New business formation and employment growth: some evidence for the Spanish manufacturing industry

This paper explores the effects of new business formation on employment growth in Spanish manufacturing industries. New firms are believed to make an important contribution to economic growth but the extent of this contribution is unclear. We consider time lags of new firm formation as explanatory variables of employment change and identify how long the effect of new firm entries on employment lasts. Our main results show that the effects of new business formation are positive in the short term, negative in the medium term and positive in the long term, thus confirming the existence of indirect supply-side effects found in similar studies for other countries.

Firm growth in industrial clusters of the United Kingdom

This article examines how firm growth is influenced by the strength of the industrial cluster in which the firm is located. It presents econometric estimates of firm growth for 56 two-digit industries in the UK. In about half of these industries, there is a positive and statistically significant association between firm growth and own-sector employment. Significant associations between firm growth and other-sector employment are less common, but where these arise they are generally negative. We find that a weak rule of thumb applies in most industries: own-sector effects are positive or insignificant, while other-sector effects are negative or insignificant. Cluster effects are strongest in manufacturing, manufacturing-related, and infrastructure, but weaker in services.

The impact of new firm formation on regional development in the Netherlands

This paper examines the relationship between new firm formation and regional employment change in The Netherlands. Using a new regional data base for the period 1988–2002, we examine the time lags involved in the relationship. We also investigate whether the relationship differs by sector and by degree of urbanization. We find that the maximum effect of new businesses on regional development is reached after about 6 years. Our results also suggest that the overall employment impact of new-firm start-ups is positive but that the immediate employment effects may be small in The Netherlands. Furthermore, we find that the employment impact of new firms is strongest in manufacturing industries and that the employment impact of new firms is stronger in areas with a higher degree of urbanization.

Effect of credit guarantee policy on survival and performance of SMEs in Republic of Korea

This study evaluates the effect of credit guarantee on SMEs at the firm level. To estimate the effect of credit guarantee, we analyze relations between credit guarantee, the survival of guaranteed firms, and their productive performance. The result indicates that credit guarantee frequency enabled guaranteed firms to achieve good performances in general. On the contrary, the effect of guarantee amounts is ambiguous in that there is difference between the contemporary effect and the lagged effect. Therefore, we conclude that credit guarantee satisfied partially its goal to alleviate SMEs’ difficulty in acquiring finance and to stabilize employment.

Entrepreneurship,regional development and job creation: the case of Portugal

This paper investigates whether a high level of new business formation in a region stimulates employment growth in that region. We look at the lag structure of these effects using a data set covering a fairly large time span (1982–2002). We find that indirect effects of new firm births on subsequent employment growth are stronger than direct effects. However, indirect effects only occur about 8 years after new firm formation. In particular, and unlike the findings from studies of other countries using a similar approach, positive indirect effects do not seem to tail off in the Portuguese case. This is likely due to a general pattern of results in which lags appear to be longer for Portugal. In view of these results, we suggest that the lag times and magnitudes the effects on new firm formation on subsequent employment growth are likely dependent on the types and qualities of start-ups.

The effects of new firm formation on regional development over time: The case of Great Britain

This paper re-examines the link between new firm formation and subsequent employment growth. It investigates whether it is possible to have the wrong type of entrepreneurship—defined as new firm formation which leads to zero or even negative subsequent employment growth. It uses a very similar approach to that of Fritsch and Mueller (Regional Studies, 38(8), 961–976, 2004), confirming their findings that the employment impact of new firm formation is in three discrete phases. Then, using data for Great Britain, the paper shows the employment impact of new firm formation is significantly positive in the high-enterprise counties of Great Britain. However, for the low-enterprise counties, it shows that new firm formation has a negative effect on employment. Of the 15 low-enterprise regions, eight are Scottish (of nine Scottish regions in our data base) and three are North East Counties (of four). Our findings imply that having the “wrong type of entrepreneurship” is indeed possible.

Employment effects of business dynamics: Mice, Gazelles and Elephants

Much of the theoretical work on industry dynamics focuses on the role of ‘noisy’ selection and incomplete information on firm entry and survival. We extend this research by looking at the impact of firm heterogeneity on employment effects for 320 U.S. Metropolitan Statistical Areas (MSA). We find that only start-ups with greater than 20 and less than 500 employees have persistent employment effects over time and only in large diversified metropolitan regions. Therefore, both the type of entry (Gazelles) and the characteristics of the region are important for employment growth.

The roles of R&;D in new firm growth

Innovative start-ups are an important driver of economic growth. This article presents empirical evidence on the effects of research and development (R&D) on new product development, interfirm alliances and employment growth during the early life course of firms. We use a dataset that contains a sample of new firms that is representative of the whole population of start-ups. This dataset covers the first 6 years of the life course of firms. It is revealed that R&D plays several roles during the early life course of high-tech as well as high-growth firms. The effect of initial R&D on high-tech firm growth is through increasing levels of interfirm alliances in the first post-entry years. R&D efforts enable the exploitation of external knowledge. Initial R&D also stimulates new product development later on in the life course of high-tech firms, but this does not seem to affect firm growth. R&D does not affect the growth rate of new low-tech firms, which seem to be driven mainly by the growth ambitions of the founding entrepreneur. The results show that R&D matters for a limited but important set of new high-tech and high-growth firms, which are key in innovation and entrepreneurship policies.

The export intensity of venture capital backed companies

In this study we examine how venture capital (VC) firms influence the export behavior of their investee companies. VC firms perform an important governance function for investee companies by providing monitoring and value-added activities. Drawing on agency theory, the resource-based view of the firm and governance life-cycle theory we hypothesize that the relationship between VC governance resources and investee exporting behavior is moderated by investment stage. Employing a sample of 340 VC-backed firms, our results confirm this hypothesis. Monitoring resources are most effective in promoting export behavior for late-stage ventures and value-added resources in promoting export behavior in early-stage ventures.

Legal reform and aggregate small and micro business bankruptcy rates: evidence from the 1997 Belgian bankruptcy code

Many Continental European countries recently reformed their bankruptcy legislations to stimulate reorganization and firm survival. We show that the Belgian 1997 bankruptcy code reform, which implemented several international best practice recommendations, significantly reduced aggregate small and micro business bankruptcy rates. However, using distributed lag models to control for the relationship between bankruptcy rates and macroeconomic variables such as real GDP growth, consumer confidence, inflation, etc., we find that the new code’s impact is not the same for all types of companies. Specifically, while the beneficial effect of the reform is largely similar between small firms (i.e. stock corporations) and micro firms (i.e. partnerships), it is only significant in certain industries (manufacturing and trade). Overall, our results indicate that especially the measures taken to limit domino bankruptcy effects are likely to have had a substantial impact. Our findings have several policy implications for the evaluation and modification of the bankruptcy system.

Corporate diversification and CEO turnover in family businesses: self-entrenchment or risk reduction?

Our study investigates differences in CEO turnover between focused and diversified firms to determine whether diversification strategies are necessarily associated with governance efficiency in family businesses. We find that large family CEO firms are more likely to engage in corporate diversification than are small non-family CEO firms and their CEOs are seldom replaced. Large family CEO diversified firms also have lower turnover sensitivity relative to focused firms. The results imply that the CEOs of diversified firms have entrenched themselves, thereby increasing agency costs within family businesses. However, we fail to find diversification discounts in family businesses. It is interesting that CEOs tend to diversify their businesses in order to decrease firm risk. Founding families favor risk-reducing decisions in order to maintain family wealth and prestige; suggesting that family businesses are more interested in survival than growth. Although family businesses may benefit from risk reduction, a negative relationship between diversification level and CEO turnover is still evidence of poor corporate governance. Agency theory may not completely account for the adoption of diversification strategies in family businesses and corporate diversification may weaken the effectiveness of internal monitoring mechanisms.

The shipping strategies of internet retailers: Evidence from internet book retailing

Managing the shipment of goods to consumers is one of the central aspects of retail competition on the internet. In this article, we analyze internet retailers’ shipping strategies using data from the internet book retailing industry. We find that, controlling for a variety of observable firm characteristics, firms with lower product prices offer lower shipping fees and higher quality shipping in terms of average delivery time, compared to firms with higher product prices. These patterns cannot be readily reconciled with a large class of models of competition under perfect consumer information. Theories based on imperfect consumer information can explain the findings better.

Innovation, R&D cooperation and labor recruitment: evidence from Finland

This article investigates the role played by one type of firm interaction, namely R&D cooperation, and also the acquisition of labor, in the promotion of industrial innovations. We employ a unique innovation dataset from Finland which combines firm specific information about the innovation performance of the firms along with their individual characteristics, as well as firm specific information regarding the origins of their recent labor acquisitions. Analyzing this data allows us to identify the different roles which the knowledge spillovers and labor markets play in the innovation process. Our results suggest that small firms are generally more innovative than large firms; R&D cooperation is an essential feature of innovation, but the variety of cooperation is of little importance; and labor acquisition appears to be only of limited importance for innovation.

Credit market failure intervention: Do government sponsored small business credit programs enrich poorer areas?

Using local market employment rates as our measure of economic performance, we find a positive and significant correlation between the average annual level of employment in a local market and the level of SBA guaranteed lending in that local market. Furthermore, the intensity of this correlation is much larger in low-income markets. Indeed, our results suggest that this correlation is positive and significant only in low-income markets. This result has important implications for public policy in general and SBA guaranteed lending in particular.

Financial development and the growth of cooperative firms

The purpose of this article is to empirically assess the relationship existing between local financial development and the growth of firms, with a special focus on cooperatives. Using Italian data, a multiplicative interaction model is specified, so as to allow the impact of local banking development to differ between cooperative and non-cooperative firms. The main finding is that although local banking development represents a determinant of firms’ growth, regardless of their legal structure, it plays a special role in boosting the growth of cooperatives. This result provides evidence in favor to the existence of an institutional complementarity relationship between the development of local banking institutions and cooperative firms.

Effectiveness of R&;D tax incentives in small and large enterprises in Québec

In this paper we evaluate the effectiveness of R&D tax incentives in Quebec, using manufacturing firm data from 1997 to 2003 originating from R&D surveys, annual surveys of manufactures and administrative data. The estimated price elasticity of R&D is –0.10 in the short run and –0.14 in the long run, with slightly higher elasticities for small firms than for large firms. We show that there is a deadweight loss associated with level-based R&D tax incentives that is particularly acute for large firms. For small firms it is not sizeable enough to suppress the R&D additionality, at least not for quite a number of years after the initial tax change. Incremental R&D tax credits do not suffer from this deadweight loss and are from that perspective preferable to level-based tax incentives.

The death of firms: exploring the effects of environment and birth cohort on firm survival in Sweden

This paper investigates the death of firms and seizes a long-term perspective. It investigates the life spans of nearly 2,200 firms in seven birth cohorts of Swedish joint-stock companies, founded during seven separate years between 1899 and 1950. Research has traditionally emphasized individual- and micro-oriented factors in explaining post-entry performance, or has often focused on the influence of firm-specific structural factors (firm age and size). A less attended field recognizes environmental forces. This paper focuses on the interaction between the micro and macro levels, and combines structural and environmental factors. Employing a cohort approach, it relates firm survival to firm age and size, as well as to the effect of cohort affiliation and environmental change over time (period effects). During macroeconomic expansion, the risk of death decreases. Cohort effects are also evident. Firms founded during times of economic crisis exhibit lower survival rates. Consequently, cohort affiliation and environmental forces, i.e. period effects, can explain differences in death rates in different firm populations.

Defending Gibrat’s Law as a long-run regularity

According to Gibrat’s Law of Proportionate Effect, the growth rate of a given firm is independent of its size at the beginning of the period examined. While earlier studies tended to confirm the Law, more recent research generally rejects it. This article reconciles these two streams of literature, taking into account the role of market selection and learning in reshaping a given population of firms through time. Consistently with previous studies, we find that Gibrat’s Law has to be rejected ex ante, since smaller firms tend to grow faster than their larger counterparts. However, a significant convergence toward Gibrat-like behavior can be detected ex post. This finding is an indication that market selection “cleans” the original population of firms, so that the resulting industrial “core” does not depart from a Gibrat-like pattern of growth. From a theoretical point of view, this result is consistent with those models based on passive and active learning, and can be seen as a defense of the validity of the Law in the long-run.

Founding family leadership and industry profitability

In this article, we argue that firms in high-margin industries can benefit from founding family influence. Specifically, in more profitable markets, the influence of the founding family provides an additional corporate governance-monitoring function. The sample consists of 294 firm-year observations from 98 publicly traded companies headquartered in Sweden, representing approximately half of all non-financial traded firms. Our support that the effect of family leadership in publicly held firms should be assessed in relation to the intensity of industry competition.

Innovation and productivity in SMEs: empirical evidence for Italy

Innovation in SMEs exhibits some peculiar features that most traditional indicators of innovation activity do not capture. Therefore, in this paper, we develop a structural model of innovation that incorporates information on innovation success from firm surveys along with the usual R&D expenditures and productivity measures. We then apply the model to data on Italian SMEs from the “Survey on Manufacturing Firms” conducted by Mediocredito-Capitalia covering the period 1995–2003. The model is estimated in steps, following the logic of firms’ decisions and outcomes. We find that international competition fosters R&D intensity, especially for high-tech firms. Firm size and R&D intensity, along with investment in equipment, enhances the likelihood of having both process and product innovation. Both these kinds of innovation have a positive impact on firm’s productivity, especially process innovation. Among SMEs, larger and older firms seem to be less productive.