Firm Shutdown During the Financial and the Sovereign Debt Crises: Empirical Evidence from Portugal

This paper examines Portuguese firms’ survival over the business cycle and investigates whether the effect of firm size varies across the phases of the cycle and with the type of shock associated with periods of economic contraction. Our results show that smaller firms are more likely to shut down than larger firms. Within each size band, however, we found that during the two crises examined, micro firms experienced hazards of closing (relative to large firms) at least similar to those observed in the pre-crisis period, while medium-sized firms were found to have been more vulnerable during the financial crisis period but showed more resilience during the sovereign debt crisis. The results suggest that during the sovereign debt crisis, firms faced a higher probability of closing than they did during the financial crisis.     

Public Credit Guarantee Schemes and SMEs’ Profitability: Evidence from Italy

The aim of this study is to assess the effectiveness of the Italian State Credit Guarantee Scheme (Central Guarantee Fund). The paper analyzes the impact of the program on SMEs’ profitability considering the firm size and sector. The analysis is performed using propensity‐score matching estimators and the Difference in Differences regressions on a proprietary sample of about 38,000 SMEs in the period 2007–2009. Overall, the Central Guarantee Fund generated an increase in the profitability of guaranteed firms during the period of economic downturn. However, significant differences emerged across firms by size and sector. The effect is positive and robust only for micro‐ and small‐sized firms, and the most relevant improvement in the profitability is recorded for firms operating in the manufacturing sector. This implies that more customized programs are necessary to reach a higher value for money in entrepreneurial policies.     

An Investigation of Spanish SME Innovation during Different Economic Conditions

This study investigates product, process, and management innovation among a sample of Spanish manufacturing small and medium‐sized enterprises (SMEs) during the current economic downturn and a period of economic growth. Tobit analyses examined whether the level of process, product, and management innovation changed during the recessionary period relative to the expansionary period; and MCO estimations were used to show whether the recession affected the relationship between SME innovation and performance. Three main findings are: (1) innovation among Spanish manufacturing SMEs declined during the recent economic crisis; (2) the type of innovation at Spanish manufacturing SMEs changed during different economic conditions; and (3) innovation was positively associated with firm performance during the economic expansion and recession years. The results demonstrate the importance of adopting innovation into SME strategy over the business cycle. The findings have relevance to SMEs, government policymakers, and providers of consulting services.     

Financial Constraints and Small and Medium-Sized Firms’ Export Propensity: Evidence from Portuguese Manufacturing Firms

The internationalization of firms through exports is often crucial to their survival and growth in this era of globalization. This is particularly the case for small and medium-sized enterprises (SMEs) operating in small and saturated markets, as is the case in Portugal. However, firms face several barriers to exporting, and this study aims to verify whether financial constraints influence a firm’s export propensity. The empirical analysis is based on a sample of 12,732 Portuguese manufacturing SMEs during the period 2008–2012, and tests two different proxies of financial constraints: the liquidity and leverage ratios. The results indicate that the SMEs in less healthy financial positions are less likely to export than the others are, although the impact of financial constraints on these Portuguese firms appears to be relatively small.     

French Firms' Exports During Downturns: Evidence from Past Crises

This paper makes use of detailed French firm‐level data on a quarterly basis to investigate the impact of past crises on exports and the margins of adjustment. We first detect crises periods using quantitative criteria and classify them into banking crises, currency crises, simultaneous banking and currency crises, and other crises. Our results underline the prevalence of the intensive margin of adjustment to large shocks, that is, firms reducing their average sales per product while staying on the market. The extensive margin of trade is, however, dominant in currency crises. On average, a crisis reduces the growth rate of exports over six quarters. Finally, we show that exports overreact to demand variations during crises, and that the extensive margin is more responsive to demand. Other factors, not directly related to demand, mostly affect the intensive margin.     

Small and Medium Enterprises in Thailand: Recent Trends

This paper reviews the evolution of small and medium firms in Thailand in recent years. It shows that such firms did not preserve their share of total employment during the period 1987–96; indeed, their share fell from 60% to 52% over this period. Much of this decline was felt in the category of very small firms (with less than 10 workers). This aspect is explored further by looking at small firm employment shares in three sub-periods of varying overall economic growth rates. It is found that when overall economic growth is high, the share of small firms tends to contract possibly because many small firms become medium in size and others disband because their owners can find more remunerative employment in larger firms. In slower growth periods, the employment share of small firms appears to rise probably because larger firms may be taking in less new workers or even laying off workers. The paper also calculates productivity measures (technical efficiency and total factor productivity) and shows that different measures give different rankings by size of firm.     

The Role of Political Intelligence in Firms’ Export Decisions During the Euro Crisis

Inspired by the literatures on internationalization and absorptive capacity, we develop a model exploring how small firms—during crises—acquire and apply political information to export decisions. We test our model using data collected during the 2012 Eurozone crisis from a sample of 440 British, French, and Swedish SMEs. Findings indicate that firms dependent on the Eurozone for exports and heavily impacted by the crisis engaged in frequent political monitoring. In turn, frequent monitoring leads to the development of formal routines for exploiting political information. Firms with the most formal routines sought new export opportunities beyond the Eurozone. In contrast to previous research into small‐firm internationalization, our study stresses the significance of “shortcut” searching activities, non‐market information, and firms’ decisions to reduce prior investments in export markets.     

Economic slowdowns,hazard rates and foreign ownership

This paper evaluates the link between foreign ownership and firm exit during crises, using a longitudinal micro dataset over an 18-year period. We address two main questions: first, if foreign affiliates have different failure rates than domestic firms during economic downturns, and second if the foreignness effect differs between two different economic downturns. The results partially confirm the liability of foreignness argument, suggesting that when the crisis was more pronounced at home than abroad, the differences in hazard rates between foreign and domestic firms reduce. The footloose argument is also only partially confirmed. For policy makers, our results on survival dynamics during crises are not against policies stimulating inward investment. There is no need to fear that foreign firms destabilize more than usual the host economy during economic slowdowns by immediately closing down operations.     

Employee Training in SMEs: Effect of Size and Firm Type—Family and Nonfamily

The study examined the main and interaction effects of size and firm type on a variety of informal and formal training programs in small and medium-sized enterprises (SMEs). Samples of 448 family and 470 nonfamily SMEs were separated into four size groups and differences were assessed using multivariate analyses of variance. The results point to prevalence of informal training for all sizes and an increase in adoption of formal, structured, and development-oriented training with increasing firm size (especially for firms with 20–99 employees). This pattern was evident for nonfamily but not for family firms. For family firms, formal training programs increased significantly during the critical growth phase only (20–49 employees). Gaps in employee training between the two types of firms were greatest at 50–99 employees but narrowed thereafter at 100–199 employees. The approach to employee training in family SMEs is in consonance with their slower growth, informal management styles, limited financial resources, and greater emphasis on efficiency compared with nonfamily SMEs.     

Testing "Gibrat's Law" for Young Firms – Empirical Results for West Germany

The present paper deals with the question whether "Gibrat's law" is applicable to firms founded between 1989 and 1994 within the West German manufacturing sector or not. We find that firm size follows approximately a log normal distribution. Within the context of the econometric analyses conducted in the present study, firms are subdivided into young firms belonging to technology intensive and non-technology intensive branches as well as in different size classes. A method introduced in Chesher (1979) is used to explore "Gibrat's law" in order to examine the influence of firm size on growth. Using data from the ZEW-Foundation Panel (West), "Gibrat's law" is rejected for the group of young firms belonging to technology intensive branches as well as for those operating in non-technology intensive branches in all periods examined but no significant differences between both firm groups can be observed. This confirms the results of a number of empirical studies over the last few years, indicating that smaller firms have larger growth potential than larger ones.     

Firm growth during infancy

In this paper, we study the post-entry patterns of survival and growth of firms established in Portuguese manufacturing in 1983. Our data suggest the existence of a highly turbulent economy, with a very large number of small firms being created, but a great proportion of new firms disappearing in the first years subsequent to their birth. Survivors, however, grow quite fast and we found that small firms grow faster than their larger counterparts. Moreover, we found that the growth decision of firms is affected by a firm specific component, which is also correlated with firm size. These two effects are oppositely signed and, therefore, estimates that fail to take this firm specific effect into account are likely to be strongly biased towards zero.     

Firm Growth and Liquidity Constraints: A Dynamic Analysis

Using a large unbalanced panel data set of Portuguese manufacturing firms surviving over the period from 1990 to 2001, the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth. We use a GMM-system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth. The model is estimated for all size classes, including micro firms. Our findings reveal that smaller and younger firms have higher growth-cash flow sensitivities than larger and more mature firms. This is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms. Nevertheless, the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment/cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect. Besides, firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old. Finally, these results have significant policy implications.      

Trade Credit,Bank Credit,and Flight to Quality: Evidence from French SMEs

This paper investigates the impact of the global financial crisis on the allocation of credit to small and medium‐sized enterprises (SMEs). Using samples of French SMEs from four industries, we found support for the prediction of the flight‐to‐quality hypothesis that in bad times, credit flows away from smaller constrained firms to larger, higher grade firms. We also examined the relation between bank credit and trade credit in terms of two hypotheses: the substitution hypothesis and the complementary hypothesis. The results of fixed effects panel regressions showed that trade credit for small firms during periods of tight money acts generally as complement rather than substitute to bank credit, thus providing empirical support for the redistribution view of trade credit.     

The Dynamic Role of Small Firms: Evidence from the U.S.

This paper provides a conceptual and empirical account of the dynamic role of SMEs in the U.S. economy. Evidence is provided to show that SMEs are important sources of employment growth and innovation. For example, the net employment gain during 1990–95 is shown to be greater among smaller firms than among larger firms. Furthermore, while large firms often produce a larger number of patents per firm, the patenting rate for small firms is typically higher than that for large firms when measured on a per-employee basis. It is noted that public policy is shifting away from traditional measures which were based on a static conception of industrial organization and thus emphasized anti-trust, regulation and public ownership solutions, towards measures which are geared towards supporting the dynamic role of SMEs. These measures focus on providing an enabling environment for enterprise start-ups, job creation, knowledge spillovers and technological change.     

Dealing with financial crises in emerging markets

Financial crises in emerging markets are a reality of doing business in these countries in the early twenty‐first century. Managers can gain some perspective on this problem from experiences of firms in crises that occurred in Mexico, Thailand, and Russia during the 1990s. We show how firms have taken steps to protect themselves against financial crises and to deal with the crises once underway in these three countries. Such strategies are divided into frameworks of: short‐term, immediate responses to a crisis; intermediate steps during the period of economic downturn; and long‐term continuing responses for operating in emerging markets. © 2002 Wiley Periodicals, Inc.     

Does business group affiliation help firms achieve superior performance during industrial downturns? An empirical examination

Does affiliation with a business group enhance a firm's performance? What is the potential effect of this affiliation especially in declining economic periods? The literature provides contradictory results on this proposition. In this study, the authors explore the role of business group affiliation as a firm-specific factor and its impact in different environments, adding to our understanding of the firm-growth phenomenon. The empirical context is a large sample of firms registered in the United Kingdom, drawn from the FAME database. The analysis provides evidence for significant impact of business group affiliations on firm growth, especially during adverse economic conditions. However, the business group–firm growth relationship is moderated by firm-specific characteristics (e.g. firm size), and group specific characteristics (e.g. type of ownership and country of origin). Regarding the latter, it is specifically revealed that the impact of group affiliation is not uniform across all countries, a possibility that has been ignored in the international business literature. Among its contributions, this research introduces a novel typology of firms in growing and declining industries. The proposed typology enables us to advance propositions with respect to varying trajectories of business affiliations for firms of different size and nationality/region of origin of business groups.     

The international diversification-performance link in Spain: Does firm size really matter?

This study provides new insights into the link between international diversification and firm performance in a sample of large manufacturing firms and SMEs based in Spain for the 1994–2008 period. Specifically, the focus is on how the nature and shape of this relationship may vary over time with firm size. The results show the existence of a horizontal-S curve when the whole sample of firms is considered in the empirical analysis. However, major differences are found between SMEs and large firms, and even within the actual group of SMEs. Strong support is found in large firms for the existence of a horizontal-S curve. Within the group of SMEs, there are small firms with a linear and negative relationship, whereas medium-sized firms record a U-shaped form. These findings suggest that as the international diversification-performance link is size-dependent, future research should explicitly consider firm size in order to better understand the nature of this relationship.     

The Size and Growth of UK Manufacturing and Service Firms

This paper investigates the relationship between firm size and growth for UK manufacturing and services over the period 1991 to 1995. We test for size effects on growth, using models which incorporate the influences of previous growth and industry membership. The results from the analysis suggest that for both manufacturing and services, small firms tend to grow faster than larger firms. The growth of manufacturing firms appears to persist over time, whereas this is not the case for service firms. Small firms tend to have more variable growth rates than their larger counterparts in manufacturing and services. This suggests that large firms may enjoy advantages associated with diversified operations which make them less susceptible to periods of extremely high or low growth.     

What holds back high-growth firms? Evidence from UK SMEs

High-growth firms are seen as vital for economic growth. It is important for policy and theory to consider the barriers faced by firms achieving high growth and those with the potential to do so. This article uses data for 4,858 UK SMEs to investigate the obstacles perceived by two sets of firms: (1) firms in periods of high growth and (2) potential high-growth firms, which are observationally similar but are not achieving high growth. The results suggest high-growth firms perceive problems in six areas: recruitment, skill shortages, obtaining finance, cash flow, management skills and finding suitable premises. Potential high-growth firms feel held back by the economy, obtaining finance, cash flow and their management skills, but are less likely to perceive regulation is a problem. The results have implications for theory on high-growth firms and policies focussed at them.     

Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data

This article utilises up-to-date financial panel data, and investigates the capital structure of small and medium sized enterprises (SMEs) in the U.K. Different capital structure theories are reviewed in order to formulate testable propositions concerning the levels of debt in small businesses, and a number of regression models are developed to test the hypotheses.The results suggest that most of the determinants of capital structure presented by the theory of finance appear indeed to be relevant for the U.K. small business sector. Size, age, profitability, growth and future growth opportunities, operating risk, asset structure, stock turnover and net debtors all seem to have an effect on the level of both the short and long term debt in small firms. Furthermore, the paper provides evidence which suggest that the capital structure of small firms is time and industry dependent. The results indicate that time and industry specific effects influence the maturity structure of debt raised by SMEs. In general terms, average short term debt ratios in SMEs appear to be increasing during periods of economic recession and decrease as the economic conditions in the marketplace improve. On the other hand, average long term debt ratios exhibit a positive relationship with changes in economic growth.