Government support programs for small and medium enterprises (SMEs) and regulations for large firms are all size-dependent policies. The purpose of this study is to evaluate the effectiveness of the SME definition and the small-scale reservation policy on SMEs' performance. This study intends to provide policy implications when designing the criteria for the SME support policy.

Chapter 1 introduces the criteria for defining SMEs and presents the distribution of firms according to the SME size categories. In Korea, SMEs account for over 99% of the total number of business enterprises, meaning that the definition of SMEs is broad enough to include most firms. There are numerous policy programs and tax benefits for SMEs in Korea and this chapter lists those support policies according to various size categories.

Considering all SME policies are size-dependent, Chapter 2 examines the effect of size-dependent policies overall, not of individual and specific policy, by analyzing changes in firm performances and employment with a change in the criteria used to categorize SMEs. We exploit the changes in the SME status of each individual firm by the change in the criteria to measure the effects. The result shows that the criteria change from the employment size categories into the turnover size categories has little impact on achieving the intended growth in employment. However, newly designated SMEs show significantly increased sales. This finding can be interpreted as indirect evidence of positive effects from tax benefits and support programs targeting SMEs, but further research is needed to find direct evidence. We also found that there is a significant decrease in sales per employee for the firms whose SME status is withdrawn, suggesting that there exists an incentive to maintain the status.

Chapter 3 demonstrates the economic effects of reservation policy for SMEs. Among an array of size-dependent policies, the reservation policy is one of the most restrictive policies since it directly regulates the entry and production activities of large enterprises for specific goods. The analysis demonstrates that although reserving certain markets may temporarily safeguard the SMEs producing the products, this effect is temporal and not beneficial to the industry's overall growth. The reservation policy may be of little use in securing the competitiveness of SMEs and can potentially exacerbate the misallocation of the resources among the enterprises within the economy. This study also points out that even in the markets not reserved for SMEs, investment incentives may shrink on the uncertainty that their production activities could be restricted at any time.

The findings of this study are consistent with recent studies arguing that the diverse distribution of firm characteristics such as productivity and size should be considered when designing SME policies. The overall productivity of an economy can increase when resource allocation shifts from low-productive firms to high-productive ones. In turn, it shows the need to check whether a policy operates against efficient resource allocation when examining the impact of a specific policy on the economy as a whole. Furthermore, this study is relevant to the field of measuring the effectiveness of SME policy by providing empirical analysis at enterprise or establishment levels.

Publisher's Note
Summary

Chapter 1: Policy Targets and Support Status by Enterprise Size
　1. 1: Research Objectives
　1. 2: Definition and Proportions of Enterprise Sizes
　1. 3: Support Policies by Enterprise Size
　References

Chapter 2: Effects and Implications of Revised Criteria for Small and Medium Enterprises (SMEs)
　2. 1: Introduction
　2. 2: Changes in SME Criteria in 2015
　2. 3: Overview of Previous Studies and Significance of this Study
　2. 4: Survey of Business Activities
　2. 5: Empirical Analysis Results
　2. 6: Conclusion

Chapter 3: Economic Effects of The SME-suitable Industry Designation Scheme
　3. 1: The SME-suitable Industry Designation Scheme and Previous Studies
　3. 2: Analysis of Suitable Industries
　3. 3: Impact of The SME-suitable Industry Designation Scheme on Business Performance
　3. 4: Impact of The SME-suitable Industry Designation Scheme on Industries
　3. 5: Conclusion and Implications
　References
　Appendix

Chapter 4: Conclusion
　References

Abstract