The Economic trends, challenges and behaviour of small businesses

Sam Nicholls, David Orsmond

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contribution


Small businesses make an important contribution to the Australian economy. They account for the vast majority of the active private businesses in the country and represent a large share of employment and value added. Small businesses, however, face many operational challenges and, as a consequence, typically have higher failure rates than larger businesses. While these features have been noted in previous literature, there has been little work examining how these challenges affect the business decisions of small businesses relative to those of larger businesses.

To address this question, this paper uses official and private sector data, as well as information gathered through the Reserve Bank of Australia's business liaison program. Section 2 first provides a summary of the characteristics of the Australian small business sector followed by the contribution small businesses make to the Australian economy, and Section 3 outlines the recent economic conditions faced by the sector. Section 4 then outlines the nature of the operational challenges the sector faces, drawing in particular on the Bank's discussions with small businesses. Finally, Section 5 uses panel data compiled by the Bank to examine econometrically whether, and if so how, small businesses' economic decisions and behaviour differ from those of larger firms. The results suggest that the drivers of smaller firms' current price, employment and investment decisions are generally not statistically different from larger firms, though this may in part reflect the large degree of heterogeneity in the small business sector. There is some evidence, however, that smaller businesses are less forward looking in making their economic decisions. Section 6 concludes.
Original languageEnglish
Title of host publicationSmall business conditions and finance
Subtitle of host publicationproceedings of a conference held in Sydney on 19-20 March 2015
EditorsAngus Moore, John Simon
Place of PublicationSydney
PublisherReserve Bank of Australia
Number of pages26
ISBN (Electronic)9780994209337
ISBN (Print)9780994209320
Publication statusPublished - 25 Aug 2015
Externally publishedYes
EventSmall business conditions and finance: the Reserve Bank of Australia's conference 2015 - Sydney
Duration: 19 Mar 201520 Mar 2015

Publication series

NameProceedings of a conference (Reserve Bank of Australia)
PublisherReserve Bank of Australia


ConferenceSmall business conditions and finance


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