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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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Author Info
Bernadette Power
Gavin C. Reid

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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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Publisher 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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Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Web page: http://www.st-and.ac.uk/%7Ewww_crieff/discpaps.html

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

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Find related papers by JEL classification:
C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Reid, Gavin C & Smith, Julia A, 2000. " What Makes a New Business Start-Up Successful?," Small Business Economics, Springer, vol. 14(3), pages 165-82, May. [Downloadable!] (restricted)
    Other versions:
  2. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  3. Mata, Jose, 1994. " Firm Growth during Infancy," Small Business Economics, Springer, vol. 6(1), pages 27-39, February.
  4. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 583-606, June. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!] (restricted)
  6. Slater, Martin, 1980. "The Managerial Limitation to the Growth of Firms," Economic Journal, Royal Economic Society, vol. 90(3593), pages 520-28, September. [Downloadable!] (restricted)
  7. Schmalensee, Richard, 1985. "Do Markets Differ Much?," American Economic Review, American Economic Association, vol. 75(3), pages 341-51, June. [Downloadable!] (restricted)
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  8. Singh, Ajit & Whittington, Geoffrey, 1975. "The Size and Growth of Firms," Review of Economic Studies, Blackwell Publishing, vol. 42(1), pages 15-26, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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. [Downloadable!] (restricted)
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