Legal Form and Internationalization of Small and Medium-Sized Enterprises in the EU

Abstract

Promoting the internationalization of small and medium-sized enterprises (SMEs) plays a major role in the EU Commission’s policy regarding SMEs for some years now. To this end the Small Business Act proposed inter alia the introduction of a common, EU-wide applicable private limited legal form, the European Private Company (also known as Societas Privata Europaea). It should offer an inexpensive, flexible and easy to adopt uniform legal form for SMEs to assist them in doing business internationally.

The law and economics literature shows that limited liability legal form plays an important role in supporting entrepreneurial activities. However, so far, there are no empirical studies on the relationship between legal form and internationalization activities of SMEs. Our findings confirm the importance of providing low cost limited liability legal forms for SMEs and of supranational legal innovations like the European Private Company.

This paper tests empirically the relationship between legal form and internationalization of small and medium-sized enterprises (SMEs). Data are obtained from a representative, population weighted, sample of 9,480 European SMEs, carried out by the EU Commission in 2009. For some additional country-specific variables we use data from Eurostat and the World Bank. To test our hypotheses, we perform logistic regressions. Our findings confirm the positive impact of limited liability legal form on internationalization, independent of firm size effects. This also holds for different modes of internationalization (import, export, technological cooperation, being part of a subcontractor relationship, foreign direct investments). In addition, we control for company specific, market-related factors and institutional factors.

Keywords: Corporate Law and Regulation, Small and Medium-Sized Enterprises, EU Common Market

JEL Classification: F2, K2, L2