Understanding the firm-level effects of regulation on the growth of small and medium-sized enterprises

Abstract

Small and medium-sized enterprises (SMEs) represent an important part of the UK economy. The impact of regulation on these firms is important to understand, especially amid frequent claims that SMEs are disproportionately affected by regulatory costs and that regulation may hamper business growth. We searched major databases for relevant empirical research on the firm-level effects of regulation on SME growth. This search found that there is still very little firm-level empirical evidence of the effects regulation has on SME growth. While cutting red tape and bureaucracy is broadly welcomed as beneficial for business growth, there is very little evidence demonstrating how or when it impacts on SME growth at a firm level. It is necessary to fully understand these effects in terms of their dynamic, direct and indirect influences in order to appreciate both the ways in which they may constrain but also facilitate SME growth. Without this understanding, well-intentioned attempts to support these firms and growth-oriented owner-managers and entrepreneurs may be doomed to failure.