The trade credit channel revisited: evidence from micro data of Japanese small firms

It is suggested that trade credit can be a substitute for bank loans for small- and medium-sized enterprises (SMEs) that have little access to external funding sources. Using unique cross-sectional survey data of Japanese SMEs, we conduct a deep investigation into the substitutability between bank loans and trade credit. This survey contains rich information on the suppliers of trade credit to SMEs, thus enabling the examination of the channel through which credit is provided from suppliers to customers. We find that SMEs with little access to bank credit depend more on large suppliers for trade credit. We also find that when a purchase is made from a large supplier, more credit is indeed provided in the form of trade credit. Furthermore, this channel of credit from large suppliers to SMEs is only observed for solvent customers, not for insolvent customers. Our findings suggest that trade credit plays an important role for entrepreneurial firms over the financial growth cycle. For young and small firms with little access to bank loans trade credit is an important funding source.     

Uncertainty and Growth of the Firm

Using data from a survey of 1,097 small and medium-sized non-listed Dutch firms we investigate the relation between growth of the firm and uncertainty. We focus on the impact of sales uncertainty on various types of investment. We find that sales uncertainty, measured by the conditional variance, has a mixed impact on various investment decisions. We include an analysis of the relevance of financial structure and firm size on the growth-uncertainty relation.     

Long-term debt maturity and financing constraints of SMEs during the Global Financial Crisis

We use the recent financial crisis to investigate financing constraints of private small and medium-sized enterprises (SMEs) in Belgium. We hypothesize that SMEs with a large proportion of long-term debt maturing at the start of the crisis had difficulties to renew their loans due to the negative credit supply shock, and hence could invest less. We find a substantial variation in the maturity structure of long-term debt. Firms which at the start of the crisis had a larger part of their long-term debt maturing within the next year experienced a significantly larger drop in investments in 2009. This effect is driven by firms which are ex ante more likely to be financially constrained. Consistent with a causal effect of a credit supply shock to corporate investments, we find no effect in “placebo” periods without a negative credit supply shock.     

Trade credit and SME profitability

Financial literature discusses the motives for trade credit provision by suppliers in depth. However, there is no empirical evidence of the effect of granting trade credit on the profitability of small and medium-sized firms. We examine the profitability implications of providing financing to customers for a sample of 11,337 Spanish manufacturing SMEs during the 2000–2007 period. This article also examines the differences in the profitability of trade credit according to financial, operational, and commercial motives. The findings suggest that managers can improve firm profitability by increasing their investment in receivables and that the effect is greater for financially unconstrained firms (larger and more liquid firms), for firms with volatile demand, and for firms with bigger market shares.     

Exchange rate fluctuations,firm size,and export behavior: an empirical investigation

In this paper, we examine how changes in the exchange rate and its volatility affect the export behavior of manufacturing firms. We also investigate whether both exchange rate changes and exchange rate volatility affect firms of different sizes differently. Applying the two-step system generalized method of moment estimator on our data for a sample of 221 Pakistani manufacturing firms, we find that the real exchange rate depreciation has positive impacts, whereas the exchange rate volatility has negative impacts on firms’ exports. We also find that compared to large-sized firms, small- and medium-sized exporting firms are more likely to benefit from currency depreciations. Yet, regarding the effect of exchange rate volatility, we find that the adverse impact of exchange rate volatility is weaker for large-sized firms as compared to small- and medium-sized firms. Our findings confirm the presence of nonlinearity in export-deterring (favoring) effects of exchange rate volatility (depreciation) on exporting behavior depending on firm size. Pakistan should design and implement export-favoring preferential policies by emphasizing on real exchange rate stabilization and providing incentives to large firms to come into being. Small- and medium-sized enterprises should develop such export strategies that help reduce their size disadvantages, particularly in managing exchange rate risks.     

Synergy between R&D and advertising on shareholder value: Does firm size matter?

Using the hierarchical linear model, we examine whether R&D and advertising and their synergy influence firm value. We also investigate whether firm size moderates the market value effects of R&D, advertising, and the synergistic effect of R&D and advertising on firm value. We find that R&D and the synergy between R&D and advertising have significant positive effects on shareholder value. Moreover, we find that the effects of R&D and advertising are significantly higher in large firms than small firms, while the synergistic effect is significantly positive in small firms but not in large firms. These results offer important insight for executives on the implications of resource allocation on R&D and advertising expenditures to create firm value. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

Alliances and the innovation performance of corporate and public research spin-off firms

We explore the innovation performance benefits of alliances for spin-off firms, in particular spin-offs either from other firms or from public research organizations. During the early years of the emerging combinatorial chemistry industry, the industry on which our empirical analysis focuses, spin-offs engaged in alliances with large and established partners, partners of similar type and size, and with public research organizations, often for different reasons. We seek to understand to what extent alliances of spin-offs with other firms (either large- or small- and medium-sized firms) affected their innovation performance and also how this performance may have been affected by their corporate or public research background. We find evidence that in general alliances of spin-offs with other firms, in particular alliances with large firms, increased their innovation performance. Corporate spin-offs that formed alliances with other firms outperformed public research spin-offs with such alliances. This suggests that, in terms of their innovation performance, corporate spin-offs that engaged in alliances with other firms seemed to have benefitted from their prior corporate background. Interestingly, it turns out that the negative impact of alliances on the innovation performance of public research spin-offs was largely affected by their alliances with small- and medium-sized firms.     

Partnership or self-reliance entry modes: Large and small technology-based enterprises’ strategies in overseas markets

This study compares large firms against small and medium-sized firms in technology industries and assesses the differences between them in the choices between partnership and self-reliance entry modes. A sample of 166 large, small, and medium-sized firms in technology industries was analyzed using LISREL 8.30. Results indicate that, given innovative advantage, large and small and medium-sized firms both prefer self-reliance entry modes. With violent market dynamism, large firms prefer self-reliance entry modes while small and medium-sized firms prefer partnership entry modes. When high promotional effort is required, small and medium-sized firms prefer partnership entry modes and large firms may prefer partnership entry modes as well. This study provides important guidance for managers of large and small technology-based firms to select their entry modes when they enter overseas markets.     

Organisation structure and innovation performance in different environments

This paper examines the relationship between organisation structure and innovation performance in a large sample of UK small and medium-sized enterprises. It asks whether there is an optimal structure and whether this differs between different firm environments and between young and older firms. We find that the influences on the ability to innovate differ from those on the commercialisation of innovations. We show that decentralised decision-making, supported by a formal structure and written plans, supports the ability to innovate in most circumstances and is superior to other structures. We also find some evidence that young firms operating in high technology sectors with informal structures have a greater tendency to be innovative. In addition, we find very few differences between young and older firms in terms of their optimal structures in low technology sectors.     

The characteristics of family firms: exploiting information on ownership,kinship, and governance using total population data

Family firms are often considered characteristically different from non-family firms. However, our understanding of family firms suffers from an inability to identify them in total population data; information is rarely available regarding owners, their kinship, and their involvement in firm governance. We present a method for identifying domiciled family firms using register data; this method offers greater accuracy than previous methods. We apply this method to Swedish data concerning firm ownership, governance, and kinship from 2004 to 2010. We find that the family firm is a significant organizational form, contributing over one third of all employment and gross domestic product (GDP). Family firms are common in most industries and range in size. Furthermore, we find that, compared to private non-family firms, family firms have fewer total assets, employment, and sales and carry higher solidity, although family firms are more profitable. These differences diminish with firm size. We conclude that the term “family firm” includes a large variety of firms, and we call for increased attention to their heterogeneity.     

Do Firms Spend More on Suppliers That Have Environmental Expertise? An Empirical Study of U.S. Manufacturers’ Procurement Spend

Stakeholders expect focal firms to improve their environmental performance. While firms may be able to accumulate the environmental expertise needed to achieve this goal internally, doing so may require significant time and resource commitments. Alternatively, buyer firms can leverage their suppliers’ existing environmental expertise and gain access to such expertise when they purchase products and services from these suppliers. The purpose of this study was to develop and test theory regarding under what conditions suppliers’ environmental expertise influences a buying firms’ procurement spend with these suppliers. We ground our study in transaction cost economics and agency theories and empirically test our hypotheses using a unique buyer–supplier dyadic data set. We find that buyer firms are willing to increase their overall business spend with suppliers that have strong environmental expertise, particularly when the buyer firms are more profitable and have higher levels of absorptive capacity. However, we find the opposite effect when the buyer firm’s executive compensation is linked to the firm’s environmental, social, and governance (ESG) performance. Likewise, we also find that the buyer firm’s environmental concern ratings negatively moderate the relationship between the supplier’s environmental expertise and the buyer’s procurement spend with the supplier.     

Formal vs. Informal CSR Strategies: Evidence from Italian Micro, Small, Medium-sized, and Large Firms

Recent research on corporate social responsibility (CSR) suggests the need for further exploration into the relationship between small and medium-sized enterprises (SMEs) and CSR. SMEs rarely use the language of CSR to describe their activities, but informal CSR strategies play a large part in them. The goal of this article is to investigate whether differences exist between the formal and informal CSR strategies through which firms manage relations with and the claims of their stakeholders. In this context, formal CSR strategies seem to characterize large firms while informal CSR strategies prevail among micro, small, and medium-sized enterprises. We use a sample of 3,626 Italian firms to investigate our research questions. Based on a multi-stakeholder framework, the analysis provides evidence that small businesses’ use of CSR, involving strategies with an important impact on the bottom line, reflects an attempt to secure their license to operate in the communities; while large firms rarely make attempts to integrate their CSR strategies into explicit management systems.     

Offshoring strategy: Motives,functions, locations,and governance modes of small,medium-sized and large firms

How does firm size impact on a firm's offshoring strategy? Are the underlying motives for offshoring, the particular functions considered, the locations to relocate, and the particular governance mode different for small, medium-sized and large firms? In this paper, cost, resource and entrepreneurial drivers are investigated for their relationship with firm size. Moreover, we hypothesize on the relationship between function, location and governance mode choices of offshoring and firm size. Using multi-country data of the Offshoring Research Network (ORN), we present empirical evidence on the three offshoring driver categories and function, location and governance mode choices of small, medium-sized and large firms. The results show offshoring might be used as cost, resource or entrepreneurial strategy. Cost drivers are most important for large and small firms, whereas resource drivers are especially important for medium-sized and large firms. Entrepreneurial drivers are most important for medium-sized firms, just like these firms have a relatively stronger preference for nearshoring. Small firms mostly offshore competence exploring activities, whereas large firms relocate competence exploiting activities.     

Firm versus Sector Effects on Profitability and Growth: The Importance of Size and Interaction

In this study we contribute to the long‐standing debate on the impact of firm versus industry effects on firm performance in three distinct ways; firstly by testing the firm, industry and their interaction effects on performance, secondly by examining the impact of each effect for different size groups, and lastly by measuring performance in terms of sales growth in addition to profitability. We use data of 71,750 UK firms, between 2002 and 2004, and employ moderated regression analysis for three sub‐samples namely micro, SMEs and large firms. With regards to profitability, we find the interaction effect to be significant in all sub‐samples for broad level of industrial aggregation (SIC4). For narrow industrial aggregation (SIC2), the interaction effect is only significant for micro firms. Neither of the above effects is significant for sales growth.     

Are entrepreneurs special? Evidence from board appointments

As shown in previous studies, founder-led firms perform better than those run by professional managers. Does this reflect the special relation of founders to their firms or do entrepreneurs possess attributes and experiences that are valuable even at firms not founded by them? Drawing on the resource-based view of the firm, we study this question by evaluating the effect of entrepreneurs who serve as outside directors of other firms. We find that the stock market reacts positively to appointments of outside entrepreneur directors and that firms with these directors have higher long-term value as measured by Tobin's q. Entrepreneur directors are also associated with increased R&D investment and higher sales growth, and their effect on firm value is larger among firms in R&D-intensive and competitive industries. We conclude that outside entrepreneur directors enhance firm value through their propensity to take risk and their ability to anticipate demand patterns and create new markets.     

Is banking competition beneficial to SMEs? An empirical study based on Italian data

Using a large panel of Italian firms, spanning the years from 1995 to 2003, this study investigates the relationship between bank debt and non-financial SMEs’ performance, evaluating whether and to what extent this link is affected by the degree of competition characterising the local credit market where firms operate. Controlling for inertia, unobserved heterogeneity and the endogeneity of some performance determinants, we find that the (negative) impact of bank debt on firms’ performance is weaker for firms running in more competitive banking markets. We interpret this result as evidence that a more intense banking competition may lead to better credit conditions for small and medium-sized firms.     

Technical performance and firm size: Analysis of patents and publications of U.S. firms

This study focuses on the scientific output of firms of different sizes in different industries in the U.S. Both patents, and papers and publications are used as measures of technical output. Data from two samples of firms, one consisting of 225 large firms (annual sales at least $250 million and minimum annual R&D budget of $1 million) and the other consisting of 248 small and medium sized firms (annual sales between $10 to $200 million and annual R&D budget at least $10 thousand) have been presented here. The study shows that determinants of R&D expenditure are different in firms of different sizes. For the large firms, R&D expenditure depends on net income as well as its size, measured in terms of annual sales. For small size firms, R&D expenditure is closely related with sales, rather than the net income. For large firms, R&D expenditure is related to both sales and income, the latter being more important than the former. The two output measures, patents and papers are correlated, but the correlation is not a very strong one for small firms. Patent and papers are correlated significantly with both R&D expenditure as well as annual sales. The firm's growth is not linked with patents. On the contrary, there is a negative relationship between patent and R&D growth and patent and income growth in the case of small firms. Papers are not linked with growth variables for small firms. Finally, this study confirms the hypothesis that small firms are more productive in innovation than the large firms. Small firms are more efficient than their larger competitors in terms of patents and papers per million dollars of R&D expenditure.     

Financial Information Credibility,Legal Environment,and SMEs’ Access to Finance

Abstract

There remains academic debate on the association between credible financial information and small firms’ access to diversified sources of finance. This study investigates the role of credible financial information and its interaction with a country’s legal and regulatory environment on the access of small- and medium-sized enterprises (SMEs) to diversified sources of finance in 129 developing countries. The findings indicate positive impacts of financial information quality and a country’s legal and regulatory environment on small firms’ access to diversified sources of finance. SMEs operating in a weak legal and regulatory environment benefit more from providing credible financial information. The findings are robust after controlling for the endogeneity of firms audit decision using a two-stage instrumental variable method. Our evidence suggests that firms’ credible signaling of the quality of their financial information helps reduce the adverse selection problem for finance suppliers, increasing small firms’ access to diversified sources of finance.     

Progress towards buyer-supplier partnerships: Evidence from small and medium-sized manufacturing firms

There have been dramatic changes in the relationship between industrial buyers and suppliers over the past decade. Partnerships between larger buyers and suppliers are widely reported. The picture for small and medium-sized enterprises (SMEs) is less clear. In order to address this issue a mail survey of over 600 SMEs was carried out. The results suggest that the current level of partnership development is not high. However, they also indicate that there have been small but significant favourable changes in several factors underlying successful partnerships. This suggests that SMEs may be following, albeit with a lag of several years, the partnership sourcing methods being adopted by large firms.     

Where Do Firms Export,How Much and Why?

The empirical finding that exporting firms are more productive on average than non‐exporters has provoked a large theoretical literature based on models such as Melitz ( 2003 ), where more productive firms are more likely to overcome costs associated with trade. This paper investigates how closely the productivity heterogeneity framework fits the data from a firm‐level survey that includes information on export destinations and firm characteristics such as productivity. We find a high degree of unpredictable idiosyncratic participation in export markets by firms and a relatively weak positive correlation between the extent of a firm's export market participation and its export sales. We find that a small number of standard gravity variables provide a close fit to the country‐level determinants of trade but that greater variation results in more difficulty in explaining firm‐specific factors driving exporting behaviour. We also illustrate some elements of the dynamics over time in firm exporting patterns by destination. We show that lagged exporting activity has a significant effect on a firm's current exporting profile.