Showing papers in "Journal of Small Business Strategy in 2019"

Process improvement in SMEs: The impact of harmonious passion for entrepreneurship, employee creative self-efficacy, and time spent innovating

Abstract: Harmonious passion, creative self-efficacy, and time spent innovating are examined as antecedents to innovative process improvement suggestions in a field study of 213 employees in an SME. Results show that time spent innovating, or thinking about and experimenting with new ideas, predicts the number of process improvement suggestions. Time spent innovating is, itself, influenced by the employee’s level of harmonious passion for entrepreneurship, moderated by creative self-efficacy. Counter to expectations, the moderation was negative; such that the positive relationship between harmonious passion and time spent innovating became weaker as creative self-efficacy became stronger. The results provide insight into the complex relationships between passion, competency, and entrepreneurial behavior and suggest the need for additional focus on the processes employees follow to engage in workplace innovation. In doing so, this study makes three specific contributions. First, it provides a fundamental step toward understanding the role harmonious passion plays in innovation in an SME context. Second, it begins to explain the relationship between individuals’ thoughts, behaviors, and outcomes in the nascent stages of innovation in SMEs. Finally, it provides insight into the heretofore unexplored link between passion and creative self-efficacy in fostering innovative behavior.

A Strategic process and small venture growth: The moderating role of environmental scanning and owner-CEO

Abstract: The strategic processes that were followed by small firms are the main contributors to the growth of these firms. Therefore, the aim of this study is to investigate the contribution of the strategic process to the growth of ventures by taking environmental-scanning and owner leadership as a moderator. In order to achieve this objective, a sample of 210 firms grown to emerging medium enterprises has been selected and used to obtain primary data. The findings of the study show that the growth of ventures and strategic process practices among these firms are moderate. The strategic processes employed were the main contributors to the growth of ventures. When trends and events in the environment are understood, the strategic process dimensions that include participating in strategic decision-making, modes of forming a strategy, and learning from mistakes strategically will be intensified towards influencing the venture’s growth. Venture growth is better among the firms who were led by owners themselves and learn from their failures. As firms scan their environment, they tend to exploit and practice suitable strategies that contribute to the growth of the ventures. As a result, the owners/managers of these small ventures should advance their current practices of strategic processes by encouraging workers to participate in decision making, developing effective planning, and learning from their mistakes by scanning both the external and internal environments.

Entrepreneurial strategy: The relationship between firm size and levels of innovation and risk in small businesses

Abstract: The expression that “Innovation is the central issue in economic prosperity” (Michael Porter), encapsulates the importance of entrepreneurial strategy, which has been linked to firm growth, particularly through its dimensions of innovation and risk. Firm growth will increase its size, which in turn may affect the entrepreneurial strategy; a research area that has been under-studied. This research contributes to the literature by exploring the relationship between firm size and the entrepreneurial strategy. Findings support the hypothesis that in larger firms the owners pursue a strategy that tends to be higher in innovation but with reduced risk, while in smaller firms the owners pursue a strategy that is higher in risk but lower in innovation. Additionally, it was found that the firms’ Entrepreneurial Orientation (EO) is moderated by the organizational size; which supports the notion of bi-directional relationship between EO and organization attributes

Internationalization effects on financial performance: The case of Portuguese industrial SMEs

Abstract: The objective of this paper is to empirically examine the relationship between the firms’ degree of internationalization and their financial performance. The literature about performance determinants is abundant however, the relation between internationalization and profitability in the context of Small and Medium Enterprises (SMEs) is much less studied. It used an unbalanced panel data of 4.133 Portuguese industrial SMEs for the period from 2010 to 2016 and applied a random effects model. The results indicate that internationalization, measured as export intensity/diversity/distance, influences firm profitability, in particular when exports are directed to distant markets and conducted by small firms. Also, the presence of a non-linear relationship between internationalization and profitability calls for managers’ attention to its dysfunctional consequences for firm performance, especially at intermediate levels of internationalization. Due to SMEs relevance in the majority of the economies, our results and its implications can be generalized to other countries.

In the interest of small business’ cost of debt: A matter of CSR disclosure

Abstract: Traditional understanding is that small firms pay more in debt related expenses than larger firms with a history of financial performance. In the current study, we examine the impact that corporate social responsibility (CSR) disclosure has on the cost of debt for small firms. Using data from Bloomberg 2014 on CSR disclosure, we find that the cost of debt for small businesses decreases as firms increase their CSR disclosure transparency. Specifically, firms who disclose more social responsibility information faced reduced costs to debt financing. We argue that disclosure of Environment, Social, and Governance (ESG) records provide value relevant information for lenders to use to mitigate the magnified information asymmetry inherent to lending to firms earlier in their lifecycle. Our results suggest that disclosure of ESG information corresponds with improved information transparency, which leads to less costly debt for small businesses.

Restructuring in SMEs – A multiple case study analysis

Abstract: SMEs represent an important pillar in every economy, but in terms of financial performance they are inherently more exposed to financial volatility than large enterprises. Constrained access to resources and the liability of smallness lead to a higher propensity to failure and corporate crisis. A financial crisis is endangering the continued existence of the business, however it can also be perceived as change to reassess and reassemble resources to meet future market requirements. This either takes place through a court-supervised reorganization or through an informal restructuring without the involvement of courts. This paper focuses on the latter and employs a multiple case study including 10 successfully restructured firms and 5 failed renegotiations in Austria. Through use of the resource-based view (RBV) we analyzed what caused crises in SMEs and which strategies and measures are necessary to overcome crisis. In conclusion, it can be stated that crises are predominantly caused internally in SMEs, and successful restructuring frequently requires the engagement of both, banks and entrepreneurs. While innovation capacity is a factor that facilitates restructuring, complex and insufficiently settled family dynamics tend to hinder restructuring.

From start-up to acquisition: Implications of financial investment trends for small- to medium-sized high-tech enterprises

Abstract: The high-technology (high-tech) industry is a dynamic environment defined by both frequent changes in composition and a concentration of market power through consolidation. Operating as a new or small venture within this environment poses many complex challenges, especially when considering the financial resources needed to be successful. In their efforts to obtain financial resources, entrepreneurs often overlook how the choice and pattern of investment funding to maintain a growth path can later affect a successful entrepreneurial exit. Exit via acquisition for small- to medium-sized technology enterprises (SMTEs) is a strong area of interest given firms in the U.S. high-tech industry experience the fastest growth rates and have been the target of over $400 billion in deal volume and 20% of all merger and acquisition (M&A) transactions in the last twenty years. Much of this M&A activity is conducted by five prominent firms, Alphabet, Amazon, Apple, Facebook, Microsoft, commonly referred to as the Fearsome Five or the “FANGS”. However, as there has been only limited research examining this unique M&A context, in this study we explore the investment funding factors influencing exit via acquisition by the Fearsome Five. We highlight questions and potential concerns for SMTEs given the trends in financial investments and increasing market power.

Entrepreneurial leadership: An experimental approach investigating the influence of eye contact on motivation.

Abstract: Small, new firms lack the resources of most larger, established firms, which makes effectively motivating employees challenging. Charismatic leadership is effective in increasing the performance of both groups and entire organizations. Specifically, the impact of charismatic leadership practices on followers stems from nonverbal communication and construed immediacy. The purpose of this study is to investigate the impact of an entrepreneurial leader’s eye contact and smiling on followers’ objective motivation in an experimental leadership situation. A sample of 129 young adults was tested in a 2×2 (nonverbal tactics: high eye contact/low eye contact × high smile/low smile) experimental design. Motivation was measured by objective performance in a motoric reaction time task. The conditions were operationalized by manipulating gaze behavior and facial expressions of the leader in a staged instructional video, showing a start-up entrepreneur attempting to enhance the performance of his employees as part of a competitive comparison. Regardless of whether the leader smiled or not, participants showed faster responses and therefore performed more effectively when the leader maintained high eye contact.These findings support the hypothesis that increased eye contact is a strong nonverbal signal, which in the immediate context of leader-follower interactions, stimulates an increase in performance. In fact, eye contact could induce an increased level of motivational arousal in followers, resulting in improved confidence and self-reference when taking instructions. This study advances the existing research on learnable skills that can be used to appear more charismatic and thus potentially increasing follower performance by adopting simple nonverbal rules in communication behavior. This offers an invaluable and low-cost tool for leaders founding a start-up business.

Small business owner persistence: Do personal characteristics matter?

Abstract: Recent research suggests that (1) business failure rates are lower than previously thought and (2) business owners exit businesses for myriad reasons besides performance. Despite these findings, relatively little is known about whether personal characteristics (i.e. expectations, competencies, education) of small firm owners influence their likelihood to persist with business ownership. Given this gap, the present study investigates the relationship between owner characteristics and persistence intentions. Framed by threshold theory, we theorize and test whether owner growth expectations, satisfaction, education, competencies, and financial investment influence their persistence intentions. Results indicate that owner future growth expectations for the business, their opportunity recognition abilities, and their satisfaction with the business significantly impact persistence intentions. Implications of study findings are discussed.

Building self-efficacy for entrepreneurial careers: New resource skill

Abstract: While the ability to garner resources is key to entrepreneurial pursuits, there is little research concerning potential entrepreneurs’ resource acquisition skills or how these skills might be related to psychological and cognitive factors important for successful entrepreneurial behavior. Using data collected from two survey-based independent samples of undergraduate college students from two Midwestern universities, this research tests mediational hypotheses utilizing structural equation modeling techniques with bootstrapping. The findings, consistent across the two studies, indicate that new resource skill does indeed mediate the relationship between proactive personality—a personality characteristic—and entrepreneurial self-efficacy—a key cognitive antecedent of entrepreneurial intentions and behavior.

The interplay of strategic orientations and their influence on sme performance

Abstract: This paper examines the role that learning orientation plays with respect to entrepreneurial orientation, market orientation, and, ultimately, the performance of small and medium-sized enterprises SMEs. Previous research indicated mixed findings in regards to the relationship of these strategic orientations and firm performance. Instead of just direct influences to performance, we examine if learning orientation is an antecedent to market and entrepreneurial orientation. We suggest that in this way, their influence to SME performance would be more accurately predicted. We argue that learning orientation reflects the overall values of the organization, whereas entrepreneurial and market orientations are more action-oriented firm behaviors. Learning orientation would likely set the stage for the requisite actions implied in market and entrepreneurial orientation. Direct effect and mediated effects hypotheses between these strategic orientations are tested on a sample of SME manufacturing firms and their performance. Findings indicate that learning and entrepreneurial orientation directly influence SME performance. However, when learning orientation and its effects are mediated by market and entrepreneurial orientation, direct effects disappear when testing this model. The study offers insight into relationships between various strategic orientations, as to how and when they might influence SME performance.

Do management control systems stifle innovation in small firms? A mediation approach

Abstract: How entrepreneurial orientation (EO) as a strategy manifests into entrepreneurial behaviors like innovation, is an important research topic but not well understood. There is a gap in the examination of EO and entrepreneurial behavioral outcomes. Since mediators exist (see Rauch, Wiklund, Lumpkin, & Frese, 2009; Wales, 2016; Wales, Patel, Parida, & Kreiser, 2013) additional research is needed to uncover these potential relationships. Research suggests that management controls systems (MCS) may serve as a mediator between strategy and innovation outcomes. There is, however, conflicting evidence regarding the impact and use of management control systems (MCS) in the small firm context. As such, we examine the relationship between an individual-level measure of EO (IEO) and innovation level and explore the mediating role of financial and nonfinancial MCS on that relationship. Results suggest that nonfinancial MCS partially mediate the relationship between IEO and innovation, while financial MCS do not.

Comeback of the failed entrepreneur: An integrated view of costs, learning, and residual resources associated with entrepreneurial failure

Abstract: Although failure can be financially, socially, and psychologically costly, it can promote future entrepreneurial success. This study investigated how failure can be utilized as a springboard for new ventures by considering the cost recognition, learning ability, and resources of entrepreneurs within a social environment. Failure costs, learning outcomes, and residual resources following business failure and how they influence the intention to undertake subsequent entrepreneurial endeavors were considered. With the motivation–opportunity–ability (MOA) framework as a theoretical foundation, we quantitatively analyzed the sample, which comprised 216 entrepreneurs who had experienced business failure. Perceived residual resources were a major factor affecting an entrepreneur’s decision-making in subsequent ventures, even when the entrepreneur had learned from failure and overcome the associated costs. Additionally, the psychological costs incurred exhibited a nonsignificant effect on learning from failure. Based on the MOA framework, failure costs can be regarded as learning opportunities for an entrepreneur as well as drivers promoting the intention to resume business. Such intentions are mediated by the learning ability of entrepreneurs and moderated by motivation in terms of residual resources. This study provides a holistic view re-examining the mechanisms of frustrated entrepreneurs to identify opportunities and evaluate resources.

The liquidity impact of insider trading on small and medium size enterprises

Abstract: This study compares the impact of insider trading by corporate employees of small and medium-sized enterprises (SMEs) on the stock price liquidity of these firms with that of larger institutions. Using publicly reported data, we assess how trades placed by SME insiders affect the bid-ask spread of their companies’ stock. We document that the spread gets significantly larger following these transactions relative to trades by insiders from larger firms. Collectively, the evidence suggests that insider trading by SME executives, as well as non-executives, decreases liquidity for their firms. One important implication from our findings is that the cost of insider trading is more severe for SMEs, firms characterized by greater information asymmetry.

Explaining effective team-vision development in small, entrepreneurial teams: a Shared Mental Models approach

Abstract: Organizing entrepreneurial collaboration in small, self-directed teams is gaining popularity. The underlying co-creation processes of developing a shared team vision were analyzed with a core focus on three underlying processes that originate from the shared mental models framework. These processes are: 1) the emergence of individual visions and vision integration, 2) conflict solving, and 3) redesigning the emerging knowledge structure. Key in the analysis is the impact of these three processes on two outcome variables: 1)the perceived strength of the co-creation process, 2) the final team vision. The influence of business expertise and the relationship between personality traits and intellectual synergy was also studied. The impact of the three quality shared mental model (SMM) variables proves to be significant and strong, but indirect. To be effective, individual visions need to be debated during a second conflict phase. Subsequently, redesigning the shared knowledge structure resulting from the conflict solving phase is a key process in a third elaboration phase. This sequence positively influences the experienced strength of the co-creation process, the latter directly enhancing the quality of the final team vision. The indirect effect reveals that in order to be effective, the three SMM processes need to be combined, and that the influence follows a specific path. Furthermore, higher averages as well as a diversity of business expertise enhance the quality of the final team vision. Significant relationships between personality and an intellectual synergy were found. The results offer applicable insights for team learning and group dynamics in developing an entrepreneurial team vision.

Corporate performance and diversification from a resource-based view: A comparison between small and medium-sized Austrian firms

Abstract: The effect of diversification on corporate performance has shown controversial results in prior research, ranging from the potential to improve performance to the risk of performance reduction. The aim of this study is to explain separately the effect of diversification and some selected variables on the profitability of small- and medium-sized Austrian firms and to test some research hypotheses based on prior research. For this study 1,095 observations were analyzed for small- and medium-sized firms over a three-year period. The resource-based-view (RBV) has been chosen as the theoretical framework of this study. The results provide no clear evidence as to whether related or unrelated diversification leads to higher profitability, because it depends on how profitability is measured. This result holds for small- and medium-sized firms (SMEs). Additionally, there is no significant reduction in risk for diversified companies. Only related diversification exhibited a significantly lower risk when compared to non-diversified medium-sized firms. Finally, the RBV can only partially explain and predict diversification strategy and its outcome on profitability and risk.

Internal audit outsourcing in small organizations: An exploratory study

Abstract: Few papers have studied internal audit outsourcing in general, and significantly fewer have limited their analysis to small organizations. This study examines the association between small organizations’ propensity to outsource internal audit activities and (1) audit committee involvement, (2) organizational financial health, and (3) need for expertise. Prior studies find mixed evidence when analyzing both large and small organizations concurrently. This study utilizes the Institute of Internal Auditors Research Foundation 2015 Common Body of Knowledge (CBOK) survey results data from chief audit executives (CAEs) of small organizations (<500 employees) based in seven Anglo-culture countries. We find significant associations between both audit committee involvement and organization financial health and internal audit outsourcing in small organizations.

Emerging market startups engage Silicon Valley: Cases from Central and Eastern Europe

Abstract: This article examines the challenges and opportunities of innovation-driven growth in Central and Eastern Europe. Drawing on firm-level survey research, we analyze the experiences of early stage Polish companies in Silicon Valley. We focus on the Polish Silicon Bridge, an international bridge organization that differs from conventional business incubators and accelerators by embedding emerging market startup companies in foreign innovation hubs. We situate the analysis in the context of the “Polish Paradox”. While Poland ranks as one of the European Union’s fastest growing economies over the past two decades, it is one of the EU’s weakest performers measured by innovation. The Silicon Bridge program aims to expand Poland’s innovation capacity by placing promising local startups in the world-class ecosystem of the San Francisco Bay Area. Our empirical study demonstrates that international bridge organizations generate significant benefits–knowledge acquisition, mentoring, networking with prospective investors and strategic partners–for young emerging market companies seeking to enter the global market. The article thus augments the scholarly literature on global innovation ecosystems, entrepreneurial internationalization, and emerging market startups.

Emerging economy entrepreneurs and open data: Decision-making for natural disaster resilience

Abstract: The aim of this study is to examine the role of Open Data in entrepreneurial decision-making in a destination threatened by natural disasters and located in an emerging economy. The region of La Araucania, in Chile, was chosen because it constantly faces the threat of devastating natural disasters and is also the poorest region of Chile. Primary data was collected through semi-structured interviews and awareness-building workshops, with a convenience sample of 32 entrepreneurs out of 150 registered for Federation of Tourism Businesses (FEDETUR’s CET) program. The study found that local entrepreneurs are reasonably aware of the advantages and disadvantages of platforms that link supply and demand for tourism services. However, they express little interest or trust in publicly available information, and use terms like ‘internet data’ and ‘technology’ interchangeably with ‘information’ and ‘platforms’. We conclude that in order for entrepreneurs in emerging economies to strengthen their businesses’ resilience to natural disasters in the digital economy era, adjustments in their decision-making processes need to be made. Tourism-dependent places situated in emerging economies rely heavily on micro and small businesses. Greater awareness of how future economies are both ‘atom-enabled’ (landscape and other tourism resources) and ‘bit-dependent’ (digitalization of tourism) would benefit tourism entrepreneurs facing natural disaster-induced business disruptions by enabling timely and more appropriate responses. The study opens the academic debate on the role that open data could come to play in entrepreneurial decision-making within emerging economies when tourism businesses are disrupted by natural disasters.