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The relationship between discretionary slack and growth in small firms

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Abstract

Discretionary slack, along with entrepreneurial orientation (EO), are vital to the growth and long-term survival of small firms. This research combines a Penrosian view of growth with structural contingency theory to develop and test a conceptual model of the relationship between slack and growth. Using a survey of Canadian firms with fewer than 50 employees, the study finds that discretionary slack has positive effect on growth which is fully mediated by EO. In addition, the analysis confirms a positive reciprocal effect of a feedback loop between growth and slack. The study controls for, and considers the effects of, firm age, size and industry knowledge intensity. This research contributes valuable insights for further development of firm growth theory, specifically in relation to small firms. The study is also important for policy development given that: a) small firms have the potential to contribute more than larger firms to job creation but may not due to early exit; b) firms exhibiting even modest growth more than double their chances of survival; and, c) those firms that survive grow fast. This study contributes to the literature on firm growth and informs small business leaders. It also provides policy makers with practical insights to facilitate their role in supporting the growth and survival of small firms that make such an important contribution to the economy.

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Notes

  1. The social cost of failure of the largest of firms (those considered “too big to fail”) resulted in government bailouts of several US banks in the late 2000’s. At the opposite end of the spectrum of firm size, bankruptcy protection enables risk-sharing between entrepreneurs and the task environment.

  2. The constructs measured by this survey include firm strategies as well as financial information therefore it was critical that the respondent have knowledge of and access to this information. For this reason, the recruitment letters were sent to the key contact in the organisation, normally the president, CEO, owner or other executive.

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  1. F. C. Manning School of Business, Acadia University, Wolfville, NS, B4P 2R6, Canada

    Michael Sheppard

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Sheppard, M. The relationship between discretionary slack and growth in small firms. Int Entrep Manag J 16, 195–219 (2020). https://doi.org/10.1007/s11365-018-0498-3

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