11/8/2011 1:59:06 PM By
The Washington Post
has a nice piece online today examining some of the claims and counter-claims about how small business owners would be impacted by tax increases on those earning more than a million dollars. The Post is correct in its suggestion that the more narrow interpretation of the data is the better one. Indeed, it's not surprising that if one is looking at millionaires that the vast majority have some ownership in a business of some sort. When you have that much money you have to park it somewhere to make a return and owning a business seems a natural place (in the given data it's impossible to make attributions about how the millionaires made their money as none of the analysis is really longitudinal). If you aren't looking at where they are also investing their time in running a business then you would be creating a group of people who is dominated by investors and not business operators. While this might be something which is helpful in talking about angel investors, it's probably not a good characterization of the question being posed.
One piece we released last year is relevant to this discussion but has not been picked up by many in the mainstream discussion. Business Owners, Financial Risk, and Wealth
uses the Survey of Consumer Finance to examine how business owners appears similar and different to other groups in their wealth and risk preferences. It shows that in most ways business owners (defined even more conservatively than the Post
article suggests) are conservative in many of their borrowing and savings patterns but more likely to assume risk for return. The study concludes: "The results suggest that policies aimed at increasing business ownership should focus on helping households identify high-value business opportunities through transparent tax, legal, and regulatory systems. Efforts to reduce risk should focus on the business venture, such as full loss offsets, rather than focusing on reductions in other financial risks." Worth a read for those following this debate.
9/19/2011 7:58:50 AM By
In studying entrepreneurship, one typically has to make a choice of orientations – to study through the business, to study through the household, or to study through an intermediary (like a venture capital fund). Most of the time, I deal with data that comes from the business, like with the Kauffman Firm Survey
, but this week I will be offering three posts on recent data updates that have been looking at entrepreneurship through household surveys. Household surveys as a mechanism for studying entrepreneurship commonly measure self-employment as a means of quantifying individual-level entrepreneurial activities. Self-employment is convenient, although not typically ideal, in that it is somewhat internationally comparable and in most official statistics have included self-employment response options for years. Each household surveys I will focus on this week is extending beyond self-employment to offer new and different means of looking at entrepreneurship, still using household frames.
While I have blogged on the Federal Reserve’s Survey of Consumer Finance before (see summary of 2007
and 2010 changes
), I haven’t touched upon their efforts to create a panel of households. While I am sure the Fed has had the idea to do a household panel before (panel data is more helpful to many scholars/analysis), it is amazing what an impetus like the Crisis can do to take a concept and turn it into a reality. Their panel data will consist of 2 points in time as their 2007 respondents were resurveyed in 2009. To date, the Fed has only released a summary paper analyzing the 2007 SCF panel
. In this paper the Fed highlights the important role than changes in business equity, along with values of homes and stock, appear to have on driving household wealth.
The Fed has only done a portion of what could be done in looking into these topics with such rich data. But good news - they know this! From my conversations with the Fed, it appears they are likely to release a public-use data file for the panel data at some point in late 2011 or early 2012. This should be a very interesting file for researchers interested in examining financing activities during this Crisis period and quite unique among data available.
Additionally, I wanted to blog on this anticipated data opportunity as it fits well with a recent call for funding issued by the National Bureau of Economic Research. To my knowledge no other forthcoming data set presents such a ready-made opportunity for studying household financing with a details on business equity included that has a longitudinal component.
NBER Household Finance Working Group
Call for Research Proposals 2011
The Household Finance (HF) Working Group at the National Bureau of Economic Research aims to advance understanding of household financial behavior and to provide a firm foundation for related policy discussions. The working group defines household finance broadly, to include the many financial decisions made by households, including the financial functions of payments, saving and investing/portfolio-choice, borrowing/credit, and risk management, as well as related decisions by businesses and government.
In addition to sponsoring conferences that bring together the various researchers working on household finance, the working group seeks to promote new research in the field, especially by young researchers. To this end, through a generous grant from the Sloan Foundation, we can provide four to five research grants, of $10,000-$20,000 each, directly supporting household finance projects. These grants can be applied only to non-salary costs (e.g., travel, data, research assistants, etc). Applications are especially welcome from untenured faculty members and advanced doctoral students, and for projects that would eventually generate public data that could also be used by other researchers.
Applicants should submit: a research proposal not to exceed 2 pages; a 1-page itemized budget (e.g., travel, data, etc), with brief justification as appropriate; and their curriculum vitae. These
components should be complied into a single pdf file and emailed to Denis Healy at firstname.lastname@example.org, with "HF research grant" in the subject line.
In cases where a substantial part of a grant goes towards data collection or production, grantees will be encouraged to make the resulting data publicly available to the extent possible, e.g., without violating confidentiality agreements, and to briefly discuss this possibility in the proposal.
Applications from doctoral students should be accompanied by a one-page letter of recommendation from a senior researcher who is knowledgeable about the project (and ideally, but not necessarily, an NBER affiliate). This letter can be emailed separately to the above address, again with "HF research grant" in the subject line (or the letter writer can submit the entire proposal in one email).
The application deadline is October 17, 2011. Applicants will be notified by early December.
Grantees will be required to deliver a preliminary working paper by August 15, 2012, and should be prepared to present the resulting research at a subsequent working group meeting (in Fall 2012 or later), if selected by the conference organizers. A complete working paper will be due by December 1, 2012.
2/11/2011 6:03:58 AM By
On the heels of my posting earlier this week describing global trends in small business lending
, the U.S. has new national and state-level data available today
from the Small Business Administration. While I would like to say that this data is about "small businesses" I would reminder readers that really these are data about "small loans" (under $1,000,000) and really small loans (under $100,000). While this might be a proxy for small business lending, I don't think anyone can legitimately argue that it's a full representation of the reality. That said, it's the best we have in the U.S. currently. Arg.
The SBA is reporting a smaller decrease in all categories measured than was seen in 2008-9. But a decrease is still a decrease; it seems the mid-tier loans ($100,000-$1,000,000) continued to be the hardest hit. Specifically the study found "the smallest business loans under $100,000 began to stabilize in 2009-2010—the total was down by 1 percent...[overall] small business lending dropped by 6.2 percent, less than the 8.9 percent drop experienced in large firm lending over the 2009-2010 period."
One new feature of the SBA's website this year seems to be better automation of the data tables and information underlying the state-level data. I think this is something that many scholars studying state-level effects will have some interest in. The data still suffers greatly from the bias of not knowing where the businesses were located that received the loans. For example, Bank of America only shows up in the North Carolina data (from those spreadsheets I examined) since it's headquarters is there. Still, I like the increasing accessibility of this data from the SBA.
11/30/2009 9:00:00 AM By
After the crazy financial environment of the last year, consumer finance (or household financial usage) surveys appear to be increasing in popularity or frequency. The Federal Reserve Board of Governors made a really astute decision to refield their popular Survey of Consumer Finance, last done in 2007, but not to implement a new 2009 cohort but rather to go back to their respondents from 2007 and collected panel data on the finances of these households. And apparently, they have added in some logic to their questionnaire such that if a respondent was a business owner in 2007 but not in 2009 they will ask what happened to that business. This holds great potential in studing entrepreneurial households. Unfortunately, the sample sizes here are so small that it the utility of the data could be limited depending on incidence rates.
Additionally, the World Bank is considering some expanded work in this area that if approved could be quite exciting. Also from the World Bank, a recent paper highlights some methodological issues about collecting data on financial service usage:
11/18/2009 6:17:57 AM By
This morning a meeting convenes at the Treasury Department, as I understand currently, on the topic of increasing small business finance. This is a good thing. No, this is a great thing. For months we (through the leadership of Alicia Robb) have been tracking data available on small business financing in the United States and reporting that information into a project on the topic organized at the Organisation for Economic Co-operation and Development (OECD)
who has been trying to study data available in developed economies. Read the current scoreboard for the United States
But as happy as I am on this, I am very puzzled. It appears this meeting is taking place in the absence of topical experts on the subject. I can name on my fingers the people who know small business finance data in the U.S. (and internationally) and to my knowledge none of them have been invited to attend this session which is supposedly set to last six hours. We at Kauffman tried to get an invitation to support the nascent effort but had no success.
Interestingly, one of the headlines in today's New York Times is about a new Goldman Sachs program to promote small business loans and education
. This is an issue which has been building by all reports during the crisis but the data available on the topic are few. I hope that today's meeting at Treasury is the start of some leadership on the topic but I also hope any effort is somewhat transparent and brings in outside experts. The Small Business Administration had one expert in financial data, Charles Ou, and he retired this last year. Tapping into the insights of people like William Kerr and Ramana Nanda of Harvard who have a new scoping paper on financing entrepreneurship
will be important to collecting data which is helpful to policy and understanding of the topic, not just descriptive.
11/12/2009 9:00:00 AM By
Traci Mach and Arthur Kennickell at the Federal Reserve Board of Governors were nice enough to share with me a memo documenting the final questions
that will be used on the 2010 Survey of Consumer Finance
related to their expanded coverage of households with members who business owners. I've posted before on this topic, specifically pointing to a 2008 paper
that Traci and Arthur did on this subject and a more recent report after visiting Traci and Arthur
which is what actually led to this memo. Their memo is a nice complement to conference presentation from 2008 and gives us insight into some areas where their cognitive testing of the questions led to changes in proposed questions.
While their memo
speaks for itself, this is a blog and as such I can't resist sharing some of my reactions:
- Equity shares. Traci and Arthur highlight how difficult it is to determine equity allocations among different owners of a business, particularly when there are multiple owners within a household. We experienced similar difficulties when designing the Kauffman Firm Survey. Most business surveys don't get into equity financing, choosing to stay in the easier to ask about debt financing. While I think the approach put forth for the SCF makes sense and what we did in the Kauffman Firm Survey works well, equity is something which is often less delineated than most of us would expect. Who owns what, exactly, may not be fully articulated.
- Sales vs. income. Traci and Arthur discuss their surprise in how difficult it was for some small businesses to answer sales vs. income questions. This doesn't surprise me at all and is what has made me leery of business questions which try to be too simplistic. It's also a reminder to entrepreneurship scholars conducting their own survey work that they should be careful to ensure good definitions, clear questions, and keep things simple and detailed to ensure the responses they get are on the intended subjects.
- Collateralization and net worth of business. I've never seen a survey that asked about actual collateral used on loans or net worth of a business. I'll be very curious to see if they can get good responses here. I would be much more comfortable with getting some sort of administrative source of data for the collateralization question rather than a survey response but there are not great sources available here. I saw one source which Dun and Bradsteet reportedly sells but it was unclear to me on review if the source was reliable. And on the net worth of the business, this could be a potentially great question if answerable. I know we've been requested to add something similar to the Kauffman Firm Survey in the past but the whole idea of asking respondents a current value of their business if sold seems quite difficult conceptually.
- Really of use? There are some questions included here I just doubt will be useful, specifically about the sources of start-up capital and current year financing. Given the amount of space that the SCF has here, I know why the questions are as short as they are but really what use will the data be to know that the business owners used a certain source of capital without any info on amounts?
The SCF has tried admirably to expand into covering more on business ownership but the U.S. needs a separate survey focused on business financing to adequately address this complicated but important topic.
10/9/2009 8:58:52 AM By
Although there is little doubt that households have undergone incredible changes to their spending, investment, and other activities as a result of the current recession, data on this topic are not readily available. A new HNW/Forbes Wealth Pulse survey
gives insights into a hard-to-reach population but one of great interest - high-net worth individuals. It finds respondents who expect a recovery soon and see opportunity in the current economy to grow investments. Interestingly, it finds many millionaires are cutting back on charitable giving (28 percent) but even more (51 percent) plan to give as much or more to charity.
The Survey of Consumer Finance
(SCF), the Federal Reserve's seminal research product in this area, is only available through 2007 (and for every three-year period before that for several cycles). But, there is hope that in mid-2010 the Fed will have some information available on consumer finance in 2009. What the Fed has done, to the best of my current understanding, is to refield the SCF in 2009 on the same sample that it used in 2007. As such, they will be creating a short longitudinal panel of households which should allow for in-depth analysis of the effects of the current recession. This was a brilliant methodological move in my estimation but one that really should be a part of the ongoing design of the program. The next wave of the SCF will collect data on a new sample in 2010, and I believe in that wave forward, they plan to implement an intentional longitudinal design. This should prove very useful to researchers and policymakers in this area as we can actually examine the factors which appear to drive change at the microlevel. Incidentally, the SCF has an oversample of wealthy households (who are disproportionately households which own businesses) so some of what HNW/Forbes attempted to capture here will be possible to analyze in a more robust sample through the SCF.
7/21/2009 12:59:34 PM By
Reports out this morning from the official monitoring the Troubled Asset Relied Program for the U.S. Congress
highlight the difficulty of tracking the success of this program because of a lack of data. These reports reminded me of a recent presentation I sat through from Statistics Canada discussing two of their programs for monitoring lending to small businesses in Canada. A bit more background on the two projects as I understand them.
- Survey on Financing of Small and Medium Enterprises. Completed every three years, with most recent data available from 2007, this survey gets detailed business financing data from establishments. You can read much more on the details of sampling, etc.
- Survey of Suppliers of Business Financing. Completed on roughly the same cycle but gathering data from banks instead of businesses, this survey gets aggregate information on bank portfolios. Read more on the details.
What I found most interesting about hearing Statistics Canada talk about both collection efforts back-to-back was the informal comments that were given about the merits of collecting data from banks rather than businesses. As I remember, the comments basically alluded to the difficult time that Statistics Canada has of getting banks to provide data for their survey, even though the survey is mandatory under Canadian statutes. On the survey of businesses, they have a much easier time of getting the data, relatively, and have felt they are able to do more detailed manipulations with the data, providing richer outputs, and helping that program to have more stable funding support.
What I read into these stories is that banks hold a great deal of power in deciding who gets what information, even when the world is watching closely or statutes compel them to participate.
7/21/2009 11:42:39 AM By
Just a quick follow-up to a post on housing data
from a couple of weeks ago. I had a good call with Harriet Newburger
at the Federal Reserve Bank of Philadelphia (Department of Community Affairs) who was one of the organizers of the event. In her estimation the topic of entrepreneurship as it relates to housing data had not come up at the conference in question. Most of the focus of the event had been on getting better foreclosure data and they expect a summary publication in the coming months on the event. We both agreed this is an area that has great research potential given data coming from court records and other services on foreclosure and the opportunity to tie that public data into different data sets on businesses, although neither of us is aware of work underway in the area. Certainly in doing so, the distinction between how the housing crisis will affect self-employment would be a different topic than its relationship to employer businesses.
7/10/2009 5:33:00 AM By
What is the home to the entrepreneur? For many entrepreneurs, a home is more than where the heart is. It's where they operate their business or they at least have a home office. And for many the home is also a source of financial leverage as collateral on a loan or through something like a home equity line of credit.
I just ran across a recent Federal Reserve event I wish I had seen before it happened because it would have been nice to raise the importance of housing to entrepreneurship and need for better data: Understanding the Housing and Mortgage Markets: What Data Do We Have? What Data Do We Need? I haven't been able to locate any additional papers or documentation from the event yet but just the list of people looking at housing data issues is helpful. But this does cause us to pause and take stock of what data we are available of on entrepreneurs and how they utilize their homes?
From the National Federation of Independent Businesses (NFIB), we have a whole survey on the topic of Business Activity in the Home. A couple of highlights:
- About one in four (22%) employing businesses is principally located in the home or an associated structure and another 25 percent have a home office in their residence.
- Home-based businesses overwhelmingly employ fewer than 10 people. The principal location for 27 percent of businesses employing fewer than 10 is the home compared to 4 percent for those employing 20 or more.
Also from NFIB, which looks as small business owners, under 250 employees, we have some interesting leads on ownership of personal residence as well as mortgages taken out to promote business activities:
- Small business owners are heavily invested in real estate. Ninety-six (96) percent own their personal residence, 49 percent own all or part of the building and/or land on which their business sits (excluding the one-quarter who operate primarily from the home), and 41 percent own investment real estate, excluding their residence and business.
- Real estate, particularly home mortgages, is frequently used to finance or collateralize other business assets. Seventy-six (76) percent have at least one mortgage on the real estate they own with 13 percent having three or more mortgages, 22 percent having taken out at least one mortgage to finance business activities. Sixteen (16) percent use real estate to collateralize other business assets, including 10 percent who use their homes as collateral. About one in 10 (9%) own at least one currently upside-down property. The financial leverage homes provide businesses in a weak economy with declining real estate values is a matter of concern.
We know from the Kauffman Firm Survey, which examines new businesses in the United States, that "Nearly half of businesses started in the business
owner’s home or garage. Slightly more than 40 percent operated in rented or leased space, while the remainder operated at the site of a current client, or in a building or location bought by the business."
The Census Bureau's Survey of Business Owners gives us other insights, which seem to reinforce NFIB's survey, including that twenty-two percent of employer firms are home-based and fifty-eight percent of non-employer firms are home-based. They also have many industry breakdowns and other breakdowns by veteran or other demographic statuses.
Are you aware of other data on housing and entrepreneurship? Let us know. I am aware of at least two or three in-prcess research projects which are trying to statistically equate housing market changes with changes in entrepreneurship but to the extent I am aware of what the researchers plan, all of these projects are not using microdata.
Developing better data is part of Kauffman's long-term strategy for advancing better research and policy on entrepreneurship and innovation. Data Maven is place you can connect with new data developments, provide us feedback on possible new projects, and contribute to the community seeking to improve entrepreneurship and innovation measurement.
E.J. Reedy is a manager in Research and Policy at the Kauffman Foundation. Learn more ...