with both asset-based and earnings-based borrowing constraints and a government that buys goods and services from private sector firms. We use the calibrated model to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. We find that granting procurement contracts to small firms, either by directly targeting them or by slicing large contracts into smaller ones, helps these firms grow and overcome financial constraints in the long run. However, we also find that reducing the average size of contracts |or making it less likely for large firms to access them| removes saving incentives for large firms, whose negative effects on capital accumulation can overcome the expansionary consequences for small firms and hence generate a drop in aggregate output.
    Keywords: Government procurement, financial frictions, capital accumulation, aggregate productivity
    JEL: E22 E23 E62 G32
    Date: 2022–02
  7. By: Jessica Birkholz
    Abstract: It is of key importance to identify innovative business ideas in an early stage, so that funding resources can be adequately allocated according to their economic potential. Traditional indicators do not reliably discriminate business ideas with high degree of innovativeness and high incorporation chances from those with low degree of innovativeness and low incorporation prospects. Therefore, this paper examines the content of business idea descriptions to improve the estimations of the incorporation probability. The paper aims to answer two questions: 1) Are there differences in topic prevalence in innovative and non-innovative business ideas?, and 2) How does the composition of topics related to a business idea influence its incorporation probability? Structural topic modeling and classification tree analysis are applied on business idea descriptions from a competition in Bremen, Germany, from 2003 until 2019. The results show that business idea descriptions are a rich source of information to identify both innovative ideas and those with higher incorporation prospects.
    Keywords: Innovative entrepreneurship, business idea, machine learning, incorporation
    JEL: O30 L26 O38
    Date: 2021–11
  8. By: Dirk Fornahl; Nils Grashof; Alexander Kopka
    Abstract: While innovations have been acknowledged as a key factor for economic growth, it appears that they are unique features of central actors. Recently, especially the outstanding opportunities arising from rather radical innovations have been highlighted. These kinds of innovations combine knowledge pieces that have not been combined before and consequently create something radically new. While the influence of firms' network position on innovativeness in general has already been investigated, it remains to be researched in the context of radical innovations. We address this research gap by empirically investigating the influence of firms' network position on the emergence and diffusion patterns of radical innovations. By analysing a unique dataset evidence is found that central firms are essential drivers of the emergence and diffusion of radical innovations. However, the results also indicate that under certain conditions (e.g. high knowledge diversity) also peripheral firms can contribute to the emergence of radical innovations.
    Keywords: Radical innovations, emergence, diffusion, core-periphery, firm-level
    JEL: O31 O33 R11
    Date: 2021–02
  9. By: Jessica Birkholz; Jutta Günther; Mariia Shkolnykova
    Abstract: It is a challenge to empirically investigate rapidly developing situations. An economic crisis is such a situation in which firms exit, enter, and create new business models. The current pandemic has caused a turbulent situation with hardship, but at the same time with creative potential of innovative change. It calls for empirical analyses, but firm level data based on surveys is hard to collect given the high speed of developments. An alternative data source are news articles reporting on innovation issues and assessed by text mining techniques. This is exemplified in this chapter. It shows how topic modeling can be used to scrutinize the shift of innovation topics since the beginning of the COVID-19 crisis. The results apply to a small innovation system in Germany and confirm that innovation priorities change during a crisis and that many different actors are involved.
    Keywords: Topic modeling, innovation, structural change, crisis
    JEL: O30 R11 R58
    Date: 2021–01
  10. By: Jozef Konings (Nazarbayev University, Graduate School of Business, KU Leuven and CEPR); Glenn Magerman (ECARES, ULB and CEPR); Dieter Van Esbroeck (KU Leuven)
    Abstract: We analyze the impact of Covid-19 rescue policies on both firm-level and aggregate productivity growth and reallocation. Using administrative data on the universe of firms' subsidies in Flanders, we estimate the causal impact of these subsidies on firm-level outcomes. Firms that received subsidies saw a 7% increase in productivity, compared to firms that applied for, but did not obtain subsidies. Furthermore, the propensity to exit the market was 43% lower for treated firms. Aggregate productivity growth, a share-weighted sum of firms' productivity evolutions, amounted to 6% in 2020. While within-firm productivity growth was similar for both subsidized and non-subsidized firms, there is a reallocation of market shares from subsidized firms to non-subsidized firms. These results suggest that Covid rescue policies helped firms to sustain and preserve productivity, while not obstructing allocative efficiency gains to non-subsidized firms.
    Keywords: Productivity, productivity growth, aggregate productivity, allocative efficiency
    JEL: D22 D24 O4
    Date: 2022–06
  11. By: Giulio Bottazzi; Taewon Kang; Federico Tamagni
    Abstract: We propose a new methodology to assess the degree of persistence in firm growth, based on Conditional Quantile Transition Probability Matrices (CQTPMs) and well-known indexes of intra-distributional mobility. Improving upon previous studies, the method allows for exact statistical inference about TPMs properties, at the same time controlling for spurious sources of persistence due to confounding factors such as firm size, and sector-, country- and time-effects. We apply our methodology to study manufacturing firms in the UK and four major European economies over the period 2010-2017. The findings reveal that, despite we reject the null of fully independent firm growth process, growth patterns display considerable turbulence and large bouncing effects. We also document that productivity, openness to trade, and business dynamism are the primary sources of firm growth persistence across sectors. Our approach is flexible and suitable to wide applicability in firm empirics, beyond firm growth studies, as a tool to examine persistence in other dimensions of firm performance.
    Keywords: Firm growth persistence; Transition probability matrices; Mobility indexes; Non-parametric statistics.
    Date: 2022–09–23
  12. By: Dorothea Schäfer; Andreas Stephan; Sören Fuhrmeister
    Abstract: The purpose of this study is to identify whether an innovative company’s likelihood of facing financial constraints is different when the company possesses a public procurement contract (PP). Theory suggests that the treatment effects of public procurement, particularly when mediated by the demand-pull effect, may lower a company’s funding constraints for innovation. We test this theory and apply extended probit models (eprobit) with treatment and selection to control for an omitted variable bias. Our findings indicate that the treatment effect of PP on the likelihood of facing financial constraints is highly significant and positive. The increased prefunding requirements that usually come along with PP may actually overcompensate the possibly constraint-reducing effects from a demand-pull or certification effect of PP. The treatment effect of PP is particularly strong for internal financial constraints backing the notion, that PP increases the need for upfront funding.
    Keywords: Public procurement, green public procurement, financial constraints, green innovation, sustainable finance, small and medium-sized enterprises
    JEL: G30 O16 O31 Q56
    Date: 2022
  13. By: Campbell, Robert J.; Limbach, Peter; Reusche, Johannes
    Abstract: Companies occasionally are unable to finalize publicly announced M&A bids-a phenomenon we refer to as failed deals. Despite their commonality, the implications of failed deals for bidding firms are not well understood. We thus theorize about and empirically investigate the relationship between failed deals and subsequent M&A behavior. In doing so, we present multiple reasons for what we term "the once bitten, twice shy effect," whereby firms act more cautiously in the M&A context following failed deals. In a sample of M&As across North American and European firms, we find empirical support consistent with our theorizing suggesting the cautiousness following failed deals results in a longer time-period between M&A bids, smaller target firm size, and a greater likelihood of advisor usage.
    Keywords: mergers and acquisitions,corporate strategy,failed deals,risk and decision making,M&A activity
    Date: 2022
  14. By: Matthew J. Lindquist; Theodor Vladasel
    Abstract: Entrepreneurship is often hailed as a path to upward intergenerational mobility, but few studies have explicitly tested this belief. We study intergenerational income rank mobility among entrepreneurs and employees in Sweden using high-quality measures of lifetime income for 215,000 father-son pairs. Incorporated entrepreneurs are more upwardly mobile than wage earners; this result is driven by selection and not by the causal impact of entrepreneurship on upward intergenerational mobility. By contrast, unincorporated entrepreneurs are more downwardly mobile, a result explained by selection, income underreporting, and lower returns to skills and education.
    Keywords: entrepreneurship, incorporation, intergenerational mobility, lifetime income, upward mobility
    JEL: L26 J24 J62
    Date: 2022–06
  15. By: Kevin Lim; Daniel Trefler; Miaojie Yu
    Abstract: Innovation depends on exporting and, in particular, on scale and competition in export markets. We develop a theory featuring (1) quality-segmented markets, (2) step-by-step innovation that moves firms forward along the quality ladder, and (3) escape-the-competition motives for innovation. We derive four predictions about the impact on innovation of scale and competition: a firm with a large and less-competitive quality segment ahead or forward of it will have strong incentives to innovate into this profitable segment, while a firm with a small and more-competitive quality segment behind it will also have strong incentives to innovate for fear of facing firms in this segment in the future. We take these predictions to Chinese firm-level data during a period of explosive export growth (2000-2006). Using information about scale and competition by quality segment in China's export markets, we confirm all four hypotheses. By implication, and unlike in standard CES models, the impact of trade on innovation depends critically on how it drives scale and competition in high- versus low-quality segments.
    JEL: F01 F12 F14 O3
    Date: 2022–09
  16. By: Miguel A. Ferreira; Joao Pereira dos Santos; Ines Venancio
    Abstract: We study the role of property taxes on entrepreneurial activity using a quasi-natural experiment, which unexpectedly reduced the upper bound of the Portuguese property tax rate for urban properties in 2008. Using a diffrence-in-differences approach, we nd that treated municipalities (i.e., municipalities that had a property tax rate above the new upper bound) experienced higher entry rates in the manufacturing sector vis-a-vis control municipalities (i.e., municipalities that had a property tax rate at or below the new upper bound). Taking advantage of rm-level data, we show that start-ups created as a response to the decrease in property taxes in treated municipalities use more debt, invest more, and are more likely to survive.
    Keywords: Entrepreneurship, Property taxes, Savings, Portugal
    JEL: L26 H20 R30
    Date: 2022
  17. By: Norrina Din (Universiti Teknologi MARA, Malaysia Author-2-Name: Mohd Subri Tahir Author-2-Workplace-Name: "Department of Business Management, Faculty of Business and Management, University Teknologi MARA, Pulau Pinang Campus 13500 Pulau Pinang, Malaysia" Author-3-Name: Norashida Othman Author-3-Workplace-Name: "Department of Economics and Financial Studies, Faculty of Business and Management, University Teknologi MARA, Puncak Alam Campus 42300 Selangor, Malaysia" Author-4-Name: Leylawati Joremi Author-4-Workplace-Name: "Department of Economics and Financial Studies, Faculty of Business and Management, University Teknologi MARA, Puncak Alam Campus 42300 Selangor, Malaysia" Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Objective - COVID-19 is the worst in the history of pandemics. Small business survival has been jeopardized in this challenging situation, although entrepreneurs desire to strategize their plans to sustain their business. Other than strategies, psychological characteristics were found to be significant factors for sustaining business among entrepreneurs. Research on the psychological characteristics of entrepreneurs has long been conducted. However, the information is scarce in terms of the main psychological characteristics of entrepreneurs, especially during the COVID-19 pandemic. Therefore, this study explores the Bumiputera women entrepreneurs' psychological characteristics that enable the business's survival. Methodology/Technique - Using purposive sampling, a semi-structured interview was conducted with Bumiputera women entrepreneurs in the food business located in Penang. Out of 60, only 17 agreed to participate. Finding - The result of the thematic analysis revealed that self-confidence, creativity, and proactivity were identified as the primary key to sustaining their business. Surprisingly, the entrepreneur's creativity highlighted a new shed to hybrid Malay and Japanese cuisine to produce lemang sushi. Additionally, the study's findings have few consequences for entrepreneurs, societies, and the government. Although the pandemic has had a disastrous effect on health and lifestyle activities, there is always a spark of hope for introducing considerable ways to fulfill entrepreneurial desires and serve the community. Novelty - As a result, entrepreneurs are incentivized to boost the economy as a person in society by delivering sustainable services to the community. Type of Paper - Empirical"
    Keywords: Bumiputera; Women, Entrepreneur; Psychological characteristics; Proactive and Creative
    JEL: Q01 Q18 Q19
    Date: 2022–09–30
  18. By: Truong, Huynh Sang; Walz, Uwe
    Abstract: In this paper, we investigate a primary potential impact of leveraged buyout (LBOs) transactions: the effects of LBOs on the peers of the LBO target in the same industry. Using a data sample based on US LBO transactions between 1985 and 2016, we investigate the impact of the peer firms in the aftermath of the transaction, relative to non-peer firms. To account for potential endogeneity concerns, we employ a network-based instrumental variable approach. Based on this analysis, we find support for the proposition that LBOs do indeed matter for peer firms' performance and corporate strategy relative to non-peer firms. Our study supports a learning factor hypothesis: peers gain by learning from the LBO target to improve their operational performance. Conversely, we find no evidence to support the conjecture that peers lose due to the increased competitiveness of the LBO target firm.
    Keywords: LBO spillovers,peer effects,IV approach
    JEL: D45 L43 O33
    Date: 2022
  19. By: Jessica Birkholz; Jarina Kühn
    Abstract: We examine the explicit business model preferences and implicit mental representations of entrepreneurship in the early phase of the crisis. We find that the crisis comes with adaptations in both. During crisis, society is open for new business models, even though people increasingly rely on established economic actors instead of opening up towards newly founded firms. We conclude that the early and sudden impact of the crisis influences the entrepreneurial culture onwards and therefore potentially future entrepreneurial activities.
    Keywords: Crisis, entrepreneurship, business models, mental representation
    JEL: D83 D84 D87 D91 L26
    Date: 2021–07

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