SME Owner Involvement and Business Performance: Financial Security Rather Than Growth

Abstract

This paper examines how the level of owner involvement in Small and Medium Sized Enterprises (SMEs) affects financial performance, as suggested by Jensen and Meckling (1976). We find significant relationships between the degree of owner involvement and profitability, leverage and liquidity, even when adjusted for size. No significant relationship was found between the degree of owner involvement and growth. We conclude that increased owner involvement creates a financially safer and more profitable firm with no relationship to growth. This supports the financial contentment hypothesis of Vos, Yeh, Carter and Tagg (2007).