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Financial performance of SMEs: impact of ownership structure and board composition


  • Jaana Lappalainen
  • Mervi Niskanen


Purpose - The purpose of this paper is to investigate the impact that ownership structure and board composition have on financial performance in a sample of Finnish small to medium‐sized enterprises (SMEs). Design/methodology/approach - The data for this study were collected through a private survey. The financial data were collected from the Voitto+ register and observations were made from 2000 to 2005. The authors employ panel data estimation and 2SLS methods in their analyses. Findings - Results suggest that the ownership structure affects both the growth and the profitability of small private firms. Firms with high managerial ownership levels exhibit higher profitability ratios but have lower growth rates. Firms with high venture capital firm ownership ratios are found to grow faster and are less profitable. The results on board structure suggest that board structure has little impact on the performance of small firms. The only significant result in this context is that firms with outside board members have lower growth rates and are less profitable. Practical implications - The results of this study can be interpreted to indicate that owner‐managers are risk averse and that venture capital firms seek investments with high growth potential. The results could also imply that outsiders are taken on as board members in badly‐performing firms on financiers' requests, or because it is thought that they can enhance performance. Originality/value - The paper is one of the few that shed light on how corporate governance and ownership structures affect the performance of small private firms.

Suggested Citation

  • Jaana Lappalainen & Mervi Niskanen, 2012. "Financial performance of SMEs: impact of ownership structure and board composition," Management Research Review, Emerald Group Publishing Limited, vol. 35(11), pages 1088-1108, September.
  • Handle: RePEc:eme:mrrpps:v:35:y:2012:i:11:p:1088-1108
    DOI: 10.1108/01409171211276954

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    Cited by:

    1. Chung, Won Young & Lee, Jae-Gil & Seo, Jaeun & Kim, Jaeyun & Jo, Yuri & Lee, Daeho, 2022. "From whom should ICT startups raise capital? The effect of ownership structure on efficiency in new ICT startups," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 82-91.
    2. Karartı, Tuncay, 2014. "Impact of ownership structure on leverage of non-financial firms in developing countries," MPRA Paper 61483, University Library of Munich, Germany.
    3. Demircioğlu, Emre, 2014. "Organization performance and happiness in the context of leadership behavior (case study base on psychological well-beings)," MPRA Paper 61484, University Library of Munich, Germany.
    4. Hayam Wahba, 2014. "Capital structure, managerial ownership and firm performance: evidence from Egypt," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1041-1061, November.
    5. Rashid Khalil* & Dr. Mohd. Sollehudin Bin Shuaib & Dr. Suhaimi Bin Ishak, 2018. "Bank-SMEs Relationship: A Critical Review of Firm & Industry Specific Determinants Influencing Banks’ Performance," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 4(12), pages 777-791, 12-2018.
    6. Paolo Roffia & Virginia Simón-Moya & Javier Sendra García, 2022. "Board of director attributes: effects on financial performance in SMEs," International Entrepreneurship and Management Journal, Springer, vol. 18(3), pages 1141-1172, September.
    7. Kent Baker, H. & Kumar, Satish & Rao, Purnima, 2020. "Financing preferences and practices of Indian SMEs," Global Finance Journal, Elsevier, vol. 43(C).


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