Drivers of firm performance: a holistic and multivariate panel data approach

Drivers of Firm Performance: A Holistic and Multivariate Panel Data Approach Olubunmi Alice Ipinnaiye Firm performance is important for a number of reasons related to job creation, firm survival, innovation, c ompetiveness a nd ov erall economic pe rformance; m otivating a l arge bod y o f research o n its d etermining f actors. It is essential to consider t he m acroeconomic environment in any firm performance analysis, as this determines the strategies employed by firms, as well as subsequent performance. Despite the imperative of such research, a l acuna exists in the literature. To address this gap, a holistic multivariate model is developed which relates firm performance to firm-level characteristics, f irm strategy and key elements of the macroeconomic e nvironment. This t hesis, t herefore, i nvestigates t he de terminants of f irmlevel p erformance u sing d escriptive an alysis an d S ystem G eneralised Method o f M oments (SYS-GMM) regression models to analyse panel datasets from the Irish Census of Industrial Production a nd A nnual Services Inquiry for 2 ,200 f irms c overing t he manufacturing and services i ndustries i n Ireland ove r t he pe riod 1991-2007. T his pr ovides i nsights on t he performance of f irms d uring a n e xport-led gr owth pha se ( 1991-2000) a nd a c redit-led domestic demand-driven growth phase (2001-2007) in the Irish economy. Results s how t hat t he performance of f irms i s s trongly i nfluenced b y changes i n t he macroeconomic environment, with manufacturing firms showing higher employment growth during t he pe riod of e xport-led g rowth a nd hi gher t urnover a nd pr oductivity pe rformance during the credit-led domestic demand-driven growth phase. The impact of firm strategy on firm p erformance i s a lso m oderated b y m acroeconomic c onditions, w ith f irms a dopting strategies such as trade and training to increase turnover and productivity during the second growth phase. A strong negative firm size-growth effect is found which remained robust to time pe riod, i ndustry a nd ow nership t ype. T here a re p erformance di fferentials be tween foreign and domestic firms, with domestic firms performing better than foreign firms in terms of employment and turnover, while foreign f irms showed higher productivity p erformance. These results imply that small Irish-owned f irms a re important sources o f j ob c reation and output growth. Overall, in many of the firm performance model specifications in this study, the ef fect o f the determinants on f irm pe rformance i s de pendent on t he definition of f irm performance and firm size employed. These results suggest the need to adopt a holistic multivariate approach to the study of firm performance which incorporates both internal (firm-specific characteristics and strategy) and external f actors ( the m acroeconomic environment). T he m ultidimensional na ture of f irm performance should also be taken into account through the use of multiple firm performance measures for any meaningful analysis. Finally, the findings suggest a potential role for policy aimed at ensuring macroeconomic stability, supporting small indigenous firms and improving their productivity so as to ensure that they are more competitive in global markets. This study not only makes an important contribution to the firm performance l iterature, the results also have possible policy implications in the area of small business development. ii Declaration of Originality No por tion of t he w ork r eferred t o i n t his t hesis ha s b een s ubmitted i n s upport of a n application for another degree or qualification of this or any other university or institute of learning. I declare that the thesis represents the results of my own work. Following normal academic conventions, I have made due acknowledgments of the work of others. The work has been completed with a total word count of 114,226 excluding references and appendices. Copyright Statement: Copyright in text of this thesis rests with the author. Copies (by any process) either, in full or of extracts, may be made only in accordance with instructions given by the author. Signed: __________________________ Olubunmi Alice Ipinnaiye