Research on
Entrepreneurial Finance:
How to Use the
Surveys of Small Business Finances
Rebel A. Cole
Departments of Finance and Real Estate
DePaul University
2010 Annual Meetings of the Financial Management Association
October 21st, 2010
What is the SSBF?
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Series of four nationally representative
surveys of U.S. small businesses.
Small business: nonfarm, nonfinancial firm
with fewer than 500 employees.
Cross-sectional snapshots as of 1987,
1993, 1998, 2003
Not exclusively entrepreneurial firms, but
covers both entrepreneurial and nonentrepreneurial firms.
Cole (2010)
Bank Credit, Trade Credit or No Credit
What is the SSBF?
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By looking at younger, faster growing
firms, you can segment the survey into
entrepreneurial and non-entrepreneurial
groups.
Broadly representative of about 5 million
predominantly privately held firms in each
year.
Very small number of publicly traded firms
that can easily be excluded from the
sample to target “privately held firms.”
Cole (2010)
Bank Credit, Trade Credit or No Credit
What is in the SSBFs?
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Data. LOTS of data.
Thousands of variables.
Major Sections:
• Governance/Ownership
• Inventory of Financial Services
• Most Recent Loan Application
• Trade Credit
• Balance Sheet and Income Statement
• Credit history of firm and owner
Cole (2010)
Using SSBFs for Research
What is in the SSBFs?
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1987:
1993:
1998:
2003:
3,404
4,637
3,561
4,240
obs.
obs.
obs.
obs.
/
/
/
/
3.2
4.9
5.1
6.0
million
million
million
million
Cole (2010)
Using SSBFs for Research
What is a sampling weight?
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Stratified random samples
• Stratified on
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Firm size: 0-19, 20-49, 50-99, 100-499
Urban/Rural
9 census regions
• Total of 72 sampling strata in 2003
Each firm is associated with a sampling
weight.
It is important to use the sampling
weights in your analysis.
Cole (2010)
Bank Credit, Trade Credit or No Credit
What is a sampling weight?
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Sampling weight = inverse of selection
probability.
1 out of 100 = 100 weight
1 out of 1,000 = 1,000 weight
In other words, how many firms in the
sampling frame does a particular sampled
firm represent?
Large firm oversampled: 100 weight
Small firm not oversampled: 1,000 weight
Cole (2010)
Bank Credit, Trade Credit or No Credit
What is imputation?
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Imputation is the process of filling in
missing information.
Each firm is asked to answer all of the
survey questions, but some cannot or will
not answer certain questions.
Without imputation, you would lose most
of your observations in multiple
regression.
Each variable has a shadow variable
indicating whether the value is reported or
imputed.
Cole (2010)
Bank Credit, Trade Credit or No Credit
What is multiple imputation?
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2003 SSBF is a multiply imputed survey
that provides 5 implicates.
Each implicate is identical for questions
answered by respondents.
Each implicate is slightly different for
questions not answered by respondents.
This enables you to adjust for the
variability introduced by the imputation
process.
Cole (2010)
Bank Credit, Trade Credit or No Credit
What is multiple imputation?
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In the 2003 SSBF, only about 1% of the
responses were imputed so, for most
variables, this is a non-issue.
You can test the robustness of your
results by rerunning your analysis with
each of the five implicates to see if
anything really changes.
If so, you might want to use survey
procedures that adjust for this problem.
Cole (2010)
Bank Credit, Trade Credit or No Credit
What is multiple imputation?
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DON’T run your analysis using all 21,200
observations in your analysis unless you
are using MI software.
There are only 4,240 firm observations.
DO use only one of the five implicates.
DO test for robustness by rerunning your
analysis using each implicate.
Cole (2010)
Bank Credit, Trade Credit or No Credit
What about the earlier SSBF?
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Unfortunately, there is only one implicate
for the 1987, 1993 and 1998 SSBFs.
And there percentage of values that were
imputed is much higher than for 2003.
Not much can be done about this problem.
Cole (2010)
Bank Credit, Trade Credit or No Credit
Can I pool the four SSBF?
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Sure, you can, but I have no idea how to
interpret your results if you do.
Samples are not independent. If you use
the sampling weights, you are doublecounting much of the sampling frame.
The 5 million firms in the 2003 frame are
largely the same as the 5 million firms in
the 1998 sampling frame, except for
births or deaths.
Good luck adjusting the weights!
Cole (2010)
Bank Credit, Trade Credit or No Credit
Can I pool the four SSBFs?
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Also, beware nuanced changes in the
variables across time.
Example: Most Recent Loan
• 1987, 1993: includes renewals of credit
lines but these are not identified
• 1998: excludes renewals of credit lines
• 2003: includes renewals of credit lines
and IDs new lines from renewals.
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Renewals are turned down at far lower rate.
Cole (2010)
Bank Credit, Trade Credit or No Credit
Best Thing about the SSBFs
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They’re FREE!!!
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http://www.federalreserve.gov/pubs/oss/oss3/nssbftoc.htm
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Codebooks
Methodology Reports
Questionnaires, and . . .
DATA!!!
Cole (2010)
Using SSBFs for Research
What can you do with the SSBFs?
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Importance of lending relationships
• Petersen and Rajan (JF 1994, QJE 1995)
• Berger and Udell (JB 1995)
• Cole (JBF 1998)
Lending by large and small banks:
• Cole, Golderg and White (JFQA 2004)
• Berger et al. (JFE 2005)
Cole (2010)
Using SSBFs for Research
What can you do with the SSBFs?
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Discrimination in SB credit market
• Race
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Cole (mimeo 1998)
Cavalluzo and Cavalluzo (JMCB 1998)
Cavalluzo et al. (JB 2002)
Blanchflower et al. (RESTAT 2003)
Blanchard, Zhou, Yinger (JUE 2008)
• Gender
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Cole and Mehran (mimeo 2009)
Cole (2010)
Using SSBFs for Research
What can you do with the SSBFs?
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Corporate Governance
• Agency costs and ownership structure
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Ang, Cole and Lin (JF 2000)
Bitler et al. (JF 2005)
• Executive compensation
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Cole and Mehran (mimeo 2009)
Capital Structure
• Cole (mimeo 2008)
Cole (2010)
Using SSBFs for Research
What can you do with the SSBFs?
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Trade Credit
• Rajan and Petersen (RFS 1997)
• Cole (mimeo 2010)
Cole (2010)
Using SSBFs for Research
Question?
THE END
Cole (2010)
Using SSBFs for Research