The impact of government financial support on the performance of new firms: the role of competitive advantage as an intermediate outcome

Albena Pergelova and Fernando Angulo-Ruiz

Entrepreneurship & Regional Development, 2014, vol. 26, issue 9-10, 663-705

Abstract: This research examines the influence of government financial support on new firms' performance. Extant empirical research on the topic has found mixed results, which warrants an exploration of the theoretical basis for the impact of support policies on new firms' performance. Grounding the theoretical model in the resource-based view and institutional theories, this study contends that performance outcomes - e.g. revenues or profits - should not be the first outcomes of public policies to be examined. Instead, competitive advantage formation is suggested as a link between support policies and new firms' performance. Using new firms from the USA, we examine the impact of government financial support measures - government loans, guarantees and government equity - on firms' overall competitive advantage and more specific types of competitive advantage based on innovation, licensing-in, marketing and human capital. Controlling for family funding, bank financing, equity of business angels and venture capitalists, industry, size as well as entrepreneur's characteristics, the results reveal that government guarantees and government equity have a direct effect on new firms' competitive advantage and only an indirect impact on performance. Our results suggest to policy-makers to focus on helping new firms build the necessary capabilities to compete successfully in the marketplace.

Date: 2014
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DOI: 10.1080/08985626.2014.980757

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