The Firm Size-Performance Relationship: An Empirical Examination of the Role of the Firm's Growth Potential
This study advances the understanding of the relationship between firm size and performance by examining whether firms enjoying higher growth potential are better performers. It builds on arguments presented in the literature on small economies to suggest that small economy size could contain firm growth potential and by extension firm performance. The nature of the relationship between firm growth potential (operationalised in economy size) and firm performance (denoted by technical efficiency) is examined by employing stochastic frontier analysis on data for 54 incumbent telecommunications firms from an equal number of economies for the period 1990-2007. Controlling for the effects of competition, firm governance structure, and institutional risk, inter alia, the findings suggest that firm growth potential is not necessarily a limiting factor as both firms in small and large economies can operate efficiently. Yet, higher growth potential is more important for firms operating in small than in large economies. By extension, firm growth potential is more important for small rather than large firms.