Advertisement

Bidding against the odds? The impact evaluation of grants for young micro and small firms during the recession

  • Stjepan Srhoj
  • Bruno ŠkrinjarićEmail author
  • Sonja Radas
Article

Abstract

Impact evaluations of business development grants targeting young firms have been somewhat neglected in the literature. While most research studies focus on the impact of research and development grants, a larger percentage of young firms would benefit from grants that assist them in business development activities. In this paper, we examine the impact of small business development grants on young small firm survival, turnover growth, labor growth, and access to external finances. We study this topic in the context of a long recession in Croatia (2009 to 2014), which makes it possible to better observe the effect of the public instrument intervention. Results show positive effect on firm survival and on obtaining long-term bank loans and no significant effects on firm performance. The grant scheme was most successful for firms newest to the market.

Keywords

Grants Recession Young firms Survival Firm performance Bank loans 

JEL classification

H25 L26 

Notes

Acknowledgments

We thank the associate editor László Szerb and the two anonymous referees for their comments and suggestions. Draft version of the paper was presented during Training Workshop ‘Evaluations of Innovation Policies’ held from 21 to 22 November 2017 in Zagreb, within the project “Strengthening scientific and research capacity of the Institute of Economics, Zagreb as a cornerstone for Croatian socioeconomic growth through the implementation of Smart Specialization Strategy” (H2020-TWINN-2015-692191-SmartEIZ). This research is also supported by TVOJ GRANT@EIZ, financed by the Institute of Economics, Zagreb. The manuscript has been awarded the Hans Raupach 2018 Award by the Leibniz Institute for East and Southeast European Studies Economics Department, best paper award at the final conference of the EU Horizon 2020 Twinning project H2020-TWINN-2015-692191-SmartEIZ, and was also presented at the DRUID2018 conference in Copenhagen in June 2018. The views expressed in this paper are solely of the authors and do not represent the views of the either of two projects.

References

  1. Abadie, A., & Imbens, G. W. (2008). On the failure of the bootstrap for matching estimators. Econometrica, 76(6), 1537–1557.  https://doi.org/10.3982/ECTA6474.Google Scholar
  2. Acevedo, G. L., & Tan, H. W. (Eds.). (2011). Impact evaluation of small and medium enterprise programs in Latin America and the Caribbean. Washington. D.C.: World Bank Publications.Google Scholar
  3. Afcha, S., & García-Quevedo, J. (2016). The impact of R&D subsidies on R&D employment composition. Industrial and Corporate Change, 25(6), 955–975.  https://doi.org/10.1093/icc/dtw008.Google Scholar
  4. Alperovych, Y., Hübner, G., & Lobet, F. (2015). How does governmental versus private venture capital backing affect a Firm's efficiency? Evidence from Belgium. Journal of Business Venturing, 30(4), 508–525.  https://doi.org/10.1016/j.jbusvent.2014.11.001.Google Scholar
  5. Aristei, D., Sterlacchini, A., & Venturini, F. (2017). Effectiveness of R&D subsidies during the crisis: Firm-level evidence across EU countries. Economics of Innovation and New Technology, 26(6), 554–573.  https://doi.org/10.1080/10438599.2016.1249543.Google Scholar
  6. Backman, M., Mellander, C., & Gabe, T. (2016). Effects of human capital on the growth and survival of Swedish businesses. Journal of Regional Analysis and Policy, 46(1), 22–38.Google Scholar
  7. Bertoni, F., & Tykvová, T. (2015). Does governmental venture capital spur invention and innovation? Evidence from young European biotech companies. Research Policy, 44(4), 925–935.  https://doi.org/10.1016/j.respol.2015.02.002.Google Scholar
  8. Bertoni, F., Martí, J., & Reverte, C. (2019). The impact of government-supported participative loans on the growth of entrepreneurial ventures. Research Policy, 48(1), 371–384.  https://doi.org/10.1016/j.respol.2018.09.006.Google Scholar
  9. Binks, M. R., Ennew, C. T., & Reed, G. V. (1992). Information asymmetries and the provision of finance to small firms. International Small Business Journal, 11(1), 35–46.  https://doi.org/10.1177/026624269201100103.Google Scholar
  10. Burger, A., & Rojec, M. (2018). Impotence of crisis-motivated subsidization of firms: The case of Slovenia. Eastern European Economics, 1–27.  https://doi.org/10.1080/00128775.2017.1416294.
  11. Butler, I., Galassi, G., & Ruffo, H. (2016). Public funding for startups in Argentina: An impact evaluation. Small Business Economics, 46(2), 295–309.  https://doi.org/10.1007/s11187-015-9684-7.Google Scholar
  12. Bruhn, M., Karlan, D. S., & Schoar, A. (2012). The Impact of Consulting Services on Small and Medium Enterprises: Evidence from a Randomized Trial in Mexico. Yale Economics Department Working Paper No. 100. http://dx.doi.org/10.2139/ssrn.2010710Google Scholar
  13. Caliendo, M., & Kopeinig, S. (2008). Some practical guidance for the implementation of propensity score matching. Journal of Economic Surveys, 22(1), 31–72.  https://doi.org/10.1111/j.1467-6419.2007.00527.x.Google Scholar
  14. Calvino, F., Criscuolo, C., & Menon, C. (2015). Cross-country evidence on start-up dynamics. In OECD science, technology and industry working papers, no. 2015/06. Paris: OECD Publishing.Google Scholar
  15. Chen, W. R. (2008). Determinants of firms’ backward- and forward-looking R&D search behavior. Organization Science, 19(4), 609–622.  https://doi.org/10.1287/orsc.1070.0320.Google Scholar
  16. Coad, A. (2018). Firm age: A survey. Journal of Evolutionary Economics, 28(1), 13–43.  https://doi.org/10.1007/s00191-016-0486-0.Google Scholar
  17. Colombo, M. G., & Grilli, L. (2005). Founders’ human capital and the growth of new technology-based firms: A competence-based view. Research Policy, 34(6), 795–816.  https://doi.org/10.1016/j.respol.2005.03.010.Google Scholar
  18. Colombo, M. G., Giannangeli, S., & Grilli, L. (2012). Public subsidies and the employment growth of high-tech start-ups: Assessing the impact of selective and automatic support schemes. Industrial and Corporate Change, 22(5), 1273–1314.  https://doi.org/10.1093/icc/dts037.Google Scholar
  19. Colombo, M. G., Piva, E., Quas, A., & Rossi-Lamastra, C. (2016). How high-tech entrepreneurial ventures cope with the global crisis: Changes in product innovation and internationalization strategies. Industry and Innovation, 23(7).  https://doi.org/10.1080/13662716.2016.1196438.
  20. Costa, S., Pappalardo, C., & Vicarelli, C. (2017). Internationalization choices and Italian firm performance during the crisis. Small Business Economics, 48(3), 753–769.  https://doi.org/10.1007/s11187-016-9799-5.Google Scholar
  21. Cowling, M. (2006). Early stage survival and growth. In S. C. Parker (Ed.), The life cycle of entrepreneurial ventures (pp. 479–506). NY: Springer.Google Scholar
  22. Crépon, B., & Duguet, E. (2003). Bank loans, start-up subsidies and the survival of the new firms: An econometric analysis at the entrepreneur level. SSRN Electronic Journal.  https://doi.org/10.2139/ssrn.421921.
  23. Cumming, D. J., Grilli, L., & Murtinu, S. (2017). Governmental and independent venture capital investments in Europe: A firm-level performance analysis. Journal of Corporate Finance, 42, 439–459.  https://doi.org/10.1016/j.jcorpfin.2014.10.016.Google Scholar
  24. Czarnitzki, D. (2006). Research and development in small and medium-sized enterprises: The role of financial constraints and public funding. Scottish Journal of Political Economy, 53(3), 335–357.  https://doi.org/10.1111/j.1467-9485.2006.00383.x.Google Scholar
  25. Czarnitzki, D., & Delanote, J. (2015). R&D policies for young SMEs: Input and output effects. Small Business Economics, 45(3), 465–485.  https://doi.org/10.1007/s11187-015-9661-1.Google Scholar
  26. Decramer, S., & Vanormelingen, S. (2016). The effectiveness of investment subsidies: Evidence from a regression discontinuity design. Small Business Economics, 47(4), 1007–1032.  https://doi.org/10.1007/s11187-016-9749-2.Google Scholar
  27. Désiage, L. J., Duhautois, R., & Redor, D. (2010). Do public subsidies have an impact on new firm survival? An empirical study with French data. SSRN Electronic Journal.  https://doi.org/10.2139/ssrn.1640560.
  28. Dimos, C., & Pugh, G. (2016). The effectiveness of R&D subsidies: A meta-regression analysis of the evaluation literature. Research Policy, 45(4), 797–815.  https://doi.org/10.1016/j.respol.2016.01.002.Google Scholar
  29. DiPrete, T. A., & Gangl, M. (2004). Assessing Bias in the estimation of causal effects: Rosenbaum bounds on matching estimators and instrumental variables estimation with imperfect instruments. Sociological Methodology, 34(1), 271–310.  https://doi.org/10.1111/j.0081-1750.2004.00154.x.Google Scholar
  30. Eddleston, K. A., Ladge, J. J., Mitteness, C., & Balachandra, L. (2016). Do you see what I see? Signaling effects of gender and firm characteristics on financing entrepreneurial ventures. Entrepreneurship Theory and Practice, 40(3), 489–514.  https://doi.org/10.1111/etap.12117.Google Scholar
  31. Evans, D. S., & Jovanovic, B. (1989). An estimated model of entrepreneurial choice under liquidity constraints. Journal of Political Economy, 97(4), 808–827.  https://doi.org/10.1086/261629.Google Scholar
  32. Forbes, D. P., Borchert, P. S., Zellmer-Bruhn, M. E., & Sapienza, H. J. (2006). Entrepreneurial team formation: An exploration of new member addition. Entrepreneurship Theory and Practice, 30(2), 225–248.  https://doi.org/10.1111/j.1540-6520.2006.00119.x.Google Scholar
  33. Galindo-Rueda, F., & Verger, F. (2016). OECD taxonomy of economic activities based on R&D intensity. Paris: OECD Publishing.Google Scholar
  34. García-Teruel, P. J., & Martínez-Solano, P. (2008). On the determinants of SME cash holdings: Evidence from Spain. Journal of Business Finance & Accounting, 35(1–2), 127–149.  https://doi.org/10.1111/j.1468-5957.2007.02022.x.Google Scholar
  35. Gilchrist, S., & Sim, J. W. (2007). Investment during the Korean financial crisis: A structural econometric analysis. NBER Working Paper No. w13315.  https://doi.org/10.3386/w13315
  36. González, X., & Pazó, C. (2008). Do public subsidies stimulate private R&D spending? Research Policy, 37(3), 371–389.  https://doi.org/10.1016/j.respol.2007.10.009.Google Scholar
  37. Grilli, L., & Murtinu, S. (2014). Government, venture capital and the growth of European high-tech entrepreneurial firms. Research Policy, 43(9), 1523–1543Google Scholar
  38. Guerini, M., & Quas, A. (2016). Governmental venture capital in Europe: Screening and certification. Journal of Business Venturing, 31(2), 175–195.  https://doi.org/10.1016/j.jbusvent.2015.10.001.Google Scholar
  39. Hall, B., & Maffioli, A. (2008). Evaluating the impact of technology development funds in emerging economies: Evidence from Latin America. European Journal of Development Research, Taylor and Francis Journals, 20(2), 172–198.  https://doi.org/10.3386/w13835.Google Scholar
  40. Heckman, J. J., Ichimura, H., & Todd, P. (1998). Matching as an econometric evaluation estimator. The Review of Economic Studies, 65(2), 261–294.  https://doi.org/10.1111/1467-937x.00044.Google Scholar
  41. Hsu, F.-M., Horng, D.-J., & Hsueh, C.-C. (2009). The effect of Government-sponsored R&D Programmes in additionality in recipient firms in Taiwan. Technovation, 29(3), 204–217.  https://doi.org/10.1016/j.technovation.2008.05.001.Google Scholar
  42. Huber, P., Oberhofer, H., & Pfaffermayr, M. (2017). Who creates jobs? Econometric modeling and evidence for Austrian firm level data. European Economic Review, 91, 57–71.  https://doi.org/10.1016/j.euroecorev.2016.09.008.Google Scholar
  43. Hud, M., & Hussinger, K. (2015). The impact of R&D subsidies during the crisis. Research Policy, 44(10), 1844–1855.  https://doi.org/10.1016/j.respol.2015.06.003.Google Scholar
  44. Huergo, E., & Trenado, M. (2010). The application for and the awarding of low-interest credits to finance R&D projects. Review of Industrial Organization, 37(3), 237–259.  https://doi.org/10.1007/s11151-010-9263-7.Google Scholar
  45. Koski, H., & Pajarinen, M. (2013). The role of business subsidies in job creation of start-ups, gazelles and incumbents. Small Business Economics, 41(1), 195–214.  https://doi.org/10.1007/s11187-012-9420-5.Google Scholar
  46. Lerner, J. (1999). The government as venture capitalist: The long-run impact of the SBIR program. The Journal of Private Equity, 72(3), 55–78.  https://doi.org/10.1086/209616.Google Scholar
  47. Lerner, J. (2009). Boulevard of broken dreams: why public efforts to boost entrepreneurship and venture capital have failed--and what to do about it. Princeton University PressGoogle Scholar
  48. Martí, J., & Quas, A. (2018). A beacon in the night: Government certification of SMEs towards banks. Small Business Economics, 50(2), 397–413.  https://doi.org/10.1007/s11187-016-9828-4.Google Scholar
  49. McKenzie, D. (2017). Identifying and spurring high-growth entrepreneurship: Experimental evidence from a business plan competition. American Economic Review, 107(8), 2278–2307.  https://doi.org/10.1257/aer.20151404.Google Scholar
  50. McKenzie, D., Assaf, N., & Cusolito, A. P. (2017). The additionality impact of a matching grant programme for small firms: Experimental evidence from Yemen. Journal of Development Effectiveness, 9(1), 1–14.  https://doi.org/10.1080/19439342.2016.1231703.Google Scholar
  51. Meuleman, M., & De Maeseneire, W. (2012). Do R&D subsidies affect SMEs’ access to external financing? Research Policy, 41(3), 580–591.  https://doi.org/10.1016/j.respol.2012.01.001.Google Scholar
  52. Michalek, J., Ciaian, P., & D’Artis, K. (2016). Investment crowding out: Firm-level evidence from northern Germany. Regional Studies, 50(9), 1579–1594.  https://doi.org/10.1080/00343404.2015.1044957.Google Scholar
  53. Musso, P., & Schiavo, S. (2008). The impact of financial constraints on firm survival and growth. Journal of Evolutionary Economics, 18(2), 135–149.  https://doi.org/10.1007/s00191-007-0087-z.Google Scholar
  54. Neicu, D., Teirlinck, P., & Kelchtermans, S. (2016). Dipping in the policy mix: do R&D subsidies foster behavioral additionality effects of R&D tax credits?. Economics of Innovation and New Technology, 25(3), 218-239. https://doi.org/10.1080/10438599.2015.1076192Google Scholar
  55. OECD, ETF, EU, EBRD, & SEECEL. (2016). SME Policy Index: Western Balkans and Turkey 2016. Assessing the Implementation of the Small Business Act for Europe. Paris.  https://doi.org/10.1787/9789264254473-en
  56. Pellegrini, G., & Muccigrosso, T. (2017). Do subsidized new firms survive longer? Evidence from a counterfactual approach. Regional Studies, 51(10), 1483–1493.  https://doi.org/10.1080/00343404.2016.1190814.Google Scholar
  57. Pfeiffer, F., & Reize, F. (2000). Business start-ups by the unemployed—An econometric analysis based on firm data. Labour Economics, 7(5), 629–663.  https://doi.org/10.1016/s0927-5371(00)00016-6.Google Scholar
  58. Rosenbaum, P. R. (2002). Observational studies. In Observational studies (pp. 1–17). New York, NY: Springer.Google Scholar
  59. Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55.  https://doi.org/10.1093/biomet/70.1.41.Google Scholar
  60. Rubin, D. B. (1977). Assignment to treatment group on the basis of a covariate. Journal of Educational Statistics, 2(1), 1–26.  https://doi.org/10.2307/1164933.Google Scholar
  61. Segarra-Blasco, A., & Teruel, M. (2016). Application and success of R&D subsidies: What is the role of firm age? Industry and Innovation, 23(8), 713–733.  https://doi.org/10.1080/13662716.2016.1201649.Google Scholar
  62. Shane, S. (2009). Why encouraging more people to become entrepreneurs is bad public policy. Small Business Economics, 33(2), 141–149.  https://doi.org/10.1007/s11187-009-9215-5.Google Scholar
  63. Stucki, T. (2013). Success of start-up firms: The role of financial constraints. Industrial and Corporate Change, 23(1), 25–64.  https://doi.org/10.1093/icc/dtt008.Google Scholar
  64. Vitezic, V., Srhoj, S., & Peric, M. (2018). Investigating industry dynamics in a recessionary transition economy. South East European Journal of Economics and Business, 13(1), 43–67.  https://doi.org/10.2478/jeb-2018-0003.Google Scholar
  65. Wren, C., & Storey, D. J. (2002). Evaluating the effect of soft business support upon small firm performance. Oxford Economic Papers, 54(2), 334–365.  https://doi.org/10.1093/oep/54.2.334.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Economics and Business EconomicsUniversity of DubrovnikDubrovnikCroatia
  2. 2.The Institute of Economics, ZagrebZagrebCroatia

Personalised recommendations