Douglas Cumming is an Associate Professor in Finance and Entrepreneurship at the Schulich School of Business, York University.
Eileen Fischer is a Professor of Marketing at the Schulich School of Business, York University.
In both developed and developing countries, governments are interested in fostering entrepreneurial activity in their economies. And increasingly, public policy makers are distinguishing between supporting entrepreneurial activity versus supporting small and medium sized enterprises (SMEs) more broadly defined. Various types of ambitious and costly initiatives have been implemented with the goal of supporting entrepreneurial activity. These range from the creation of business incubators or science parks to the financing of entrepreneurial ventures by government backed programs to the fostering of business clusters. The efficacy of such programs for achieving entrepreneurial outcomes is yet to be determined: available evidence to date yields mixed findings in support of a link between many initiatives and entrepreneurial outcomes, and suggest that costs to taxpayers outweigh benefits. This raises the question of whether there are forms of government support that foster entrepreneurial performance, and that do so cost-effectively. The goal of this paper is to consider whether business advisory services can be conducive to entrepreneurial outcomes, and whether they can be cost-effective.
Business advisory services (also often referred to as coaching) are one of the most ubiquitous and persistent forms of government support. Partially or fully publicly funded advisory services are continuously undertaken in nearly every developed country. Given how long many of these programs have been in existence, it is not surprising that most have their origins in public policy goals of supporting SMEs, rather in helping to foster entrepreneurial activity per se. This is reflected in the name and purported targets of programs in many countries. For example, in the United States, “Small Business Development Centers (SBDCs) provide management assistance to current and prospective small businesses” (http://www.sba.gov/services/counseling/index.html; italics added). The emergence of business advisory services targeted toward SMEs has been traced to the 1960s; the provision of such advising grew out of extension services provided by governments to farmers.
As public policy has shifted toward fostering entrepreneurial outcomes, the hope that publicly funded business advisory services can foster entrepreneurial performance (versus the partially overlapping goal of supporting SMEs) has become apparent. This is reflected in part in the target markets for such services. For example, the government of Ontario describes the target of its business advisory services as follows: “The Ontario government has Business Advisors in regional offices who provide consulting services to Ontario's innovative, SME growth firms” (http://www.canadabusiness.ca/servlet/ContentServer?cid=1085667965904&lang=en&pagename=CBSC_ON%2Fdisplay&c=Services). While SMEs are mentioned, it seems clear that in Ontario, at least, the emphasis is not on serving all SMEs, but rather on advising those that are oriented toward innovation and growth, that is, toward entrepreneurial outcomes.
In the current study, our question is whether publicly funded advisory services can in fact help to foster entrepreneurial outcomes for businesses when they are targeted toward the subset of SMEs that are growth and innovation oriented. An equally important consideration is whether such services can be provided cost effectively. Based on a sample of 228 firms, of which 101 used business advisory services in the Province of Ontario, Canada, we examine the firm-level impact such services can have on sales growth, innovation, angel equity finance and alliances. We find services are positively associated with firms’ sales growth, patents, angel equity finance and alliances. We assess statistical and economic significance, and assess robustness to controls for the non-randomness of the firm’s matching with the business advisory service program, as well as endogeneity of advisors’ hours spent with firms, among other robustness checks. We find significant robustness of hours spent on sales and angel equity finance, but sensitivity of the effect of hours on patents and alliances after controlling for endogeneity.
The complete study can be downloaded from: http://ssrn.com/abstract=1484891