Are Small Business Groups an Organizational Strategy that Promotes Growth? Evidence from French SMEs

Abstract

This paper investigates whether small business groups (SBGs) represent an organizational strategy that promotes growth. We explore empirically this issue using a unique data set on French small businesses ownership. We investigate whether SBGs represent an efficient response to market imperfections faced by small businesses. We explore two alternative hypotheses. First, SBGs may promote growth because SBG internal capital markets increase capital allocation efficiency. Second, SBGs may use their internal capital market for mutual insurance, which improves their access to external financing, and ultimately favor their dynamism. Our results show that grouping small businesses promotes small businesses development, because SBGs improve capital allocation. Finally, accounting for SBG diversification strategies does not affect the results.

Keywords: Internal capital market, Efficiency, Mutual insurance, Small business, Growth