The differences in the impact of management practices on firm performance between SMEs and large enterprises : a study of three countries - France, Germany and the United Kingdom

Abstract

Over the last few years, softer firm values like management have gained importance in academia, research and practice. It has been shown, contrary to what was previously believed, that the quality of management practices has a real impact on the performance of the firm. In this research paper, we investigate whether better management practices have an effect on firm performance and if the magnitude of this effect differs between small and medium-sized enterprises (SMEs) and large enterprises. Firm performance is defined as sales growth and return on capital employed (ROCE) in this paper. We use panel data collected from the three biggest economies in Europe – Germany, France and the UK, over a time span of 11 years from 1994 to 2004. The results from performing pooled ordinary least squares suggest that management practices are important for a firm's performance but there is substantial heterogeneity in the magnitude of this effect. When performing a pooled regression without segregating by country, we see that management practices mostly positively impact both sales growth and return on capital employed. This effect is stronger in small and medium enterprises for sales growth when compared to large enterprises, but vice versa for return on capital employed. However, when running analyses on the different countries, we get mixed results.