The Peter Pan Syndrome : Does Public Support Make Small and Medium-Sized Enterprises Reluctant to Grow?

This paper investigates whether public support for small and medium-sized enterprises (SMEs) creates incentives for their reluctance to grow. Our main hypothesis is that SMEs have an incentive to hinder their growth as they approach SME eligibility thresholds beyond which public support ceases. We call this growth-averse behavior of SMEs the Peter Pan Syndrome. By analyzing a unique Korean Innovation Survey (KIS) dataset, we find that SMEs indeed exhibit the Peter Pan Syndrome and that the Peter Pan Syndrome intensifies as SMEs grow closer to the employment-size-contingent SME eligibility threshold and as they receive more public support. We also find that the likelihood of the Peter Pan Syndrome is conditioned by both firm- and industry-specific characteristics: The Peter Pan Syndrome is more likely for SMEs with low technological competence and for SMEs with low profitability. It is also more likely for SMEs operating in more competitive and less profitable industries