Small Firms Research Articles

OPTIMIZING FINANCIAL MANAGEMENT IN SMALL AND FAMILY-OWNED ENTERPRISES: A LITERATURE REVIEW ON SIGNALING AND AGENCY THEORIES

This research explores the role of ownership structure, agency relationship dynamics, and the implementation of financial signals in the context of small and family firm financial management. Employing the Systematic Literature Review method, a literature review was conducted to gather, filter, and analyze relevant literature on the topic. The research findings indicate that a deep understanding of ownership structure enables firms to design more efficient risk management policies and decision-making. Additionally, an understanding of agency relationship dynamics allows firms to manage conflicts of interest more effectively through the development of appropriate oversight mechanisms and incentives. The proper use of financial signals was also found to enhance transparency and external stakeholders' trust in the firm, thereby opening doors to better access to external capital. The conclusion drawn from this research is that effective financial management practices are crucial for the long-term success of small and family firms. The implications of these findings emphasize the need for firms to continuously update their knowledge and skills in financial management and actively apply proven principles in their own context. Thus, they can remain competitive in an ever-changing business environment and meet their long-term objectives.

What drives the relationship between digitalization and energy demand? Exploring heterogeneity in German manufacturing firms

The growing use of information and communication technologies (ICT) has the potential to increase productivity and improve energy efficiency. However, digital technologies also consume energy, resulting in a complex relationship between digitalization and energy demand and an uncertain net effect. To steer digital transformation towards sustainability, it is crucial to understand the conditions under which digital technologies increase or decrease firm-level energy consumption. This study examines the drivers of this relationship, focusing on German manufacturing firms and leveraging comprehensive administrative panel data from 2009 to 2017, analyzed using the Generalized Random Forest algorithm. Our results reveal that the relationship between digitalization and energy use at the firm level is heterogeneous. However, we find that digitalization more frequently increases energy use, mainly driven by a rise in electricity consumption. This increase is lower in energy-intensive industries and higher in markets with low competition. Smaller firms in structurally weak regions show higher energy consumption growth than larger firms in economically stronger regions. Our study contributes to the literature by using a non-parametric method to identify specific firm-level and external characteristics that influence the impact of digital technologies on energy demand, highlighting the need for carefully designed digitalization policies to achieve climate goals.

Using equity market reactions to infer exposure to trade liberalization

We propose a method for identifying exposure to changes in trade policy based on asset prices that has several advantages over standard measures: it encompasses all avenues of exposure, it is natively firm-level, it yields estimates for both goods and service producers, and it can be used to study reductions in difficult-to-quantify non-tariff-barriers in a way that controls naturally for broader macroeconomic shocks. Applying our method to two well-studied US trade liberalizations provides new insight into service-sector responses and reveals dramatically different outcomes among small versus large firms, even within narrow industries.

중소 수출 제조기업의 빅데이터 분석 역량이 공급망 회복탄력성과 공급망 성과에 미치는 영향에 관한 연구 - 기계/장비 산업을 중심으로

As the economic environment of the global market is rapidly changing, uncertainty is increasing, and technological innovation, as well as financial and human resources, are becoming important factors. In particular, small and medium-sized export manufacturing companies are building global supply chains to improve their competitive advantage, and big data analytics capabilities to collect and analyze manufacturing and import/export information have been raised as a way to solve these risks. Therefore, this study analyzed the influence of big data analytics capabilities on supply chain performance through logistics flexibility and supply chain resilience in the supply chain formation of small and medium-sized export manufacturing firms. The survey was distributed to small and medium-sized export manufacturing companies from January 3, 2024, to March 31, 2024, through face-to-face, email, mail, and fax, focusing on the list of member companies provided by the Korea International Trade Association, the Ministry of SMEs and Startups, the Smart Manufacturing Innovation Association, and the SME Technology Information Promotion Agency. More than 2,000 copies were distributed and 215 copies (21.5%) were collected, and 203 copies of the questionnaire were constructed after removing 12 non-response questionnaires. Based on the collected questionnaires, the analysis was conducted using SPSS Ver. 28.0 and the extension program Process Macro Ver. 4.2. The results of the empirical analysis of this study are as follows. First, big data analytics capabilities have a positive impact on supply chain performance. Second. big data analytics capabilities have a positive effect on supply chain performance through the mediation of logistics flexibility. Third, big data analytics capabilities have a positive effect on supply chain performance through the mediation of supply chain resilience. Fourth, big data analytics capabilities have a positive effect on supply chain performance through the dual media.

수출이 기업의 연구개발투자에 미치는 영향

This paper examines the impact of exporting on R&D investment using firm-level data from Korean manufacturing industries. To control for the tendency of R&D intensive firms to self-select into exporting, we employ propensity score matching along with the difference-in-differences method. The analysis reveals that new exporters show a statistically significant increase in both the probability of conducting R&D investment and the R&D intensity compared to non-exporting firms. Specifically, the probability of conducting R&D investment is estimated to increase by 7-10 percentage points, and the R&D intensity by 0.2-0.3 percentage points. Notably, the effect exporting on R&D investment is greater and grow over time in larger firms, while the effect is smaller and decreases over time in smaller firms. Furthermore, the effect is more pronounced in internal R&D investments than in external R&D investments. These findings suggest that increased export opportunities induce firms to invest in innovation, with the magnitude of effects depending on firm-specific capabilities.

Research on the Influence of Business English Proficiency on Small and Medium-Sized Enterprise Competitiveness Under the Perspective of Resource-Based Theory

In the globalized world arena, enterprises have to meet higher standard for showcasing their strength, as well as communicating with other enterprises from different cultural background. The business English ability, as one of the means of intercultural business communication, puts forward higher requirements and has become has become one of the important indexes to measure the international competitiveness of enterprises. Therefore, high proficiency in business is needed. We examines the impact of business English proficiency on the competitiveness of small and medium-sized enterprises (SMEs) from the perspective of resource-based theory. By using a quantitative research methodology, we could clearly recognized the impact of business English proficiency on enterprise competitiveness. The results of the study show that business English proficiency is a key resource for SMEs to enhance their market competitiveness, and there is a significant positive correlation with the market orientation, innovation ability and strategic flexibility of enterprises. As an intangible resource, business English proficiency significantly enhances the market performance, financial performance and operational efficiency of enterprises by increasing their market sensitivity, promoting knowledge innovation and enhancing the flexibility of strategic adjustment. In addition, the study finds that the role of business English proficiency varies across industries and sizes of firms, with smaller firms and highly internationalized industries benefiting more significantly. This study provides important theoretical and practical guidance for the development of SMEs in the context of globalization.

Firm financing and the relative demand for labor and capital

Using more than one million firm-year observations of small and medium European firms between 2003 and 2019, this paper introduces new stylized facts on how firms' relative demand for labor and capital evolved as their capital structure adjusted to the events of the 2008 crisis. It also provides micro-level evidence that firms substitute capital for labor when financing costs rise. The empirical evidence lends support to the hypothesis that substitution is driven by an incentive to raise holdings of collateralizable capital. Identification of exogenous variations in firm financing costs relies on the heterogeneous effects of ECB monetary policy surprises on financing costs across the firm distribution.

The Role of Micro, Small and Medium Enterprises (UMKM) in Improving Community Welfare in Sumedang Regency, West Java

Community needs for decent living When fundamental requirements are satisfied—clothing, food, shelter, and health care, for example—the community can be considered prosperous and able to carry out a variety of economic activities. Welfare is also a very basic concept. MSMEs, or MSMEs, or small and medium-sized businesses, can assist with this. This literature study aims to explain the ways in which micro, small, and medium-sized firms, or MSMEs, improve their local communities. The solution to this issue is discussed using a literature study approach. The discussion's conclusions highlight how important micro, small, and medium-sized businesses are to supporting the local economy.. This little, Small and medium-sized businesses have demonstrated their ability to handle a variety of circumstances, including the financial crisis and COVID-19, to the point that their presence has been able to contribute to boosting earnings and well-being in the neighborhood

Financial development and labour productivity growth in stagnant industries

ABSTRACT In recent decades, the US economy has experienced the flow-on effects of rapid expansion by industries with low productivity growth. We investigate whether financial development increases labour productivity growth in these so-called stagnant industries, with analysis revealing remarkable post-1980 US interstate banking deregulation. These improvements are not an artefact of growing consumer demand, nor driven by skilled labour migration. Rather, they are the likely outcome of improved capital allocation and enhanced credit access for small firms. Our findings underscore the pivotal role of financial development in revitalizing stagnant sectors, and mitigating productivity disparities across industries.

Sovereign default and FDI transactions: Evidence from Argentina

This paper investigates the effect of sovereign debt default on foreign direct investment (FDI) transactions by US firms into Argentina following the Argentine sovereign default in 2019–20. Using the synthetic control approach, we find that the number of FDI transactions decreased by approximately 60% after the Argentine default with a particularly pronounced decline in the non-manufacturing sector. By examining the changes in the number of transactions, we provide a more precise picture of the cost of sovereign default, capturing the FDI activity of small firms better.

Energy-Related Uncertainty and Idiosyncratic Return Volatility: Implications for Sustainable Investment Strategies in Chinese Firms

This study examines the impact of energy-related uncertainty on idiosyncratic volatility (IVOL) in Chinese firms, leveraging data from the Shanghai and Shenzhen stock exchanges between 2007 and 2022. Utilizing the Energy-Related Uncertainty Index (EUI) and the Fama–French five-factor model, we analyze a comprehensive dataset of 20,998 firm-year observations to understand how macroeconomic uncertainties specific to the energy sector influence firm-specific risk. Our findings reveal that a one-unit increase in the EUI is associated with a 5.1% rise in idiosyncratic volatility across all firms, underscoring the significant impact of energy-related uncertainty on firm-specific risks. The effect is more pronounced in energy-related firms, where a one-unit increase in the EUI leads to a 6.4% increase in IVOL, compared to a 3.7% increase in non-energy-related firms. By incorporating industry-wise, heterogeneity, and phase-based analyses, our findings reveal significant variations in the EUI’s impact across energy and non-energy sectors. State-owned enterprises, firms with high ownership concentration, and smaller firms are more vulnerable to energy uncertainties. Additionally, the effect of the EUI on IVOL is more pronounced during periods of high uncertainty. These insights have important implications for sustainable investment strategies, risk management, and policymaking, providing a deeper understanding of the intricate dynamics of energy markets in fostering sustainable economic growth and development.

Government as a Source of Equity Capital for Entrepreneurs: Evidence From Entrepreneurial Exits

ABSTRACTResearch Question/IssueWe examine the effect of government equity investment on the dollar value of entrepreneurial exits spanning 50 countries over the years 1990–2015.Research Findings/InsightsData on 8532 entrepreneurial exits indicate that, relative to exits in which the investor base is purely nongovernment, private firm exits with government equity investment have higher dollar exit values. Subsample analysis suggests that the exits via initial public offerings (IPOs) drive these results with an average associated increase in IPO proceeds of $192.49 million. The positive impact of government is more pronounced when access to entrepreneurial capital is limited and for limited partnership venture capital structures.Theoretical/Academic ImplicationsResearch on government equity investment has suggested inefficiencies that lead to the deterioration of corporate value. Conversely, government equity investment can provide a valuable source of capital to some firms when investors, for example, venture capitalists, are unable or unwilling to invest. Our paper sheds light on whether government equity investment can provide value to small private firms, a subset of firms that is typically financially constrained, and how they might enhance exit value.Practitioner/Policy ImplicationsOur results suggest that governments enhance value when they provide capital in times/places where capital is scarce and government investors do not actively manage entrepreneurial firms.

Moderating effect of chief executive officer servant leadership on the relationship between entrepreneurial orientation and firm performance

Although entrepreneurial orientation (EO) is widely believed to benefit firms, it is increasingly considered necessary but insufficient for achieving superior firm performance. To better understand the circumstances under which EO is beneficial for firms, we adopt a resource-based perspective to introduce chief executive officer (CEO) servant leadership as a critical moderator of the EO–performance relationship. We validate our predictions using multi-point data from 170 small firms in India. The results reveal that three servant leadership behaviours – altruistic calling, wisdom and emotional healing – strengthen the EO–performance relationship. Furthermore, consistent with systems logic, the performance benefits of EO are found to be greater when the CEO servant leadership is closer to an ‘ideal’ configuration of behaviours. Overall, our findings contribute to a better understanding of the role of CEO leadership behaviours in fully actualising EO’s performance potential, thus illuminating the importance of aligning a firm’s strategic posture with other constructs of interest.

Seller-Orchestrated Inventory Financing Under Bank Capital Regulation

To help small firms secure bank financing, large sellers often orchestrate joint finance programs, linking their small dealers with major banks that lend to all participating dealers based on the information the seller provides. We examine supply chain decisions (pricing and inventory) and lending terms under such seller-orchestrated financing programs. In loan pricing, we highlight a form of financial friction that is of particular importance under such schemes—bank capital regulation. Banks are globally mandated to maintain regulatory capital to mitigate unforeseen loan losses, using either the standardized approach (where regulatory capital is a fixed percentage of the loan amount) or the internal rating-based (IRB) approach (where it depends on the loan’s value-at-risk). We consider a game-theoretic model consisting of a large seller and multiple capital-constrained newsvendor-type dealers, who obtain financing from banks that are subject to capital regulation. The seller decides the wholesale price and whether to orchestrate a joint finance program for its dealers by collaborating with a bank, and the dealers choose their inventory level and the financing channel. We find that a seller should only orchestrate the joint financing program when the bank adopts the IRB approach and the dealers are of low risk. Such a program is more profitable to the seller when the demand correlation among dealers is low, and there is a large number of dealers. Although always benefiting the seller, these programs may hurt dealers with intermediate risk. Facing dealers with varying financial situations, the terms under the joint finance program should be designed as if the financially strong dealers subsidize the weak ones. Finally, allowing the seller to share part of the loan loss could further enhance the performance of joint financing, but only when the seller’s opportunity cost of capital is low. Our findings provide guidance to large sellers on how to orchestrate joint finance schemes, and to small dealers on making their corresponding operational decisions.

Corporate ESG decoupling and R&D investment

This study investigates whether and how firms’ engagement in ESG decoupling leads to changes in R&D investment. Using a sample of U.S. listed firms from 2012 to 2023, we discover a consistent negative effect of ESG decoupling on R&D investment, indicating opposite effects from ESG brown-washing versus green-washing. Brown-washing firms exhibit a significant increase in R&D investment. Cross-sectional tests support the strategic incentive that a more pronounced positive effect observed in smaller firms, firms facing greater financial constraints and market competition, and among high-tech firms. In contrast, we find that green-washing firms experience a significant decrease in R&D investment. The decrease in R&D investment among green-washing firms is mitigated by more stringent corporate governance enforced by institutional investors, but is further amplified among firms facing greater market competition and high-tech firms, suggesting that green-washing firms with decreased R&D investment are subject to managerial opportunism. Our findings remain robust to different subsets of benchmarking normal firms and alternative measurement. In addition, we find that the capital market responds positively to ESG green-washing and negatively towards brown-washing, which implies a favorable attitude toward floated ESG disclosure from the investors. Overall, our study unveils the important role of ESG decoupling in reshaping corporate investment decision and contribute to the growing literature on ESG decoupling.

Small firm internationalization using digital platforms: an assessment and future research directions

PurposeThis study investigates how the extant literature approached the issue of small firms’ international market entry enabled by digital platforms.Design/methodology/approachThe paper presents a systematic literature review of the internationalization of small firms using digital platforms. It includes only empirical papers from Scopus and Web of Science databases, covering 2016 to mid-2023.FindingsThe study provides both (1) a descriptive analysis of the selected papers, encompassing their temporal and spatial distribution, methods, theoretical perspectives and the type of platform examined and (2) a qualitative analysis of the articles’ content in a narrative review structure, culminating in an integrated framework of key findings and suggested research questions on the role of digital platforms in small firm internationalization.Originality/valueThere is still a very limited number of studies addressing the phenomenon, with several scholars recently calling for further research. This paper compiles, synthesizes, analyzes and integrates the empirical literature on SME internationalization enabled by digital platforms, offering possible future avenues to advance research.

We're not in dreamland anymore: The consequences of community opioid use on local industrial composition

AbstractWe estimate the effect of opioid use rates on local economic resilience through changes in industrial composition. We find regional opioid use rates adversely affect firm growth in general, with the greatest impact on small firms. Our results are robust to several identification strategies (Difference in Differences, Propensity Score Matching, and Instrumental Variables) and alternative empirical specifications. Our findings establish that local industrial composition and long‐term resilience are each adversely affected by the opioid public health crisis.

Digital finance and MSME performance in India: evidence from World Bank Enterprise Survey data

PurposeThe impact of digitalisation on smaller firms remains sparsely studied across emerging economies. The paper aims to examine the relationship between digital adoption and multiple performance parameters of micro, small and medium enterprises (MSME) in a prominent emerging economy.Design/methodology/approachThe study employs data from the World Bank Enterprise Survey (WBES) 2022, capturing 9,024 Indian MSME firms spread across the country. Performance indicators are derived from growth in sales, employment and labour productivity (LPROD). Multiple regression estimates are derived that also correct for sample selection bias using Heckman’s two-step process.FindingsDigital proliferation is found to increase as firms mature up in terms of age, size and constitution. A significant difference could also be observed in business performance across digital and non-digital businesses, with sales growth (SG) and productivity higher for digital firms. Digital financial variables are found to have a significant impact on SG but not as much in the case of employment growth and LPROD. The results are robust to correction for sample selection bias in digital adoption using inverse mills ratio (IMR).Practical implicationsThe study highlights digital adoption gaps across various strata of MSMEs, highlighting lower adoption when firms are younger, smaller and lacking formal constitutional setup. Digital variables indicating positive association with SG highlight the need for concerted efforts at the public policy level for building appropriate skills and infrastructure for micro and small enterprises to boost their digital adoption to promote growth.Originality/valueThere is a lack of micro-level empirical evidence measuring the impact of advanced digital technology usage on multiple aspects of enterprise performance amongst micro and small firms. The study deploys unique digital variables including TReDS and use of online credit applications to assess the impact on business performance. The findings provide insights for practice and public policy, besides making the case for a higher focus on launching digital initiatives for smaller enterprises.

Unpacking unfair transaction experiences, competition, and imports in technology-intensive SMEs' FDI

In this study we examine how unfair transaction experiences with domestic partners might affect international expansion efforts, as moderated by industry competition and importing network. With survey data from the Annual Survey of Korea Venture Firms (2014–2018), we identify an explanatory role of unfair transaction experiences, together with moderating roles of industry competition and importing network, on FDI, such that small and medium-sized firms that suffer unfair transaction experiences in their home country are more likely to internationalize. Importing network can catalyze this outward investment, whereas industry competition tends to discourage such international expansion, because the firms need to focus on defending their positions at home, more so than expanding their business internationally.

Unveiling success factors for implementing and sustaining circular economy practices in small and medium-sized firms: multi-level perspective

Purpose This study aims to identify and understand critical success factors for implementing and sustaining circular economy (CE) practices in manufacturing small and medium-sized enterprises (SMEs). More precisely, this study examines the complex interplay between micro-, meso- and macro-level success factors that are deemed critical for implementing and sustaining CE practices. Design/methodology/approach The study is based on a two-stage methodology that combines a comprehensive literature review and an interview study with 12 Swedish manufacturing SMEs that implement CE practices. Findings The study identifies and categorizes success factors for implementing and sustaining CE practices in manufacturing SMEs. Based on the findings, a holistic framework is proposed that takes into account multiple perspectives, i.e. at the micro, meso and macro levels. This framework enables a deeper understanding and thus a more nuanced discussion of the complexity inherent in the transition to a CE from the perspective of manufacturing SMEs. Originality/value This study contributes to the growing body of research on CE transition. By focusing on SMEs in particular, the paper adds the needed diversity to the study of CE practices and influencing factors at different levels.