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Small Business Economics

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11-06-2019

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

Authors: Stjepan Srhoj, Bruno Škrinjarić, Sonja Radas

Published in: Small Business Economics | Issue 1/2021

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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.

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By this term we are referring to output growth (most often approximated by turnover growth and/or total revenue growth), labor growth or productivity growth (most often approximated by labor productivity and/or total factor productivity).

The policy basis for the programs can be found in the: Operational Plan for Development of Small and Medium Sized Enterprises (Government of the Republic of Croatia, 2008; 2009; 2010; 2011; indices: MINGORP – KLASA: 311–01/08–01/88; 311–01/09–01/05; 311–01/10–01/15; 311–01/10–01/393) and the Entrepreneurial Impulse – Entrepreneurship and Crafts Promotion Plan (Government of the Republic of Croatia, 2012; 2013; indices: MINPO – KLASA: 311–01/12–01/50; 311–01/13–01/04). These policies are in line with the Law for supporting the development of small businesses (NN 29/02; NN 63/07) and the Law of state support (NN 140/05).

Detailed description of these programs can be found in the Appendix A (Table 9).

All monetary values are expressed in Croatian kuna, HRK (1 EUR = 7.529 HRK, 2016 average).

Grant amount distribution in analyzed period is presented in Appendix A (Table 10).

Crafts report their income on the basis of the Income Tax Law (OG 177/2004), while limited liability firms are obliged to keep accounting books at a detailed level according to the Accounting Act, Croatian and International Financial Reporting Standards and International Accounting Standards.

Unless stated otherwise, all Figures and Tables in this paper are produced by authors themselves.

Table 4 is mentioned before Table 3 in text as it combines descriptive statistics of covariates both prior and after matching.

As robustness check, we also ran a several different Probit models: i) without synergetic effects of firm size and entrepreneurs’ age; ii) without entrepreneurship characteristics; iii) without liability measures; and iv) with aggregated liability measures. Using controls obtained this way does not make significant changes to our baseline results presented in Table 5 below. These results are available from authors upon request.

In addition to the three robustness checks, we also conducted matching procedure using single- and multiple-treated firms together. In addition to 222 single-treated firms, the new treated sample also included additional 58 firms that received a total of 149 grants in different years over the 2008–2013 time span. For those additional58 multiple-treated firms, we defined treatment as the first year firm received treatment. After matching and finding no statistically significant differences in all pre-treatment characteristics, (results are available upon request) we calculate the ATT (in Appendix A, Table 12). Results confirm the effect on survival in 2016 and growth in long-term bank loans. In addition, results show positive effect on sales growth (26.87% at t + 3) and employment growth (40.68% at t + 5), that are not found in the sample of single-treated firms only, pointing to the omitted variable bias stemming from the multiple treatment received.

Balancing property of placebo treated and control group show no statistically significant difference in means and are available upon request.

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Title: Bidding against the odds? The impact evaluation of grants for young micro and small firms during the recession
Authors: Stjepan Srhoj
Bruno Škrinjarić
Sonja Radas
Publication date: 11-06-2019
Publisher: Springer US
Published in: Small Business Economics / Issue 1/2021
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-019-00200-6

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