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Turbulence, Flexibility and Performance of the Long-lived Small Firm

Author

Listed:
  • Bernadette Power

    (Dept of Economics, University of St Andrews, St Andrews, Fife, UK)

  • Gavin C Reid

    (Dept of Economics, University College Cork, Cork, Ireland)

Abstract

This paper focuses on a new concern in the small firm’s literature, namely what makes a small firm stay in business for a long time. It reflects a change in economic policy, away from an emphasis on volume of start-ups to an emphasis on quality of start-ups. The basic hypothesis is that flexibility enhances the long run prospects of the small firm. This is explored by examining precipitating causes of organisational change within the small firm, and the consequential adjustments. The study is fieldwork based and uses evidence from face-to-face interviews with 63 owner managers of mature small firms in Scotland. New measures of flexibility and turbulence are used to explain the performance of mature small firms. These depend on our unique body of evidence from interviews with owner managers. Performance is measured using a Likert scale over 28 distinct attributes.Econometric estimates are reported on the relationship between flexibility, turbulence and performance. This is done in two forms. The first involves generalised least squares estimation (with heteroskedastic adjustment) of the relationship between turbulence, four measures of flexibility, and performance. The second involves Heckman sample selection estimation, of this performance relationship. It is found that turbulence has a negative effect on performance. Further, this impact is relatively large. Next in importance are those flexibility factors which can be categorised as precipitating causes of organisational change (as opposed to consequential adjustments) within the mature small firm. Finally, trade-off relationships are found to exist between two of the measures of flexibility (viz. agility and speed). We believe that this trade-off relationship is worthy of further empirical investigation.

Suggested Citation

  • Bernadette Power & Gavin C Reid, 2003. "Turbulence, Flexibility and Performance of the Long-lived Small Firm," Tinbergen Institute Discussion Papers 03-039/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20030039
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    References listed on IDEAS

    as
    1. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492, National Bureau of Economic Research, Inc.
    2. repec:bla:econom:v:57:y:1990:i:227:p:355-69 is not listed on IDEAS
    3. Gavin C Reid & Lowell R Jacobsen., "undated". "The Small Entrepreneurial Firm," Hume Papers 8, David Hume Institute.
    4. Reid, Gavin C., 1991. "Staying in business," International Journal of Industrial Organization, Elsevier, vol. 9(4), pages 545-556, December.
    5. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Flexibility; Firm-Specific Turbulence; Performance; Small Firms.;
    All these keywords.

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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