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SME policies as a barrier to growth of SMEs

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  • Daisuke Tsuruta

    (Nihon University)

Abstract

We investigate whether firms have incentives to retain their status as small and medium enterprises (SMEs) to benefit from various SME policies. To examine this issue, we use the exogenous changes in the SME Basic Act in Japan. The SME Basic Act describes aims of SME policies in Japan, which involve enhancing the growth of SMEs using policy. The Act also contains the requirements and definitions of SMEs that are the target of the policies. Only firms that satisfy the definitions of SMEs under the SME Basic Act can participate in the SME policy programs in Japan. The requirements regarding capital stock in the SME Basic Act were changed in 1999. By focusing on the change in the requirements for capital stock as an exogenous event, we show that firms are less likely to increase their capital stock so that they can continue to satisfy the requirements that retain their status as SMEs. Furthermore, firms that increase their capital stock increase their size. As firms have a disincentive to increase capital stock so that they can keep their SME status, this indicates that the SME requirements are significant constraints on firm growth. Many studies show that individual SME policies (such as R&D subsidies and public credit guarantees) stimulate firm growth and activities that are consistent with the aim of these SME policies. Although the purpose of the SME Basic Act is the enhancement of the growth of SMEs, we show that the requirements under this law impede the growth of SMEs.

Suggested Citation

  • Daisuke Tsuruta, 2020. "SME policies as a barrier to growth of SMEs," Small Business Economics, Springer, vol. 54(4), pages 1067-1106, April.
    • Handle: RePEc:kap:sbusec:v:54:y:2020:i:4:d:10.1007_s11187-018-0119-0
    DOI: 10.1007/s11187-018-0119-0
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    Cited by:

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    3. DaEun Kim & Sungchan Yeom & Myeong Chul Ko, 2020. "The Interactive Effect of Government Financial Support and Firms’ Innovative Efforts on Company Growth: A Focus on Climate-Tech SMEs in Korea," Sustainability, MDPI, vol. 12(22), pages 1-12, November.
    4. Sergio Ochoa Jiménez & Alma Rocío García García & Beatriz Alicia Leyva Osuna & Sacnicté Valdez del Río, 2021. "Entrepreneurial Behavior of SMEs and Characteristics of the Managers of Northwest Mexico," Social Sciences, MDPI, vol. 10(1), pages 1-15, January.
    5. Wei Cui & Mengying Wei & Weisi Xie & Jing Xing, 2021. "Corporate Tax Cuts for Small Firms: What Do Firms Do?," CESifo Working Paper Series 9389, CESifo.
    6. KG Suresh & Akanksha Saxena & M. Srikanth, 2023. "Comparing Financial Debt Choices of Existing and New SMEs in Indian Manufacturing Sector," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(3), pages 445-456, September.
    7. Kaoru Hosono & Masaki Hotei & Daisuke Miyakawa, 2023. "Causal effects of a tax incentive on SME capital investment," Small Business Economics, Springer, vol. 61(2), pages 539-557, August.
    8. A‐Reum Jung & Do‐Jin Jung, 2022. "The effects of size‐dependent policy on the sales distortion reporting: Focusing on the discretionary sales management of Korean SMEs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 301-320, March.
    9. Desiderio Romero-Jordán & Ismael Sanz-Labrador & José Félix Sanz-Sanz, 2020. "Is the corporation tax a barrier to productivity growth?," Small Business Economics, Springer, vol. 55(1), pages 23-38, June.
    10. Kamila Urbanska & Agnieszka Parkitna & Joanna Kubicka, 2021. "Success of SMEs in the Era of Pandemics," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 407-423.
    11. Mariana Colacelli & Mr. Gee Hee Hong, 2019. "Productivity Drag from Small and Medium-Sized Enterprises in Japan," IMF Working Papers 2019/137, International Monetary Fund.
    12. Randall Jones & Yosuke Jin, 2017. "Boosting productivity for inclusive growth in Japan," OECD Economics Department Working Papers 1414, OECD Publishing.

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    More about this item

    Keywords

    SME policy; Firm growth; Equity capital; Small businesses;
    All these keywords.

    JEL classification:

    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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