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Performance and Strategy: Simultaneous Equations Analysis of Long-lived Firms

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  • Bernadette Power
  • Gavin C. Reid

Abstract

A simultaneous equations model of performance, strategy and size is tested using fieldwork evidence on long-lived firms in Scotland. Estimation is by I3SLS, with correction for sample selection bias. The contributions of this paper are that it: (a) grounds estimation on fieldwork evidence; (b) calibrates performance and competitive strategy; (c) tests and models endogeneity; and (d) computes robust trade-off elasticities between firm size and performance. It shows how this trade-off provides the entrepreneur with two strong incentives: (i) to seek greater efficiency typically by an increase in the human capital of the 'core' workforce; (ii) to achieve higher levels of performance by adopting more diverse competitive strategies.

Suggested Citation

  • Bernadette Power & Gavin C. Reid, 2015. "Performance and Strategy: Simultaneous Equations Analysis of Long-lived Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 22(3), pages 345-377, November.
    • Handle: RePEc:taf:ijecbs:v:22:y:2015:i:3:p:345-377
    DOI: 10.1080/13571516.2015.1051751
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    References listed on IDEAS

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    1. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    2. Reid, Gavin C, 2002. "Flexibility in the Small Firm: the dynamics of market re-positioning and scale adjustment in the early stages of the life cycle," Royal Economic Society Annual Conference 2002 158, Royal Economic Society.
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    Cited by:

    1. Bernadette Power & Gavin C Reid, 2021. "The Impact of Intellectual Property Types on the Performance of Business Start-ups in the USA," Working Papers wp523, Centre for Business Research, University of Cambridge.
    2. Power Jane & Power Bernadette & Ryan Geraldine, 2022. "Determinants of equity financing: a demand-side analysis of Irish indigenous technology-based firms," The Irish Journal of Management, Sciendo, vol. 41(1), pages 52-68, July.

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