SME Performance

SME Performance

Separating Myth from Reality

John Watson

The performance of Small and Medium-sized Enterprises (SMEs) has been a subject of continual interest to both researchers and practitioners. This enlightening book investigates the pitfalls which have affected the assessment of SME performance in much of the past research.

Chapter 6: Adjusting for Risk

John Watson

Subjects: business and management, entrepreneurship, economics and finance, international accounting

Extract

INTRODUCTION In this chapter I continue to explore how the performance measures used in most previous research are incomplete and probably biased against female SME owners. The focus in this chapter is on risk. While risk is important for all firms, it is particularly important in SMEs because there is little separation between business and personal risk in an SME. For example, the personal assets of SME owners are often used to secure bank loans for their businesses. In large incorporated businesses, the liability of owners (shareholders) is limited to the value of the shares they have bought and does not extend to their private assets. Forlani and Mullins (2000) note that although risk plays a central role in most entrepreneurial decision making, there has been little empirical research explicitly examining how the elements of risk, risk perceptions and an entrepreneur’s propensity to take risks, influence choices among potentially risky entrepreneurial ventures. Ballantine, Cleveland and Koeller (1993, p.87) argue that ‘modestly higher average profit rates in favor of large firms have been overemphasized while the much more substantial variations in profit experienced by all firms, and particularly small firms, have been largely ignored’. Similarly, Fischer (1992) urges future researchers to explore the possible differences in the risk-taking propensities of men and women. Therefore, the aim of this chapter is to examine the performances of male- and female-controlled SMEs, adjusting for differences in risk. 6.1 CONTROLLING FOR RISK IN MEASURING SME PERFORMANCE ‘A common human failing is the desire for simple...

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