Does Board Composition and Ownership Structure Affect Firm Growth? Evidence from Finnish SMEs.

Jaana Lappalainen, Mervi Niskanen


Growth is one tool for measuring the success and performance of fi rms. Although firms do not always have growth as their main objective, the ability to grow is an important aspect for them. Storey (1994) suggests that there are three categories of factors that infl uence the growth of small firms. The first group of factors is that of the entrepreneurs’ individual resources. These are factors that can be identified prior to the establishment of the business. The second group of factors is firm specific characteristics, such as the firm’s size, age, and legal form, and the third group is formed by the strategic choices made by the entrepreneur or the owners of the firm.

This study investigates the impact that ownership structure and board composition have on growth in a sample of Finnish SMEs. Our study is one of the few that sheds light on how corporate governance and ownership structures aff ect the growth and performance of small firms. The data for the study was collected in Spring 2007, through a private survey. The Sampole consists of 600 fi rms. Observations include the years from 2000 to 2005.

We find that both ownership structure and board structure are significant determinants of fi rm growth in our sample of small and medium sized Finnish firms. More specifi cally, the overall results suggest that managerial ownership decreases growth; whereas ownership by venture capital funds increases growth. Th e results also suggest that growth rates decrease when the number of top managers or the number of outsiders on the board increases. When we split the data into fi rms with less than ten employees and fi rms with ten or more employees, we find that ownership structure and board composition are more important determinants of growth in the sub sample of smaller firms.

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