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Business owners, employees, and firm performance

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Abstract

The novel Finnish Longitudinal OWNer-Employer-Employee (FLOWN) database was used to analyze how the characteristics of owners and employees relate to firm performance as determined by labor productivity, survival, and employment growth. Focusing on the role of the employment history, the results show that previous experience in a high-productivity firm strongly predicts high productivity and probability of survival for the entrepreneur’s new firm. This can be interpreted as evidence of knowledge spillovers through labor mobility of both the owners and the employees. The results also show that the owner’s high education in a technical field is positively related to firm performance. Different findings for owner-entrepreneurs and pure owners suggest that the definition of entrepreneurship matters.

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Notes

  1. The FLOWN database is available via Statistics Finland’s FIONA remote access system. The database links information on the owners of limited liability companies to their firms, with information on dividends by firm and by owner.

  2. In other words, we measured the relative productivity level within industries classified at about two-digit industry level.

  3. Note that productivity is estimated in log so that the percentage effect is 25.7% = exp(0.229)-1.

  4. The estimate from the unweighted regression is 24.0% = exp(0.215)-1.

  5. The estimate from the unweighted regression is 18.1% = exp(0.166)-1 but not statistically significant.

  6. The estimate from the unweighted regression is 12.4% = exp(0.117)-1.

  7. The estimate from the unweighted regression is 14.3% = exp(0.134)-1.

  8. The estimate from the unweighted regression is 29.2% = exp(0.256)-1.

  9. But the estimate from the unweighted regression is only 30.2% = exp(0.264)-1.

  10. But the estimate from the unweighted regression is only 33.9% = exp(0.292)-1.

  11. Using analytic weights is equivalent to estimating a model multiplied by the square root of w where w is the weight variable. Instead of using individual-level data, our data presents enterprise-level averages so the coefficients and covariance matrix from the transformed regression are obtained using this procedure. See more information: https://www.stata.com/support/faqs/statistics/analytical-weights-with-linear-regression/

  12. We thank one of our anonymous referees for this suggestion.

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Acknowledgements

We thank Ari Hyytinen, Antti Kauhanen, Pekka Ilmakunnas and Petri Rouvinen as well as participants at the XXXVIII Annual Meeting of the Finnish Economic Association in Pori and the ETLA workshop for invaluable comments and suggestions. Part of the data gathering and analysis was carried out at Statistics Finland under its terms and conditions for confidentiality. For access to the data, contact the Research Services of Statistics Finland, FI-00022 Statistics Finland.

Funding

The work was supported by TEKES, the Finnish Funding Agency for Technology and Innovation (project 2867/31/2013) and the TT Foundation.

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Authors and Affiliations

  1. The Research Institute of the Finnish Economy ETLA & University of Jyväskylä, Arkadiankatu 23 B, 00100, Helsinki, Finland

    Mika Maliranta

  2. Statistics Finland & The Research Institute of the Finnish Economy ETLA, FI-00022, Helsinki, Finland

    Satu Nurmi

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  1. Mika Maliranta
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  2. Satu Nurmi
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Correspondence to Mika Maliranta.

Appendix

Appendix

Table 4 Performance of all entrepreneur-owner firms and the role of owner and employee characteristics
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Table 5 Performance of all pure owner firms and the role of owner and employee characteristics
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Maliranta, M., Nurmi, S. Business owners, employees, and firm performance. Small Bus Econ 52, 111–129 (2019). https://doi.org/10.1007/s11187-018-0029-1

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