Examining the determinants of small firms' performance in India

Purpose - The objective of the study is to analyse the impact of research and development investment on the firm performance of “small” scale firms vis-a-vis “medium”-scale firms. Design/methodology/approach - The dataset comprised of a balanced panel of 486 research and development conducting Indian manufacturing small and medium enterprises, constructed for the period of 2006–2017. Fixed Effects, Random Effects Model and Hausmann test were used to analyse the determinants of firm performance in manufacturing small and medium enterprises in India. Findings - It was found that from firms’ research and development (R&D) investments in terms of performance could be attained if simultaneously internationalisation and higher capital intensity could be achieved. Practical implications - Managers could pay specific attention to the antecedents of firm performance and calibrate their R&D investment, internationalisation efforts and capital intensity simultaneously to achieve higher growth and productivity. For policymakers, the results provide an insight into how the firms in both categories could be differently incentivised, such that resources are better utilised. Originality/value - The study analysed the determinants of firm performance in small and medium-sized firms at a disaggregate level as well as at a sectoral level using fixed effects, random effects and lagged effects to arrive at novel results, which have important implications for their competitiveness.