|
on Small Business Management |
|
Issue of 2025–03–31
sixteen papers chosen by João Carlos Correia Leitão, Universidade da Beira Interior |
| By: | Sam Desiere (Ghent University); Tiziano Toniolo (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Gert Bijnens (National Bank of Belgium) |
| Abstract: | Policies supporting small businesses are popular among policymakers but often criticised by economists for their potential to distort the economy. This paper provides a comprehensive evaluation of a unique policy that subsidises the first employee. Empirically, we find that the policy led to a surge in the number of firms employing exactly one employee, without a noticeable effect on the number of firms with two or more employees. A simple frictionless general equilibrium model of occupational choices predicts the empirical facts remarkably well. Leveraging our model, we show that the general equilibrium effects on wages and aggregate output are likely to be small. However, the policy is expensive. Our findings support the traditional view that size-dependent subsidies distort the optimal allocation of resources. |
| Keywords: | size-dependent policies; firm entry; small firms; wage subsidies; payroll taxes |
| JEL: | D22 H25 J08 L25 L26 |
| Date: | 2025–03–11 |
| URL: | https://d.repec.org/n?u=RePEc:ctl:louvir:2025005 |
| By: | Bettina Bruggemann; Zachary L. Mahone; Thomas Palmer |
| Abstract: | Ownership changes are common across firms of all sizes, and they have meaningful impacts on firm performance. Using a panel of Canadian administrative data we document that sales are an important margin in the firm life cycle, larger than exit rates for employer firms. Applying an event-study framework, we find that (a) survival rates initially decline post sale, leveling off after three years and (b) conditional on survival, profits are permanently higher. Embedding ownership changes in a model of firm dynamics, we find that 4.5% of entrants survive due to the option value of sale and that, within ten years from birth, 13% of dispersion in firm size is attributable to realized ownership changes. Moreover, ownership changes are particularly important for high productivity firms, accounting for one quarter of revenue concentration among the top 1% of businesses. |
| Keywords: | Firm Dynamics; Ownership Changes; Firm Concentration |
| JEL: | E0 L25 D22 M13 G30 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:mcm:deptwp:2025-03 |
| By: | Laurikka, Annu |
| Abstract: | Abstract The study examines the relationship between firm size and its management’s subjectively perceived growth constraints and financing limitations. Additionally, it explores Finland’s business size dynamics and their development from 2008 to 2022. The results indicate that company size transitions are rare, with most businesses remaining in their original size category. However, growth potential is particularly identified in medium-sized and Mittelstand companies. Heavy regulation and administrative obligations are the most commonly reported barriers to growth. Furthermore, up to half of Mittelstand and large companies report growth barriers due to higher cost levels compared to competitors. A more detailed analysis shows that company size, when measured by the number of employees, has only a limited effect on growth barriers. Differences become clearer when measured by revenue, though ownership structure, growth ambition, and industry are also significantly associated with many growth barriers. Small businesses more frequently face constraints related to debt aversion, capacity limitations, sales and marketing challenges, and finding skilled labor. Financial barriers do not vary significantly across company sizes, but larger companies are less frequently hindered by the availability of debt and equity financing for investments compared to smaller businesses. |
| Keywords: | Business growth, Growth barriers, Financial constraints, Company size dynamics, Mittelstand companies |
| JEL: | L11 L20 L21 L25 L53 D22 |
| Date: | 2025–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:rif:report:160 |
| By: | Luria, Michal; Nicholas, Gabriel |
| Abstract: | In a wide range of industries, policymakers have considered encouraging or mandating data interoperability to facilitate more entrants and promote competition and innovation. However, some incumbents in these industries argue that interoperability would entrench existing technological design and stifle innovation. In this paper, we attempt to better understand the relationship between interoperability and innovation by looking at the case study of podcasting and the innovation that has emerged across its ecosystem. We analyze nine podcasting apps, six podcast hosting services, and five podcast directories to catalog the novel features each offers. We then organize those features, from those that best facilitate the movement of data between systems (interoperable) to those that most impede that movement (anti-interoperable). |
| Date: | 2023–12–07 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:t65mw_v1 |
| By: | Okumu, Ibrahim Mike; Nathan, Sunday; Bbaale, Edward |
| Abstract: | This paper examines the moderating role of the business environment in the relationship between the gender of the top manager and firm performance (measured as sales per employee), and whether female-managed firms perform better the higher the proportion of female employees in the firm. The paper uses World Bank Enterprise Survey data of 14, 561 firms from 29 African countries collected between 2010 and 2016. The descriptive analysis reveals significant variation in the performance and experience of business environment constraints that disadvantage female-managed firms. Controlling for potential endogeneity POLICY BRIEF Gender and Firm Performance in Africa: Does the Business Environment Play a Moderating Role? Ibrahim Mike Okumu, Sunday Nathan and Edward Bbaale October 2023 / No.799 2 Policy Brief No.799 and country fixed effects, we show that female-managed firms are associated with lower performance compared to male-managed firms. Electricity outages, informal competition, and corruption account for the performance gap between female and male-managed firms. However, we show that large female-managed firms perform better than male-managed large firms. Overall, the results imply that strengthening Africas business environment is central to closing the performance gap between male and female managers. |
| Date: | 2024–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:0c596f70-cbbc-4b74-8c87-0fe515852400 |
| By: | Akcigit, Ufuk; Chhina, Raman S.; Cilasun, Seyit Mümin; Miranda, Javier; Serrano-Velarde, Nicolas |
| Abstract: | Utilizing near real-time QuickBooks data from over 1.6 million small businesses and a targeted survey, this paper highlights the critical role credit card financing plays for small business activity. We examine a two year period beginning in January of 2021. A turbulent period during which, credit card usage by small U.S. businesses nearly doubled, interest payments rose by 60%, and delinquencies reached 2.8%. We find, first, monthly credit card payments were up to three times higher than loan payments during this time. Second, we use targeted surveys of these small businesses to establish credit cards as a key financing source in response to firm-level shocks, such as uncertain cash flows and overdue invoices. Third, we establish the importance of credit cards as an important financial transmission mechanism. Following the Federal Reserve's rate hikes in early 2022, banks cut credit card supply, leading to a 15.75% drop in balances and a 10% decline in revenue growth, as well as a 1.5% decrease in employment growth among U.S. small businesses. These higher rates also rendered interest payments unsustainable for many, contributing to half of the observed increase in delinquencies. Lastly, a simple heterogeneous firm model with a cash-in-hand constraint illustrates the significant macroeconomic impact of credit card financing on small business activity. |
| Keywords: | credit, credit cards, entrepreneurship, job creation, small businesses, turnover |
| JEL: | J23 J63 O47 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:313647 |
| By: | Otis, Nicholas G.; Clarke, Rowan Philip; Delecourt, Solene; Holtz, David (University of California, Berkeley); Koning, Rembrand (Harvard Business School) |
| Abstract: | Scalable and low-cost AI assistance has the potential to improve firm decision-making and economic performance. However, running a business involves a myriad of open-ended problems, making it difficult to know whether recent AI advances can help business owners make better decisions in real-world markets. In a field experiment with Kenyan entrepreneurs, we assessed the impact of AI advice on small business revenues and profits by randomizing access to a GPT-4-powered AI business assistant via WhatsApp. While we are unable to reject the null hypothesis that there is no average treatment effect, we find the treatment effect for entrepreneurs who were high performing at baseline to be 0.27 standard deviations greater than for low performers. Sub-sample analyses show high performers benefited by just over 15% from the AI assistant, whereas low performers did about 8% worse. This increase in performance inequality does not stem from differences in the questions posed to or advice received from the AI, but from how entrepreneurs selected from and implemented the AI advice they received. More broadly, our findings demonstrate that generative AI is already capable of impacting—though in uneven and unexpected ways—real, open-ended, and unstructured business decisions. |
| Date: | 2023–12–21 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:hdjpk_v1 |
| By: | Yoshiki Ando (Boston University); Emin Dinlersoz (Bureau of the Census); Jeremy Greenwood (University of Pennsylvania); Ruben Piazzesi (University of Pennsylvania) |
| Abstract: | Abstract The adoption of advanced technologies has important implications for employment and growth. The analysis of firm-level data from US Census Bureau indicates that firms with advanced technologies are disproportionately backed by venture capital (VC). While both advanced technology use and VC backing separately matter significantly for firm outcomes, VC backing has a larger effect on firms with advanced technology. A model of startups is constructed featuring decisions to use advanced technology and VC. The model is matched up with facts about firms' employment, technology use, and VC reliance. The implications of business taxation and subsidies are studied, and the significance of the availability of advanced technology and VC in the economy is quantified. |
| Keywords: | Advanced technology, banks, capital gains taxation, corporate income taxation, difference-in-difference analysis, employment, firm-level data, reallocation effect, startups, subsidies, synergy, venture capital, technology adoption, US Census data |
| JEL: | O30 O40 G20 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:eag:rereps:40 |
| By: | Gakpa, Lewis-Landry |
| Abstract: | This paper investigates how financial inclusion affects individuals' decisions to start businesses in the context of six sub-Saharan African countries, using micro-data from the FinScope and FinAccess surveys. To do so, we use an instrumental variable (IV) technique to assess the empirical relationships. Overall, the results reveal that access to both banking services, formal non banking services, informal financial services and mobile money services positively and significantly influenced the decision to start businesses in the six countries. Furthermore, although the results show that a range of both demand POLICY BRIEF Financial Inclusion and Entrepreneurship in Six sub-Saharan African Countries: Evidence from Finaccess and Finscope Survey Data Lewis-Landry Gakpa October 2023 / No.793 2 Policy Brief No.793 and supply side barriers prevent individuals from accessing banking services for entrepreneurial purposes, supply side constraints are the most common barriers to individuals starting a business. In view of the above, policy interventions should first aim at creating an enabling environment to increase people's access to all types of financial services and secondly, address both supply and demand side constraints to promote entrepreneurship and economic growth. All of these measures should be aimed at increasing the level of financial inclusion with a view to stimulating entrepreneurial activities, which are the real pillars in the development and poverty reduction process in sub-Saharan African countries. |
| Date: | 2024–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:4387c5f4-4f65-4460-829f-be0dcfa82685 |
| By: | Muhoza, Benjamin Kanze; Majune, Socrates Kraido |
| Abstract: | This study analyses the effect of political instability on firm performance in the Democratic Republic of Congo (DRC), one of the most unstable countries in sub-Saharan Africa. We use pooled panel data for three waves of the World Bank Enterprise Survey of the DRC (2006, 2010, and 2013) to analyse the effect of political instability on five measures of performance: employee growth, sales growth, productivity, investment, and export status. Results from the endogenous switching model reveal that political instability adversely affects firm performance in the DRC. In the presence of political instability, employee POLICY BRIEF Political Instability and Firm Performance in the Democratic Republic of Congo Benjamin Kanze Muhoza and Socrates Kraido Majune October 2023 / No.786 2 Policy Brief No.786 growth, sales growth, productivity, and investment growth significantly decline. Conversely, firms that do not experience political instability grow in terms of employee growth, sales growth, productivity, investment, and exporting activities. Our results are robust when we proxy political instability with losses due to theft, robbery, and vandalism. For purposes of policy, we recommend that political stability should be enhanced through political goodwill and legislation that advocates for peace. Firms can also push for this agenda through their business associations and platforms such as public-private partnerships that link them to the government. |
| Date: | 2024–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:a38292f3-622c-4e63-8076-14dc81a21bf4 |
| By: | World Bank |
| Keywords: | Science and Technology Development-Innovation |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:41542 |
| By: | Yingying Zhang Zhang (IUJ Research Institute, International University of Japan); Zanele Penelope Phiri (IUJ Research Institute, International University of Japan) |
| Keywords: | Sustainable Agriculture, Agri-Entrepreneurship, Smallholder Farmers, Innovation and Resilience, Eswatini Agriculture |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2025_02 |
| By: | Lemma, Tesfaye T.; Mlilo, Mthokozisi |
| Abstract: | The meteoric rise of digital financial services (DFS) in recent years has sparked the debate on whether they help financially constrained businesses to overcome their performance disadvantages. This study sought to examine whether female-owned enterprises, which tend to be more financially constrained than those owned by men, could curb their performance disadvantage attributable to financial constraints by using mobile moneya form of digital financial technology. Analysing data drawn from 317 firms subsumed in the 2018 World Bank Enterprise Survey on Kenya, we found that the use of mobile money for financial transactions reduces the performance disadvantage of female-owned firms. Using the OaxacaBlinder decomposition analysis, we further found that female-owned enterprises which use mobile money for financial transactions were able to cut circa 42.5% of their performance disadvantage induced by financial constraints. In additional analyses, we demonstrated that the influence of access to traditional financial services on the association between a firms use of mobile money and its performance outcomes is statistically insignificant. Overall, the findings highlight that women-owned firms could exploit mobile money technology to mitigate the gender gap in performance outcomes. |
| Date: | 2024–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:34087862-28f2-450f-858d-c328a7842054 |
| By: | Okumu, Ibrahim Mike; Nathan, Sunday; Bbaale, Edward |
| Abstract: | This paper aims to analyze the relationship between technology adoption and access to credit by farmers in Tanzania, with particular focus on spatial spillover effects on technology adoption. We examine new technology diffusion by farmers through their peers and measure geographical proximity using farms GIS localization data. Using the 2012-2013 Tanzanian Household Survey and a spatial lag probit model, we find evidence that farmers access to finance leads to increased agricultural technology adoption, and that the spillover effect plays a role in this process. In addition, our results are robust over a 3-year period (i.e., POLICY BRIEF Technology Adoption and Access to Credit in Tanzania: A Spatial Econometric Analysis Ibrahim Mike Okumu, Sunday Nathan and Edward Bbaale October 2023 / No.800 2 Policy Brief No.800 2008-2009, 2010-2011, and 2012-2013). Finally, evidence of the existence of spillover effects in the adoption of agricultural technology suggests that interactions between farmers who are 'geographical neighbours' should be supported/exploited to achieve substantial efficiency and savings in new agricultural technology extension. |
| Date: | 2024–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:ddb73706-6cd7-430c-b45f-73aea91ce596 |
| By: | Kaitila, Ville |
| Abstract: | Abstract We analyse the development of labour productivity in five service industries in Europe, the United States, and Japan. Vis-à-vis a group of peer countries, labour productivity in service industries is relatively low in Finland. We further find that the respective gap in capital intensity (capital stock to hours worked) is even greater. Using the growth accounting framework and panel estimations, we find that in 1995–2023 overall capital intensity was positively associated with the level of labour productivity in European countries. This is also the case if the capital stock is disaggregated into four parts with ICT, R&D, software and database, and all other capital analysed separately. Furthermore, the annual change in overall capital intensity, or capital deepening, is positively associated with the change in labour productivity in service industries. The association is weaker when capital is disaggregated into parts, with the strongest association found for the traditional capital stock, while the results for ICT and IPP capital deepening depend on the service industry analysed. |
| Keywords: | Service industries, Productivity, Capital intensity, ICT, R&D, Software and databases |
| JEL: | C23 O14 O30 O47 |
| Date: | 2025–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:rif:wpaper:127 |
| By: | Macharia, Kenneth Kigundu |
| Abstract: | While the service sector is increasingly playing a bigger role in the structural transformation of developing countries, the sectors level of technical efficiency remains understudied. This study analyses the level of technical efficiency in the service sector of selected sub-Saharan African countries and identifies covariates of this technical efficiency. Data are from the 2013 World Bank Enterprise survey for six countries, namely Kenya, Uganda, Tanzania, Ghana, Zambia and the Democratic Republic of the Congo. The estimation is performed by a two-stage bootstrap data envelopment analysis approach at the country and sub-sector levels. The sub-sectors of interest are retail, wholesale, hotel and restaurant, transport, motor vehicle services and IT. The findings show substantial opportunity to enhance technical efficiency in the selected sub-Saharan Africa service firms. The nature of the opportunity varies across countries and sub-sectors. Firm size, export, firm age, research and development, training, female firm ownership and top managers experience have an influence on technical efficiency but this influence varies across countries. In general, the findings imply that there is a need to provide an enabling environment that allows the growth of service firms given that large service firms are more technically efficient compared to small firms. |
| Date: | 2024–04–29 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:d1c3a5c1-5130-4274-bca7-bb81fb50d773 |