Learning about small business profitability: the influence of management practices and owner-manager human capital.

Abstract

In a free market economy the importance of small business as a major job supplier, innovatorand source of growth is widely recognized. Given the importance of small business for aneconomy, the survival, success and performance of these firms is an issue of continuousconcern. Research that can lead to the identification of those factors associated with smallbusiness performance is of great interest to policy makers, owner-managers and their advisors.This article aims at detecting predictors of small business profitability. Our objective is todistinguish internal factors of small construction companies that enhance firm profitability.Based on the data of an empirical survey in the construction industry to which certifiedfinancial data has been added, this paper investigates the influence of owner-manager humancapital characteristics and selected management practices on the profitability of smallconstruction companies. For this purpose, we develop and test a structural model. Resultsindicate that industry experience and level of education of the owner-manager andmanagement practices such as avoidance of cash credit and the use of actual costing systemscontribute to higher profitability. Furthermore, owner-manager human capital characteristicsinfluence profitability both directly and indirectly.Characteristics; Companies; Construction; Credit; Data; Economy; Factors; Firms; Industry; Job; Learning; Management; Management practices; Market; Model; Owner-manager; Owner-manager human capital; Performance; Policy; Profitability; Research; Small business; Small business profitability; Structural model; Success; Systems; Working;