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Performance, Firm Size and the Heterogeneity of Competetive Strategy for Long-lived Small Firms: A Simultaneous Equations Approach

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  • Bernadette Power
  • Gavin C. Reid

Abstract

This paper examines the relationship between firm size, competitive strategy and performance, for the long-lived small firm in Scotland. It uses structural modelling to test the hypothesis that small firms need to remain small if they are to be long-lived. In a three-equation simultaneous model, performance, size and the dimensions of the competitive strategy of the firm are jointly determined. Econometric estimates of the three equations are reported, using 2SLS and iterated 3SLS. A trade-off is found to exist between firm size and performance. Further, we find that to attain higher equilibrium values of performance, a varied competitive strategy needs to be adopted. Our prescription is that small firms need to adjust downwards in size, and to cultivate a more varied competitive strategy, if there the entrepreneurs are to have a positive influence on performance, thus promoting longevity of their firms.

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Bibliographic Info

Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0307.

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Date of creation: Feb 2003
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Handle: RePEc:san:crieff:0307

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Related research

Keywords: Performance; Small Firms; Size; Competitive Strategy; Simultaneity;

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References

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  1. Singh, Ajit & Whittington, Geoffrey, 1975. "The Size and Growth of Firms," MPRA Paper 51715, University Library of Munich, Germany.
  2. Schmalensee, Richard, 1985. "Do Markets Differ Much?," American Economic Review, American Economic Association, vol. 75(3), pages 341-51, June.
  3. Beccarello, Massimo, 1997. "Time series analysis of market power: Evidence from G-7 manufacturing," International Journal of Industrial Organization, Elsevier, vol. 15(1), pages 123-136, February.
  4. Gavin C Reid & Julia A Smith, 1996. "What Makes a New Business Start-Up Successful?," CRIEFF Discussion Papers 9618, Centre for Research into Industry, Enterprise, Finance and the Firm.
  5. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  6. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
  7. Slater, Martin, 1980. "The Managerial Limitation to the Growth of Firms," Economic Journal, Royal Economic Society, vol. 90(3593), pages 520-28, September.
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Cited by:
  1. Bernadette Power & Gavin Reid, 2005. "Flexibility, Firm-Specific Turbulence and the Performance of the Long-lived Small Firm," Review of Industrial Organization, Springer, vol. 26(4), pages 415-443, 06.

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