Determinants of growth and profitability in small entrepreneurial firms in the manufacturing sector in Tayside

  • Keith Sean Glancey

Student thesis: Doctoral Thesis

Abstract

This thesis adopts an holistic interdisciplinary paradigm and a two-stage research design employing both econometric and qualitative techniques, to investigate determinants of growth and profitability in small firms in the manufacturing sector in Tayside Region. A descriptive analysis of the Tayside manufacturing sector, which includes a components of employment change analysis, establishes the increasing importance of small firms to Tayside manufacturing and finds evidence of firms with fewer than 10 employees having made a substantial contribution to employment creation.

Using accounts data for a sample of small manufacturing firms located in Tayside Region, an econometric analysis investigates the relationships between the firm-specific characteristics of size, age and location, and profitability and growth. The trade-off between the possibly conflicting objectives of profit and growth is considered primarily from an interdisciplinary entrepreneurial standpoint, rather than the managerial economic standpoint which previous econometric studies of small firm performance have adopted. Motivations for undertaking entrepreneurial activity and their possible relationships with profitability and growth are discussed and a number of hypotheses are developed which have not been collectively specified or tested in previous studies. From an entrepreneurial standpoint it is argued that a firm size measure based on employment is more appropriate. Firm characteristics are found to be of limited value in explaining profitability. However, a significant positive relationship is found between firm size and the rate of growth, which conflicts with previous studies, and younger firms are found to grow faster than older. This is also some evidence that growth is stronger in firms located in urban rather than in rural areas.

A qualitative analysis is then undertaken to build upon the findings from the econometric stage. This analysis examines the relative impact of intrinsic and extrinsic influences on the dynamic nature of the entrepreneurship process of developing a small firm. In particular, propositions derived from the interdisciplinary entrepreneurship literature are investigated concerning the possibility of feedback mechanisms in the entrepreneurship process which serve to revise entrepreneurial motivations, objectives and strategies. Using a dynamic conceptual model of the relationships between these key entrepreneurial variables, and growth and profitability, a series of entrepreneurial profiles are reported, which are derived from a programme of indepth interviews combined with data from financial accounts. A comparative analysis of these profiles provides new evidence in support of the propositions that financial performance can act a feedback mechanism which can revise entrepreneurial objectives and strategies, and that profitability is a means goal which can satisfy both pecuniary and non- pecuniary end-goals. The thesis concludes by deriving the implications of the research findings for entrepreneurship theory and practice, and suggests directions for further research.
Date of AwardJun 1998
LanguageEnglish

Cite this

Determinants of growth and profitability in small entrepreneurial firms in the manufacturing sector in Tayside
Glancey, K. S. (Author). Jun 1998

Student thesis: Doctoral Thesis