Government Support and the Characteristics of Small Firms

In this study we examine the relationship between government support for small businesses and firm characteristics. Does state or local government support attract certain types of small firms to an area? When we compare firm characteristics in states with high state government support scores versus in states with low state government support scores, we find significant differences in terms of firms’ ages, sizes, and industries. Our results show that there are more young firms, and firms with two to twenty employees in the high state government support states. We also find that there are fewer firms with only a single employee in the high state government support states. In addition, we find significant differences in terms of local sales. In high local government support states, a higher percentage of firms have 90 percent or more of their sales within fifty miles. These findings indicate that certain types of small firms are more concentrated in states with high state or local government support scores. Therefore, if a state or a city/town wants to attract certain types of small firms into its area, it can utilize the findings here when making its policy decisions.