SME Policies as a Barrier to Growth of SMEs

         
Author Name TSURUTA Daisuke (Nihon University)
Creation Date/NO. March 2017 17-E-046
Research Project Study on Corporate Finance and Firm Dynamics
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First Draft: March 2017
Revised: July 2019

Abstract

We investigate whether firms have incentives to retain their status as small and medium enterprises (SMEs) to benefit from various SME policies. Using small business data from Japan, we show that firms are less likely to increase their registered capital in order to continue to satisfy the requirement for registered capital for SME status eligibility under the SME Basic Act. In addition, we find that, after the relaxation of this SME requirement under the Act, firms were more likely to increase their registered capital. When firms do not increase their registered capital in order to maintain their SME status, firm growth is impeded.