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to CRIEFF Discussion Papers list 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.
Key Words
Performance, Small Firms, Size, Competitive Strategy, Simultaneity
JEL Classifications
C42, D21, G33, L2, M13, M21
Bernadette Power
University College Cork
Gavin C. Reid
University of St Andrews
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