ECU professors’ research aims to help small businesses

Two East Carolina University College of Business professors are working to create knowledge to empower small business owners and business brokers to make wiser and more fulfilling financial decisions. They said that with their latest research project, they are the first to do a large-scale study on small businesses and how economic uncertainty impacts small business exit valuations.

“We have always had an interest in topics that directly impact Main Street rather than Wall Street, but finance research has traditionally focused on publicly traded companies due to the availability of data,” said Dr. Connor Kasten, assistant professor in the Department of Finance. “With the support of the College of Business and the Department of Finance and Insurance, we were able to obtain small business acquisition data, which is something incredibly unique in our field.”

Kasten and Dr. Banks Osborne, assistant professor in the Department of Finance and Insurance, said the data allowed them to begin exploring the factors that impact the value of small businesses, which represent over 99% of all businesses in the United States. They specifically explored the impacts of economic policy uncertainty on small business exit transactions. While other studies look at these effects in public markets, they wanted to find out how uncertainty about the economy affects the value of small businesses, many of which have revenues of under $500,000.

Kasten and Osborne found that economic policy uncertainty negatively impacts the value of small businesses. Specifically, they learned that pronounced increases in uncertainty lead to a wealth loss of approximately $37,000 for the median firm in their sample.

“This tells us that small business owners who choose to sell during uncertain periods are inadvertently leaving money on the table,” Osborne said

They also found that this effect is most pronounced for larger small businesses and industries with greater cash flow uncertainty and cyclicality. The former result, they said, is notable as traditional finance research finds that in public markets, large firms are less risky than small firms and therefore receive a smaller valuation discount. However, they found that larger small businesses are more exposed to the uncertainty discount because potential buyers become more cautious and financially constrained. Consequently, they would rather buy a smaller, and therefore “cheaper,” small business.

This research benefits both small business owners and business brokers as Kasten and Osborne give them practical insights on the impacts that policy uncertainty has on their business value. With much of the typical owner’s net worth tied to their business, the paper directly addresses how policy uncertainty impacts the wealth of Main Street. As for business brokers, they provide an additional factor that should be considered when determining the value of a small business. This research is especially helpful for small business brokers as they help their clients take their firms to market and secure a fair value.

“We argue that brokers should consider the state-level uncertainty index when valuing their clients’ assets,” Kasten said. For example, when the uncertainty index exceeds the 75th percentile of historical uncertainty, brokers should consider applying approximately a 10-12% valuation discount to the ask price.”

They also suggest that business owners – especially those who own larger small businesses – should consider the timing of selling their business as uncertainty tends to depress sale prices. Timing the market is difficult, but their research implies that waiting to sell until the market has less uncertainty would preserve value.

“Enterprise in eastern North Carolina is not dominated by large corporations but by mom-and-pop businesses trying to add value to their communities,” Osborne said. “We believe that our research can help these owners by setting realistic expectations for their exit strategies and informing them about factors that directly impact their wealth.”

“We want to do research that positively impacts those around us,” Kasten said. “It is our hope that our research will prove useful and informative to both business owners and those assisting them in selling their most valuable asset. It is our way of serving and caring for our community.”

This paper, “Small business valuations during uncertain times,” was a joint project with Charles Lambert from Mercer University. It was published in the Journal of Small Business Management in December 2025.