28

Research Article

International Journal of
Contemporary Financial Issues
1(1), pp. 28–38
2021 JEL: M20 General

Examining the Impact of Selling on Amazon

on the Revenue growth of MSEs in the US
Valeria Garcia

Abstract
The micro and small business sector has long been considered a critical source of employment
and development In the United States. Micro and small businesses (MSEs) are one of the effective
means of increasing the country's gross domestic product (GDP), reducing unemployment, and
fostering a thriving economic environment. Micro and Small-sized enterprises account for a large
amount items sold in Amazon shops. Amazon has developed a list of practical resources, tools,
and chances to assist small companies. It is hypothesized that small businesses that sell in Amazon
stores outperform those that do not sell in Amazon stores in terms of revenue growth. The
objective of this study is to check this hypothesis. The data came from micro and small businesses
(2-50 employees) in the United States. The data is balanced panel data of 139 micro and small
business for 2 years (n=139, t=2). This study used Fixed Effect (FE), and Random Effect (RE)
models. The results seem to support the hypothesis that selling on Amazon positively impacts the
revenue growth of SMEs. The findings of this study could be useful for SMEs owners in the United
States who wish to persist in the revenue growth of their businesses.

Keywords: Amazon, Panel data, Revenue growth, SMEs.

Introduction
Small businesses are a significant force in the US economy. This nation has about twenty-seven
million small companies, which account for over half of our gross domestic output (GDP) . Small
 29

firms, start-ups, and entrepreneurs are some of the most essential drivers of economic
development since they employ more than 90% of all workers and generate 60% to 80% of all
new employment yearly in any country. In 2018, the United States had 30.2 million small
enterprises, accounting for 99.9 percent of all firms and employing around 58.9 million people.
Women controlled 39% of small businesses, accounting for 8% of employment and generating 4.2
percent of revenue (Nwabueze, 2019) (Durst and Gerstlberger, 2021) (Sanfey and Milatovic,
2018). This is critical because, although large corporations may dominate the stock market, it is
small firms and startups that propel the economy forward.

There is no universally accepted definition of micro, small, medium, and big firms (Tarmidi, 2004).
The definition varies significantly across countries and even within countries, as is the case in the
United States. Despite the lack of a common definition, it is already pretty evident what each size
of business means operationally. The most often used size criteria describe small businesses as
those with fewer than ten or fifty workers and medium-sized businesses as those with fewer than
one hundred or two hundred and fifty employees. According to the industrial pyramid, each
economy has a small number of major firms, a greater number of medium-sized enterprises, and
a very large number of micro and small-scale enterprises (MSEs) (Tarmidi, 2004).

It is widely recognized that small businesses contribute to growth in many developed economies
(including the United States, Italy, Japan, and the "East Asian tigers") (Nichter and Goldmark,
2005). Small companies and their workers, with strong roots in their communities, are the engine
that powers the American economy, producing two out of every three new jobs and employing
about half of the country's private workforce (SBC, 2020).

Around 92 percent of enterprises in the United States are microbusinesses. The overwhelming
majority of small firms are microbusinesses, defined as those with less than five workers, including
the owner (prosperitynow.org). However, millions of small company owners struggle to attain
financial success, despite their sector expertise. Around 13 million microentrepreneurs make less
than $50,000 a year (prosperitynow.org).

size of firm Firms Establishments Employment ($1,000)

0-4*
3,598,185 3,603,935 5,940,248 251,757,114
5-9
998,953 1,010,467 6,570,776 235,546,762
10-14
399,765 416,026 4,676,981 175,142,604
15-19
208,737 225,070 3,499,538 134,781,841
20-24
129,091 145,621 2,814,173 109,132,382
 30

25-29
86,669 101,447 2,324,084 91,820,453
30-34
62,287 76,893 1,983,728 79,896,490
35-39
46,685 60,663 1,720,158 69,595,208
40-49
66,428 92,081 2,927,556 122,043,886

Source: U.S. Small Business Administration, Office of Advocacy, based on data provided by the
U.S. Census Bureau, Statistics of U.S. Business and Nonemployer Statistics.

By 2020, the number of small enterprises in the United States will reach 31.7 million, accounting
for almost all (99.9 percent) of all firms in the country. This is also indicative of persistent growth,
since it represents a rise of 3.15 percent over the previous year and a 7.09 percent gain for the
three-year period from 2017 to 2020.

Small companies play a critical role in fostering innovation that results in job creation and
economic progress. Indeed, they generate 16 times the number of patents per person as major
firms and institutions and employ roughly 40% of all scientists and engineers in the United States.
Federal agencies collaborate with creative small companies to accomplish critical government
research and development goals via the Small Business Innovation Research (SBIR) and Small
Business Technology Transfer (STTR) programs (Pattni, Saladino and Brown, 2020). Each year, the
federal government awards more than $2 billion in SBIR and STTR grants to small enterprises. SBIR
was extended for another five years in 2016.

Amazon has made its virtual shelf space accessible to small and medium-sized businesses (SMBs)
since 2000, enabling them to reach hundreds of millions of consumers, create their brands, and
expand their businesses. Amazon invests in logistics, technologies, services, programs, and people
to help our SMB sellers flourish. As a consequence, both vendors and consumers continue to
benefit. SMB items now account for more than half of all units sold in our online shops, and their
sales continue to outperform those from third parties.

Amazon enables anybody with a good product idea to sell to consumers and companies
worldwide (Yang et al., 2018). Amazon gives detailed coaching and training to assist sellers in
listing their items and establishing a company. Amazon's New Seller Success team assists new
sellers in launching their items in our store and prepares a customized strategy to match their
unique requirements. Sellers may choose between two selling plans depending on the number of
things they want to sell each month: individual or professional. After selecting a selling plan,
merchants supply Amazon with information about their company, identification, and payment
method, which Amazon verifies. Once completely verified, authorized, and registered, sellers
 31

have access to Seller Central and the Amazon Seller mobile app, which serve as gateways to their
Amazon company and make account management simple (Sikdar, Kadiyali and Hooker, 2019).

After registering with Amazon, sellers have access to Seller Central and the Amazon Seller mobile
app, which serve as the primary tools for selling on Amazon (Rodriguez, Watson and Piccoli, 2020).
Sellers may manage their Amazon businesses, including adding product information, updating
inventory, managing pricing, and locating useful resources to assist them operate their Amazon
businesses. Sellers utilize the Amazon Seller mobile app to manage sales, fulfill orders, identify
things to sell, reply to customer inquiries, and shoot and edit professional-quality product images.
Sellers may automate their company processes using the Selling Partner APIs and the Selling
Partner app store by connecting with other software programs and third-party solutions (Thierry
and Lescop, 2009).

Research Hypothesis
Based on the observation provided in the introduction section, this research aims to test the
following hypothesis:

Null hypothesis, H0: Selling on Amazon online marketplace does not lead to revenue growth for
micro and small business

Alternative hypothesis, H0: Selling on Amazon online marketplace leads to revenue growth for
micro and small business

Methodology
The study aim is accomplished via the use of panel data methodologies. There are substantial
benefits to fully exploiting this rich structure provided we have access to a panel of data (Chen,
2021). To begin, and perhaps most importantly, panel data allows us to cover a greater variety of
issues and solve more complex problems than is possible with just time series or cross-sectional
data. Second, it is usually fascinating to analyze the dynamic changes in variables or their
interactions (over time). To do this with pure time series data, it is sometimes essential to run the
data for a lengthy period of time in order to collect enough observations to perform any
meaningful hypothesis testing (Torres-Reyna, 2007). By combining cross sectional and time series
data, however, one may increase the degree of freedom and hence the strength of the test by
concurrently adding information about the dynamic behavior of a large number of entities.
Additionally, the increased variance introduced by this method may help relieve multicollinearity
concerns that might arise when time series are simulated independently. Third, as will be shown
below, by structuring the model effectively, one may avoid the influence of certain kinds of
missing variables on regression conclusions.
 32

Panel estimator techniques fall into two broad groups in empirical research: Fixed Effects (FE)
models and Random Effects (RE) models (Torres-Reyna, 2007). The simplest forms of fixed effects
models allow for cross-sectional fluctuation in the intercept but not longitudinal variation, but all
slope estimates are fixed cross-sectionally and longitudinally. While this technique is
unquestionably more sparing than SUR models (which need estimate of (N + k) parameters), it
still requires estimation of (N + k) parameters (Torres-Reyna, 2007) (Bell and Jones, 2015).

The fixed-effect paradigm assumes that the real effect size is constant across studies and that the
sole source of effect size variance is sampling error (error in estimating the effect size). As a
consequence, while weighing the different studies, we may effectively discard information from
smaller studies if we have more information on the same effect size from bigger studies (Park,
2010). (Atieh, 2021a) (Atieh, 2021b) (Atieh, 2021c) (AlTwaijiry, 2020b) (AlTwaijiry, 2020a)
(Abdelmaged, 2021) (Singh and Atta, 2021) (Garcia, 2021a) (Garcia, 2021b)

In contrast, the random-effects model's objective is to estimate the mean of a distribution of

effects, not a single observed impact. Due to the fact that each research reports a unique effect
size, it is necessary to verify that the summary estimate incorporates all of these effect sizes.

We utilized the model by to quantify the effect of cloud computing on the operational
expenditures of healthcare centers

𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑖𝑡
= 𝛼 + 𝜷𝟏 𝑨𝒎𝒂𝒛𝒐𝒏𝒊𝒕 + 𝛽2 𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛𝑖𝑡
+ 𝛽3 𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑡 + 𝛽4 𝐸𝑑𝑢𝑐𝑎𝑡𝑖𝑜𝑛𝑖𝑡
+ 𝛽5 𝐸𝑥𝑝𝑒𝑟𝑖𝑒𝑛𝑐𝑒𝑖𝑡 + 𝛽6 𝐹𝑖𝑛𝑎𝑛𝑐𝑒𝑖𝑡
+ 𝛽7 𝐿𝑜𝑐𝑎𝑡𝑖𝑜𝑛𝑖𝑡 + 𝛽8 𝐴𝑔𝑒𝑖𝑡 + 𝛽9 𝐵𝑎𝑐𝑘𝑔𝑟𝑜𝑢𝑛𝑑𝑖𝑡
+ 𝛽10 𝐺𝑒𝑛𝑑𝑒𝑟𝑖𝑡 + 𝜖
Were, i indicates business and t indicates year. α denotes intercept and all the betas from β1 to
β10 represent slope coefficients.

SL Variables Type Description

1 Revenue Continuous, Dependent Total revenue in a year t, for business i
2 Amazon Dummy, independent 0= not selling on Amazon, 1=Selling on
amazon
3 Competition Dummy, independent 0=low competition, 1=high competition
 33

4 Duration Continuous, independent Age of the business in years

5 Education Continuous, independent Education level of business owners
6 Experience Continuous, independent Experience of business owners measured
in years
7 Finance Dummy, independent 0= own, 1=credit institution
8 Location Dummy, independent 0= not near the main road, 1= near the
main road
9 Age Continuous, independent Age of the business owner
10 Background Dummy, independent Family business background; 0=no , 1=
yes
11 Gender Dummy, independent Gender of the business owners, 0=
female, 1= male

Results

Stacked data for revenue and selling on Amazon

18
16
14
12
10
8
6
4
2
0
51

241
1
11
21
31
41

61
71
81
91
101
111
121
131
141
151
161
171
181
191
201
211
221
231

251
261
271

REVENUE AMAZON

Dependent Variable: REVENUE

Method: Panel Least Squares
Date: 11/28/21 Time: 03:43
Sample: 2017 2018
Periods included: 2
Cross-sections included: 139
 34

Total panel (balanced) observations: 278

Variable Coefficient Std. Error t-Statistic Prob.

AMAZON 0.957884 0.051532 18.58828 0.0000

COMPETITION -1.027362 0.047765 -21.50848 0.0000
DURATION 1.007130 0.008303 121.2916 0.0000
EDUCATION 0.935655 0.034479 27.13729 0.0000
EXPERIENCE 1.025356 0.053227 19.26391 0.0000
FINANCE 0.997134 0.049510 20.14022 0.0000
LOCATION 1.038953 0.048997 21.20456 0.0000
AGE -0.001645 0.002592 -0.634734 0.5267
BACKGROUND 0.018878 0.052243 0.361349 0.7184
GENDER -0.005385 0.048877 -0.110166 0.9124
C 0.607331 0.142340 4.266775 0.0000

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.995696 Mean dependent var 8.600025

Adjusted R-squared 0.990759 S.D. dependent var 2.994568
S.E. of regression 0.287873 Akaike info criterion 0.651542
Sum squared resid 10.69038 Schwarz criterion 2.595843
Log likelihood 58.43563 Hannan-Quinn criter. 1.431581
F-statistic 201.6555 Durbin-Watson stat 3.971429
Prob(F-statistic) 0.000000

The table above summarizes the findings of the Fixed effect model. The model seems to be well-
fit with an R-squared of 0.99. The t-statistics and accompanying values suggest that all variables,
are significant.

Dependent Variable: REVENUE

Method: Panel EGLS (Cross-section random effects)
Date: 11/28/21 Time: 03:44
Sample: 2017 2018
Periods included: 2
Cross-sections included: 139
Total panel (balanced) observations: 278
Swamy and Arora estimator of component variances

Variable Coefficient Std. Error t-Statistic Prob.

AMAZON 0.966577 0.034899 27.69643 0.0000

COMPETITION -0.999114 0.035803 -27.90595 0.0000
DURATION 1.002373 0.006311 158.8366 0.0000
EDUCATION 0.991676 0.021853 45.37922 0.0000
 35

EXPERIENCE 1.012722 0.035015 28.92225 0.0000

FINANCE 0.944282 0.035193 26.83167 0.0000
LOCATION 1.053443 0.035036 30.06749 0.0000
AGE -0.002503 0.001921 -1.302728 0.1938
BACKGROUND -0.038986 0.035174 -1.108379 0.2687
GENDER 0.020531 0.035050 0.585777 0.5585
C 0.629849 0.102775 6.128405 0.0000

Effects Specification
S.D. Rho

Cross-section random 0.000000 0.0000

Period fixed (dummy variables)
Idiosyncratic random 0.288768 1.0000

Weighted Statistics

R-squared 0.991387 Mean dependent var 8.600025

Adjusted R-squared 0.991030 S.D. dependent var 2.994568
S.E. of regression 0.283608 Sum squared resid 21.39530
F-statistic 2783.311 Durbin-Watson stat 2.084680
Prob(F-statistic) 0.000000

Unweighted Statistics

R-squared 0.991387 Mean dependent var 8.600025

Sum squared resid 21.39530 Durbin-Watson stat 2.084680

Additionally, the Random effect model produces comparable findings. The Random effect model's
findings are summarized in table above. With an R-squared of 0.99, the model looks to be well-
fit. The t-statistics and associated values indicate that all variables, except Age, Background, and
Gender, are significant.
 36

16

12

.6 4
.4
0
.2

.0

-.2

-.4

-.6
11 - 17
16 - 17
21 - 17
26 - 17
31 - 17
36 - 17
41 - 17
46 - 17
51 - 17
56 - 17
61 - 17
66 - 17
71 - 17
76 - 17
81 - 17
86 - 17
91 - 17
96 - 17
101 - 17
106 - 17
111 - 17
116 - 17
121 - 17
126 - 17
131 - 17
136 - 17
1 - 17
6 - 17

Residual Actual Fitted

Conclusion
MSEs are defined by the fact that they are either family enterprises or are managed by the
owners, and so their success or failure is determined largely by the entrepreneurial and
management talents of the owners. They are often tiny because their attitude, educational
background, and drive for seeking new chances are lacking, and they lack access to technology
and low-cost finance. That is why micro, small, and medium-sized firms need more care than
medium- or large-sized enterprises. Amazon continues to provide small companies significant
chances to expand their client base, increase sales and profitability, and create decent
employment. Our findings indicate that micro and small businesses can generate significant
revenue through selling on Amazon online marketplace.

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