Performance and Strategy: Simultaneous Equations Analysis of Long-lived Firms

Bernadette Power and Gavin Reid

International Journal of the Economics of Business, 2015, vol. 22, issue 3, 345-377

Abstract: A simultaneous equations model of performance, strategy and size is tested using fieldwork evidence on long-lived firms in Scotland. Estimation is by I3SLS, with correction for sample selection bias. The contributions of this paper are that it: (a) grounds estimation on fieldwork evidence; (b) calibrates performance and competitive strategy; (c) tests and models endogeneity; and (d) computes robust trade-off elasticities between firm size and performance. It shows how this trade-off provides the entrepreneur with two strong incentives: (i) to seek greater efficiency typically by an increase in the human capital of the 'core' workforce; (ii) to achieve higher levels of performance by adopting more diverse competitive strategies.

Date: 2015
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DOI: 10.1080/13571516.2015.1051751

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