Is Sustainable Performance Explained by Firm Effect in Small Business?

Vicente López-López,Esteban Fernández,Susana Iglesias-Antelo

doi:10.3390/su122310028

Vicente López-López, Esteban Fernández + Show 1 more

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https://doi.org/10.3390/su122310028

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Abstract

To what extent a firm’s resources (firm effect) and the structure of the sector (industry effect) are sources of a firm’s competitiveness has been debated for years in strategic management. Most of the empirical studies carried out have focused on large firms and have used static performance measures, and in them the firm effect generally outweighs the industry effect. This research contributes to this debate in trying to verify whether the competitive advantage that relies on the firm’s resources is sustainable, especially in small firms. We used a sample of almost 15,000 Spanish firms to test the impact that the firm and the industry effects have on sustainable performance, for both small and large firms, applying hierarchical linear modelling with a variable measured through time-varying parameters. Our results confirm the absolute importance of the firm effect on sustainable organizational performance, regardless the firm size, and show that, even though the industry effect has little weight in explaining sustainability, it is significantly higher in the case of small firms. This means that managers must concentrate efforts on providing their firm with the necessary resources to achieve a competitive advantage while choosing a good sector to position itself.

Highlights

There is increasing debate among private and public organizations, countries, managers, and governments when trying to define what is understood by a sustainable firm [1]
In strategic management attention has been traditionally focused on this issue from two different perspectives: the one that has to do with the firm effect and the one that refers to the industry effect as the main source of a firm’s competitiveness
Despite the fact that the dependent variable used in this study is different, the greater weight of the firm effect versus the industry effect when explaining the variance of performance is aligned with most of the literature [14,23,24,25]

Summary

Introduction

There is increasing debate among private and public organizations, countries, managers, and governments when trying to define what is understood by a sustainable firm [1]. In parallel, when the intention is to evaluate organizational performance, it is possible to identify the same pattern of behavior considering a sustainable approach in the broad sense [2,3]. This can adopt the form of heterogeneous indicators: among others, social [4], environmental [5], corporate citizenship [6], or financial [7]. In strategic management attention has been traditionally focused on this issue from two different perspectives: the one that has to do with the firm effect and the one that refers to the industry effect as the main source of a firm’s competitiveness. On the side of the firm effect, from the Resource Based View of the Firm (RBV), it is argued that profitability will be explained by the possession and/or control of the strategic resources that each organization has [13]

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