Managing Risk in the Formative Years: Evidence from Small European Firms

Thursday, October 31, 2013 ( 2:00 pm to 3:00 pm )

Location: Babbio Center 430

Nicholas S. Vonortas, Professor,
Center for International Science and Technology Policy & Department of Economics,
The George Washington University

A well-developed literature on project risk management is accompanied by much less systematic evidence on risk management at the organization level.  This experimental paper empirically investigates aspects of risk management in young small enterprises.  We use a new dataset on several thousands small businesses in their “formative age” (2-7 years old) in ten European countries and eighteen sectors. Firms across all types of sectors use internal risk mitigation strategies to manage unsystematic risks, including technology risk and operational risk. Systematic risks either are managed by tapping formal and informal networks (financial risk) or they seem less amenable to internal management action (market risk). Formal network participation (strategic alliances) is a strategy cutting across all kinds of risk with the exception of operations risk. Firms operating in knowledge-intensive sectors (high-tech manufacturing and KIBS) engage in risk management activities more extensively. Firms led by more educated entrepreneurs and/or operating in demanding volatile markets tend to network more and to use internal strategies to mitigate risk more extensively. Governments trying to assist small firms overcome their limitations may be placing too much emphasis on unsystematic (technology) risks whereas it is the systematic risks that firms find more difficult to handle.

Nicholas Vonortas is Professor of Economics and International Affairs at the George Washington University (GW) in Washington D.C. He is a faculty member of the Department of Economics and of the Center for International Science and Technology Policy (CISTP). He has served for several years as the Director of both the CISTP and of the graduate program in International Science and Technology Policy at GW.

Professor Vonortas’ teaching and research interests are in industrial organization, in the economics of technological change, and in science and technology policy. He specializes on strategic partnerships, innovation networks, the theory of investment under uncertainty, technology transfer, technology and innovation policy, and the appraisal of the economic returns of research and development (R&D) programs. He is currently the co-editor of the international peer-reviewed journal Science and Public Policy.

He holds a Ph.D. and a M.Phil. in Economics from New York University (USA), a MA in Economic Development from Leicester University (UK), and a BA in Economics from the University of Athens (Greece). for more information