Small Firm Owners Research Articles

Bank Mergers and Small Firm Finance: Evidence from Lender Liability

As a merger approaches, the value of repeat business for the target bank can drop sharply, so loan relationships between this bank and small businesses are often disrupted. Small firms sometimes experience serious value destruction as a consequence of this sudden lack of credit. This paper shows that lender liability may result from bank mergers and bankers involved in mergers often engage in aggressive, scorched‐earth defense tactics to discourage further litigation. I summarize six lender liability cases to illustrate these points. Bank mergers have been shown to reduce credit availability in a number of studies. Since small firms depend on credit for their daily existence, owners of small firms do have a reason to fear a merger of their bank with a larger institution. Analyzing merger effects with survey data of firms obtained after a bank merger, an empirical strategy used in a number of studies, raises problems since the only firms considered are the ones that survived the bank merger. Suggesting that the problem will cure itself in the long run, an argument advanced in other studies, ignores small firms' daily dependence on credit. In the long run we are all dead. Bank examiners need to evaluate an institution's litigation experience and measure a bank's organizational architecture – its ethical climate. Banks which are repeatedly involved in lender liability lawsuits should be denied future mergers until there is a change in organizational architecture. To assist in evaluating organizational architecture, banks should be required to report their litigation expense on their call reports. Furthermore, regulators should seriously consider the recent suggestion of Carow, Kane and Narayanan (2006) that they take steps to ensure that participants in bank mergers preserve target bank relationships. Otherwise negative effects on small business lending and economic growth will continue as bank consolidation proceeds.

Small Firm Owners in New Zealand: In it for the ‘good life’ or growth?

Developing a ‘profile’ of a SME owner – either as a means of understanding the characteristics of a ‘successful’ individual or to better predict what intentions, goals, or strategies pave the way to firm growth, remains a preoccupation for researchers. In this pursuit, a number of useful descriptors and typologies have been put forward, including those that focus on making the distinction between growth-rejecting’ and ‘growth-enthusiastic’ SME owners. One such descriptor that has achieved consistent use, and perhaps abuse, is that of the lifestyle’ SME owner. This paper reports on the findings of a project that studied New Zealand SMEs in the context of business growth. Site visits and in-depth interviews were carried out with the owner or manager of a random sample of 50 firms throughout New Zealand. This paper contributes to a better understanding of SME growth and the applicability of business growth models to SMEs in a New Zealand context, and puts forward an alternative categorisation of those described as ‘lifestyle’ owners.

Capital Acquisition Attitudes: Gender and Experience

In this research we provide evidence on small firm owners' attitudes and approaches to capital acquisition. The most surprising finding is their general dissatisfaction with the capital acquisition process. Yet we found no evidence that this dissatisfaction translates into poor performance. Our analysis indicates that male-owned business were older, more likely to be technology-based, and bigger in terms of sales and assets. Male respondents were also better educated. We found no significant results for the firms owned by more experienced respondents. However, more experienced owners and male respondents were more likely to look outside resources, like governments, to provide guidance and assistance in the capital acquisition process. Implications from the results can be used by owners to better understand capital acquisition decisions and to develop better capital acquisition, by government agencies that develop public policy on small firms, and consultants that assist small firms with capital acquisition.

Finding the “right staff” in small firms

Purpose – The purpose of this paper is to explore what owners of small firms are looking for from new employees. The aim is to pursue this in light of the debate around formality and informality of small firm HRM, exploring the extent to which the small firms studied had formalised HRM practices.Design/methodology/approach – The data reported here were collected in discussions with the owner(s) of 27 small firms in the Latrobe Valley region of South East Victoria, Australia. These firms were participating in the federal government‐funded small business assistance program and data were gathered through a series of visits and discussions with the owners over the period of the assistance program.Findings – It was found that in those firms where they had formalised HRM practices, which linked directly to their strategy, employers were more able to “sell” their vision for the business to potential employees.Research limitations/implications – Research has shown that there is a positive relationship between sma...

THE HUMAN RESOURCE MANAGEMENT PRACTICES IN SMALL PRIVATE FIRMS IN CHINA.

The current study investigates the actual Human Resource Management (HRM) practices implemented by small private firms in China. Fifteen small firm owners were interviewed. Results show that some Western HR practices are in evidence, but most of the HR practices were developed by the owners themselves, based upon strong indigenous Chinese characteristics.

Predictive strategic marketing management decisions in small firms

PurposeThe purpose of this paper is to suggest a framework for sales forecasting more suitable for smaller firms. The authors examine the sales forecasting practices of small firms and then proceed to discuss the application of Bayesian decision theory in the production of sales forecasts, a method arguably more suited to the smaller firm. The authors suggest that many small firm entrepreneurs are inherently “Bayesian” in their thinking approach to predicting events in that they often rely on subjective estimates at least for initial starting values.Design/methodology/approachA triangulated approach which uses qualitative group discussions and thematic content analysis, a reasonably large‐scale questionnaire sample survey administered by post and analysed using descriptive statistics and non‐parametric tests of association and a case study approach based on the authors own consultancy activities to illustrate the practical application of the forecasting model suggested.FindingsThat many small firms use no formal sales forecasting framework at all. That the majority of small firm owners and/or managers rate sales forecasting skills very low in their list of priorities when given a choice of course to attend at subsidised rates. That there is no significant difference in the importance small firm owners and/or managers attach to formal sales forecasting skills.Research limitations/implicationsInformation has been gained from one geographic area in the north of England although the results may have a wider application to all small firms in the UK and elsewhere. Only the region's six most important industry sectors were included as stratification variables in the sample survey. Other regions will have a different mix of industries and will be stratified differently.Originality/valueThe article addresses the sales forecasting needs of small firms specifically within the marketing for small business context and offers a realistic option with a clear rationale.

Migration networks and microenterprises in Mexico

Are migration networks associated with lower capital costs, or the alleviation of capital constraints? We examine these questions with data measuring access to remittance flows among small-scale entrepreneurs in Mexico. Using a survey of more than 6000 self-employed workers and small firm owners located in 44 urban areas of Mexico, we estimate the impact of attachment to migration networks on the level of capital investment, the capital–output ratio, sales, and profits of microenterprises. The impact is identified from the geographic pattern of migration from Mexico driven by the completion of rail lines in the early 1900s. For the full sample of firms, we find that migration is associated with higher investment levels and higher profits, but not higher sales. The strongest effects on investment are in the categories of automobiles, tools and inventories. When the sample is limited to firms in high-capital sectors, investment, sales, and profits all increase with attachment to the migration networks, suggesting that attachment to the migration network alleviates capital constraints in those sectors.

Employee Retention in Small Woollen and Hosiery Manufacturing Firms

is generally reported and believed that small firms run a risk of valued and trained employees leaving them in search of greener pastures. Small hosiery firms in the Ludhiana district of the north-west India are an example of the small firms holding on to their employees as they successfully compete with larger players. Using a multiple case study method this paper investigates the practices of these firms. The paper aims to provide a contribution to the dynamics of staffing practices through the study of selected small-scale woollen, yarn and hosiery firms of the Ludhiana district. The study analyses the employment related perceptions, preferences and trade-offs of the owners of small firms. The research aims to capture the perceptions of case leads, the owner managers of the small hosiery firms, and to identify within-source and between-source differences in these perceptions.

Editorial: small firms and new technology

Small firms are important and becoming more so. In Australia, as in many other OECD countries, over the last 20 years, small firms have steadily increased their share of total private sector employment. For example, by June 2004 in Australia, there were around 1.27 million non-agricultural small firms, a number that had doubled in the previous 20 years (ABS, 2002). Around 40 per cent of employees now work in small firms in Australia and the proportion is similar in the UK and Europe. However, when considering the capacity of small firms, it must be noted that in Australia, for example, some 56 per cent of these small firms have no employees. Of those that do, around a third have between one and four people (AMP.NATSEM, 2005: 6). Moreover, very few small firm owners wish or desire their firm to grow. For example, David Birch’s work in the US (Birch and Medoff, 1994; Birch et al., 1995) suggests only a very small proportion of small businesses will ever grow and similarly, David Storey’s (1994) work suggests this is also the case in the UK...

Differences in the Usage of Bootstrap Financing among Technology‐Based versus Nontechnology‐Based Firms

This study compares owners’ assessment of the importance of 28 bootstrap financing methods between a sample of 44 technology‐based and 44 nontechnology‐based firms. The results indicated that owners’ of technology‐based firms believed that 6 of the 28 bootstrap financing methods were more important as compared to owners’methods of nontechnology‐based firms. The bootstrap financing methods also were grouped using Winborg and Landstrom (2001) factors. Owners of technology‐based firms believed that bootstrap financing methods that improved cash inflows were more important and that bootstrap financing methods that slowed disbursements were less important compared to owners of nontechnology‐based firms. The results can be used by owners of small firms, consultants and by support agencies that provide assistance with financial planning and capital acquisition. Understanding the use and availability of all sources of capital can help owners of small firms to develop comprehensive financial strategies. This information also could be incorporated into training programs for owners and managers of small firms.

Desenvolvimento de empresários em empresas de pequeno porte do setor hoteleiro: processo de aprendizagem, competências e redes de relacionamento

Este estudo tem por objetivo analisar o desenvolvimento dos empresários em empreendimentos de pequeno porte do setor hoteleiro e enfocar o processo de aprendizagem por meio da análise das competências percebidas como necessárias ao desempenho dos negócios, das necessidades de treinamento, de como esses empresários percebem que aprendem e, finalmente, de como as redes de relacionamento (networks) interferem no processo. Tem natureza exploratória, qualitativa e interpretativa. Entrevistas pessoais semi-estruturadas foram realizadas com 30 proprietários de empreendimentos hoteleiros de pequeno porte em Sergipe, que foram estimulados a explicar as suas respostas. A discussão do seu desenvolvimento reforça algumas das constatações observadas na literatura quanto às dificuldades de descobrir formas de aumentar o nível de competência gerencial desses empresários e identificar estratégias de estímulo ao aprendizado contínuo.

Letter from the Editor-in-Chief

With the present issue I've assumed the role of Editor-in-Chief of The Journal of Entrepreneurial Finance and Business Ventures, with my colleagues at the School of Management, Syracuse University, David Wilemon and Chunchi Wu carrying on as Editors. In addition, Yochanan Shachmurove, who was instrumental in helping us put together our two previous issues, joins our Board of Editorial Advisors, as do William J. Baumol, and Lawrence R. Klein. Reflecting the diversity of the field itself, the present issue of the Journal is charactericized by many different concerns and approaches to the area of entrepreneurship. Accordingly, in the first article, Bathala, Bowlin and Dukes look at corporate governance, illiquidity, and valuation issues as they are reflected in privately held firms. They find that family owned firms predominate in the ownership structure of privately held companies. Also, insiders of such enterprises own a much larger proportion of the equity than insiders of publically held firms and have CEOs who are their largest shareholder to a far greater extent. In the next article Vos and Smith look at the relationship between risk, return and the degree of ownership involvement in privately held firms. They note that for financial theory to be valid market information must be easily visible and obtainable. This is rarely the case for privately held firms. The authors use data for 100 small firms and find that there is no significant relationship between financial returns and risk. However, the authors do find a relationship between the level of control exercised by small firm owners and the financial returns of the firm. Next, Blaži?, Nikoli? And Pe?ari? Study the consumption-based tax that has recently been instituted at the business level in Croatia. Croatia is the first country in the world to seek to apply a consumption-based tax at the individual as well as at the business level. The authors analyze the efficiency of this tax with regard to its neutrality as well as its cost effectiveness. Then, Akta?, Karan and Aydo?an look at the question of forecasting short run performance of initial public offerings on the Istanbul Stock Exchange. After considering various models, they find that only the logit models beat the outcome of naïve strategies. In the following article, Ciner explores the connection between trading volume and price movements using evidence from the trading of the stocks of small firms. Using data from both the U.S. and France he

Environmental policy and the small firm in Japan: comparisons with the Netherlands

This article explores how environmental policy arrangements influence the attitudes and behaviour of small firm owners. The findings are presented from a qualitative study exploring the influence of national governance structures on the environmental practices of restaurant and mechanical engineering firms in Japan. A comparison is made with the Dutch environmental policy context to illustrate how structural factors can crucially influence the individual responses of small firm owner-managers to environmental pressures. The political enfranchisement of Dutch small firms and their participation in ‘target group’ policy consultations appears to have been a key factor contributing to their engagement with environmental initiatives. The paper concludes by suggesting the need for a more participatory institutional structure in Japan in order to encourage the ‘greening’ of the small firm sector.

Thinking time: Small firm owners and the Internet, learning through reflection

The current government's emphasis on the importance of small firms for competitive advantage has led to different views on the way in which owner managers conduct their working lives. During a larger project which focused on the implementation of new information communications technology, a study occurred which explored whether reflection forms part of the managerial process in these firms, using two different methods to develop reflective practices in these firms. No conclusion is offered as to whether small firm owners are 'reflective practitioners' but recommendations are made as to how the process might be encouraged, especially with those managers for whom previous educational experience provides a barrier to learning and development.

Ecological modernisation of small firms in Japan

This research explores the environmental practices of small-firm owners in Japan using the ecological modernisation (EM) theory as an analytical tool. In-depth interviews were conducted with 20 small firm owners from the restaurant and mechanical engineering sectors of Tokyo, and 10 “key informants” in relevant industrial organisations and local governments. The EM theory states that firms in industrialized nations are restructuring along ecological lines in response to market signals, that business actors are increasingly viewing economic and environmental interests as harmonious, and that environmental governance structures are becoming increasingly negotiated and participative. The findings suggest that although some environmental reform is occurring in the sample market dynamics and changing ideologies are not pushing this reform in the way we might have expected under the EM theory. There is little pressure from customers or suppliers to restructure ecologically; economic and environmental interests are often perceived as conflicting; and there is little evidence that business agendas are being refashioned to reflect sustainability objectives. Moreover, small firms are perceived to be marginalized from environmental policy networks dominated by political, bureaucratic, and business elites. The article concludes by questioning whether it is this lack of institutional disenfranchisement that is hampering processes of ecological modernisation among small firms in Japan.

The determinants of management training within smaller firms in the UK. What role does strategy play?

It is agreed that within the UK there is a poor level of investment in formal training and development. This is particularly evident within the small firm sector. The literature, which considers this issue, concludes that there are a number of reasons why small firm owners are, on the whole, reluctant to invest in such training for themselves and their employees. Such reasons include, ignorance of benefits, time issues, fear that training will enhance employee mobility and, critically, that there is little evidence to indicate that investment in training and development leads to enhanced firm performance. On the basis that there has been some debate and empirical investigation regarding why training does not take place, this paper takes an alternative stance and considers what issues and processes might underpin the decision to invest in training ‐ particularly management training. Findings are drawn from empirical research on a sample of firms where investment had been made in such training in the last 24 months; the indications being that such investment was not strategic or proactive but prompted by problems which threatened business performance.

Prospecting for Strategic Advantage: The Proactive Entrepreneurial Personality and Small Firm Innovation

Our study proposed and tested an entrepreneurial process model that examined the interrelationships among a small firm owner's personality, strategic orientation, and innovation. In the first part of the model, it was posited that a proactive personality would directly influence a prospector strategic orientation. This type of strategic orientation would then be a key factor in determining the type of innovations introduced and implemented within the business. Using a sample of 107 small business owners, results revealed that the prospector strategy orientation mediated the relationship between proactive personality and three types of innovations: innovative targeting processes, innovative organizational systems, and innovative boundary supports. Implications for small business managers as well as future research directions are discussed.

Community and managerial predictors of performance in small rural US retail and service firms

Conducting business in today's rural community environment offers social and economic promise along with uncertainty in facing the phenomenon of having fewer customers, who make fewer visits, and spend less per visit. This research highlights the importance of both community and managerial factors to performance evaluations of small rural retail and service firm owners. Using path analysis, direct and indirect effects on perceptual and financial performance were identified for a national US sample of 275 rural small-sized retail and service businesses. This study provides information from largely successful firms for developing marketing strategies and product/service offerings as a crucial step in assisting businesses in rural communities.

Industry–academic relation: utilization of idle capacities in polytechnics, universities and research organizations by entrepreneurs in Nigeria

In this study, an attempt has been made to evaluate the awareness and willingness of entrepreneurs to utilize the idle service and manufacturing capacities in selected educational institutions and research organizations in Nigeria by using questionnaire and interview techniques. The level of entrepreneurs' awareness of the idle capacities in higher institutions and research institutes was found to be high among the age range 30–49 years. Many entrepreneurs, especially owners of small and medium-sized firms, showed interest in utilizing the existing facilities. Entrepreneurs were found to have more consultancy linkages with higher institutions than research linkages, and the majority (47.62%) had no linkage with higher institutions/research institutes. Both entrepreneurs and research institutes generally agreed to the strategies of publicity, investment through co-operatives, joint ventures and profit-sharing proposed to enhance effective utilization of the idle capacities.

Transactional learning relationships: developing management competencies for effective small firm‐stakeholder interactions

It has been argued that a critical issue pertaining to small firm success is the ability to manage and develop a network of interdependent relationships with a wide and diverse range of stakeholders. The article explores the needs of small firms and their stakeholders in building interdependent relationships as effective learning forms for enhancing a small firm’s potential to succeed. It is suggested that small firm owners and managers need to develop specific competence frameworks when initiating and progressing such relationships. It is also suggested that those managing such dyadic relationships have been disadvantaged by the lack of appropriate guidelines to assess current levels of competence and opportunities for improvement.