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A Multi-Level Perspective on Firm Growth: An Empirical Study of SMEs
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Pittsburg State University
VOLUME XXXIV NUMBER 2

Journal of Managerial Issues
Pittsburg, KS 66762
Volume XXXIV Number 2 Summer 2022
The JMI in Brief
Article Abstracts ............................................................................................................
Introduction .................................................................................................................
Articles
JOURNAL OF MANAGERIAL ISSUES

What Members Need in Work Situations: Two Samples of Essential Managerial
Leadership Behaviors ...................................................................................................
Tim O. Peterson, David D. Van Fleet, and Claudette M. Peterson
The Effects of COVID-19 on College Students .............................................................

Dianne D. Murphy, Brittany Cassidy, Brinley L. Kowalkowski, Rita M. Ebbott,
and David J. Radosevich
Team Unity in Diversity: Definition, Conceptualization, and

Scale Validation ............................................................................................................
Jeffery D. Houghton, Richard A. Oxarart, and Anindita Bandyopadhyay
A Multi-Level Perspective on Firm Growth: An Empirical

Study of SMEs .............................................................................................................
Zhe Zhang, Jonathan Matthew Scott, Marco Chi Keung Lau, and
John A. Parnell
SUMMER 2022
The JMI in Brief
interplay of resources, stress, and outcomes. Theoretical and applied
implications are discussed for future research.
Keywords: COVID-19, college students, socioeconomic status, resource loss,
stress
Team Unity in Diversity: Definition, Conceptualization, and Scale Validation .............

Jeffery D. Houghton, Richard A. Oxarart, and Anindita Bandyopadhyay
In today’s team-based organizational environments, the paradoxical tension
between the possible benefits of team unity resulting from team member
homogeneity and potential advantages of team member diversity stemming
from team member heterogeneity is a challenging issue for team leaders, team
members, and team researchers. The objective of this study is to advance team
unity in diversity as a new concept in the team diversity literature that has
potential for resolving the paradox between team unity and team diversity to
effectively harness the advantages of both. This research follows established
methods to conceptualize and define the team unity in diversity concept
before developing, refining, and validating a team unity in diversity
measurement scale. The resulting 17-item instrument demonstrates a stable
bi- factor structure with robust convergent, discriminant, and nomological
validity. Implications for theory and practice are discussed along with
directions for future research exploring team unity in diversity.
Keywords: team unity in diversity, scale development, measurement
instrument, paradox
A Multi-Level Perspective on Firm Growth: An Empirical Study of SMEs ..................

Zhe Zhang, Jonathan Matthew Scott, Marco Chi Keung Lau, and John A. Parnell
The growth of small and medium-sized enterprises (SMEs) is a multilevel
phenomenon. However, scant research has examined its antecedents at both
the country and firm levels. This study examines the effects of both country-
level institutional quality and firm characteristics (i.e., firm age, state
ownership, and management experience) on firm growth. The sample
includes nearly 1,800 SMEs from 12 countries in the World Bank’s
Management, Organization, and Innovation (MOI) database. Government
effectiveness, political stability, and the absence of violence were positively
associated with firm growth. Unexpectedly, control of corruption was
negatively associated with firm growth. Younger and non-state-owned
enterprises grew faster than older state-owned firms. Management experience
did not influence firm growth. This study underscores the need for
governments to provide political, economic, and social stability as a precursor
to SME growth.
Keywords: SMEs; growth; institutions; firm age; management experience; state
ownership
JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

(96)
JOURNAL OF MANAGERIAL ISSUES
Vol. XXXIV Number 2 Summer 2022
A Multi-Level Perspective on Firm Growth:

An Empirical Study of SMEs 1
Zhe Zhang
College of Business
Eastern Kentucky University
zhe.zhang@eku.edu
Jonathan Matthew Scott

Waikato Management School
University of Waikato
j.scott@waikato.ac.nz
Marco Chi Keung Lau

Business School
Teesside University
c.lau@tees.ac.uk
John A. Parnell
College of Business
University of North Alabama
jparnell@una.edu
The growth of small and medium-sized enterprises (SMEs) is a multilevel phenomenon.

However, scant research has examined its antecedents at both the country and firm
levels. This study examines the effects of both country-level institutional quality and firm
characteristics (i.e., firm age, state ownership, and management experience) on firm
growth. The sample includes nearly 1,800 SMEs from 12 countries in the World Bank’s
Management, Organization, and Innovation (MOI) database. Government effectiveness,
political stability, and the absence of violence were positively associated with firm
1
The authors would like to thank the editorial team of this special issue, Chanchai Tangpong,
Ronda Smith, Yi-Su Chen, and Rebecca Badawy, for their outstanding support and advice, as well
as two anonymous reviewers for their constructive feedback.

(173)
174 A MULTI-LEVEL PERSPECTIVE ON FIRM GROWTH
growth. Unexpectedly, control of corruption was negatively associated with firm growth.
Younger and non-state-owned enterprises grew faster than older state-owned firms.
Management experience did not influence firm growth. This study underscores the
need for governments to provide political, economic, and social stability as a precursor
to SME growth.
Keywords: SMEs; growth; institutions; firm age; management experience; state
ownership
Field of specialization: Entrepreneurship
Since Penrose (1959), entrepreneurship and strategy research has focused on

resources and contextual drivers of firm growth (Levinthal and Wu, 2010). However,
small and medium-sized enterprise (SME) growth is a multilevel, contextual
phenomenon affected by both micro factors and macro-environments (Davidsson et al.,
2006). Indeed, most research on firm growth has focused on either country-level or firm-
level antecedents. One stream of research examines how a country’s institutions affect
firm growth in SMEs (e.g., Ahlstrom and Bruton, 2010), viewing institutions as the “rules
of the game” that incentivize or disincentivize growth (North, 1990) and considering
how variations in country-level institutions affect firm growth (Baumol, 1990). Yet,
within similar institutional environments, the speed and scale of SME firm-level growth
vary considerably. A second research stream focuses on how firm growth varies as a
function of firm-level idiosyncrasies to delineate inter-firm performance variations (e.g.,
Begley, 1995; Bruton and Rubanik, 2002; Coad and Tamvada, 2012; Nason and
Wiklund, 2018). However, this perspective neglects the effects of the external
institutional environment and other contextual factors.
Entrepreneurship studies have increasingly leveraged a multilevel analysis
approach to study various outcome variables other than firm growth, including the
effects of institutions and firm characteristics on multiple outcomes such as firm survival
(Baumöhl et al., 2019), financial and nonfinancial performance (Parnell, 2018), bribery
(Martin et al., 2007), and entrepreneurial potential (Aparicio et al., 2021). This study
examines the effects of both country-level institutional quality and firm characteristics
on firm growth. It draws on a sample of nearly 1,800 SMEs from 12 countries in the
World Bank’s MOI database. This work underscores the need for governments to
provide political, economic, and social stability as a precursor to SME growth.
This paper makes three important contributions. First, it examines the effects of
both country-level institutional quality and firm characteristics concurrently, whereas
prior studies have investigated either the effects of intuitional quality on entrepreneurial
activities in a single country context (e.g., Sobel, 2008) or the effects of firm
characteristics on firm growth in the United States (Barringer et al., 2005). Second, it
examines the effects of each of the six dimensions of the World Governance Indicators
(WGI), adopted as proxy measures for institutional quality on firm growth; previous
studies examined these WGI dimensions on outcome variables other than firm growth
(Anokhin and Schulze, 2009). Third, it contributes to the firm growth literature by
corroborating the effects of firm age (Stinchcombe, 1965), state ownership (Peng and
Luo, 2000; Tan, 2002), and management experience (Alvarez and Busenitz, 2001;
Barringer et al., 2005). These tripartite firm characteristics help explain how the
contextual factors (e.g., institutional quality as proxied by the WGI) drive firm growth.

ZHANG, SCOTT, LAU, AND PARNELL 175
Specifically, this study examines multilevel factors to uncover the linkages between these
internal and external factors. It operationalizes firm growth using employment growth
rates instead of growth aspirations (Davidsson and Wiklund, 2006).
LITERATURE REVIEW AND HYPOTHESES
Country-Level Determinants: Institutional Quality

Most economic theories view firms as profit-maximizing entities. In contrast,
institutional theory, in which this study is grounded, envisages firms seeking legitimacy
by conforming to the “rules of the game in a society” (North, 1990), including (i)
regulative, (ii) normative, and (iii) cognitive pillars (Bruton et al., 2010; Palmer and
Biggart, 2002). These are, respectively, (i) formal institutions (i.e., regulations and laws);
(ii) what is perceived to comply with the norm; and (iii) the socially constructed rules
and beliefs that shape individual behavior (Palmer and Biggart, 2002). An additional
pillar, the conducive pillar, relates to institutions supporting entrepreneurship
(Stenholm et al., 2013). While entrepreneurial behavior varies among countries due to
institutional differences which incentivize or constrain entrepreneurial behavior
(Baumol, 1990), formal and informal institutions can affect firm behaviors (Brouthers,
2002; Hessels et al., 2008).
Since institutions are multifaceted and can affect firm growth, the effects of
institutional quality are examined. Whilst the definition and operationalization of
institutional quality (cf. Sobel, 2008) is contested, Kaufmann et al.’s (2010) seminal
definition of institutional quality is adopted herein. It emphasizes the regulative pillar
in formal institutions, as “the traditions and institutions by which authority in a country
is exercised.” The summary list of benefits arising from high-quality institutional
environments (Webb et al., 2010) comprise: (1) easier access to funding from capital
markets; (2) better availability of well-educated, highly skilled candidates; (3) more
developed infrastructure, e.g., transportation, communication systems, and utilities; (4)
sounder and more prevalent court systems, contract enforcements, and laws; and (5)
better established and protected property rights. Indeed, empirical research supports a
positive relationship between institutional quality and entrepreneurship (e.g., Sobel,
2008), whereby an incentive structure increases the likelihood that creative individuals
engage in productive entrepreneurship.
Other studies (e.g., Baumöhl et al., 2019; Clercq et al., 2013) support this
perspective linking institutional quality and entrepreneurship. Indeed, controlling
corruption can increase innovation and entrepreneurship (Anokhin and Schulze, 2009),
a perspective underpinned by institutional and public choice theories. The public choice
perspective explains why organizations pursue mutually beneficial arrangements with
politicians and other government stakeholders.
Corruption has negative consequences for firm growth (Fisman and Svensson,
2007) and innovation and growth (Lau et al., 2015). However, in a second-best scenario,
corruption could be efficiency-enhancing by “greasing the wheels” of economic activity
(Leff, 1964; Lui, 1985). Specifically, corruption can expedite bureaucratic procedures
and create competition for government resources. Consistent with the “grease the
wheels” hypothesis, Dreher and Gassebner (2013) found public corruption increases
private entrepreneurial activity. Various scholars have linked control of corruption with
firm growth aspirations (e.g., Estrin et al., 2013), suggesting a negative correlation

between low-quality institutions, indicating extant corruption, and high-growth

entrepreneurship (Bowen and Clercq, 2008). Eberhart et al. (2017) found that, as
institutional quality increased in Japan (i.e., the shift to lenient bankruptcy reform),
graduates of top Japanese management universities tend to establish high-growth firms.
This review suggests that institutional quality is broadly and positively associated
with firm growth. Specifically, the links between six dimensions of institutional quality
are hypothesized as follows:
H1a: Control of corruption (CC) is positively related to firm growth.
H1b: Government effectiveness (GE) is positively related to firm growth.
H1c: Political stability (PS) is positively related to firm growth.
H1d: Rule of law (RL) is positively related to firm growth.
H1e: Regulatory quality (RQ) is positively related to firm growth.
H1f: Voice and accountability (VA) is positively related to firm growth.
Firm-Level Determinants: Firm Age, State Ownership, and Management Experience

The interaction of three firm-level determinants – firm age, state ownership, and
management experience – with firm growth are examined in this study because (1) most
prior studies are based in a single country, and (2) the MOI dataset provides measures
for each variable. Once firms overcome survival challenges, their growth aspirations and
the de facto level of firm growth tend to vary systematically as a function of firm age. A
negative relationship between firm age and firm growth (Coad and Tamvada, 2012) is
observed where younger firms tend to grow more rapidly than older firms. Thus, it
follows that:
Hypothesis 2: Firm age is negatively related to firm growth.
Managers at state-owned enterprises (SOEs) may be risk-averse and less motivated
to grow because their compensation is not tied to growth or performance, whereas job
security is paramount. Hence, firm growth in SOEs is not prioritized by government
officials (Peng and Luo, 2000). Consequently, SOEs are more likely than non-SOEs to
adopt a wait-and-see defender strategy in complex, dynamic, and hostile environments
(Tan, 2002). Further, SOEs may be less innovative than non-SOEs. While higher growth
rates might be expected in non-SOEs, a positive link between state ownership and firm
growth is often depicted because SOE status signals government support, legitimacy,
and information advantage. Moreover, the SOE arrangement provides financial and
legal buffers, thus giving a firm an advantage over its rivals, especially in transition
economies where formal institutions are less developed. Hence, the third hypothesis
proposes a positive net effect of SOE status on firm growth.
Hypothesis 3: State ownership is positively related to firm growth.
Upper echelon theory (Hambrick and Mason, 1984) suggests that a manager’s prior
experience in a related industry influence strategic decisions pertaining to firm growth.
Central to firm growth is the notion of entrepreneurial learning, involving
entrepreneurial knowledge, “the ability to take conceptual, abstract information of
where and how to obtain undervalued resources, explicit and tacit, and how to deploy
and exploit these resources” (Alvarez and Busenitz, 2001: 762). Hambrick and Mason
(1984) argued that experience in relevant industries helps managers recognize growth
opportunities and obtain resources to explore and exploit them. Thus, the paper
hypothesizes:
H4: Management experience is positively related to firm growth.

Country-level institutions Figure I
Summary of Hypothesized Relationships
Institutional quality
Control of corruption (CC)
Government effectiveness (GE) H1: + Firm growth
Political stability and absence of
violence (PS)
Rule of law (RL)
Regulatory quality (RQ) H2:-
Control variables
Voice and accountability (VA)
Country level: GDP growth

Country level: Transition economy
Firm level: Industry
Firm characteristics H4: + Firm level: Legal form
H3:+
Firm level: Founder/manager
The hypothesized relationships are summarized in Figure I.
ZHANG, SCOTT, LAU, AND PARNELL
Firm age
State ownership
Management experience

177
METHODS
The first of three datasets used in this study is the European Bank for
Reconstruction and Development (EBRD)/World Bank MOI survey conducted between
October 2008 and November 2009. This database has been widely used in prior research
(e.g., Athanasouli and Goujard, 2015; Bourke and Crowley, 2015; Eddleston et al., 2019;
Maksimov et al., 2017). The survey was administered to 1,777 firms with between 50 and
5,000 employees from 12 countries: Belarus, Bulgaria, Germany, India, Kazakhstan,
Lithuania, Poland, Romania, Russia, Serbia, Ukraine, and Uzbekistan. The MOI survey
provides rich data regarding small business management practices, organizational
structures, innovation and research and development, market competition, and
employment (Bloom et al., 2016; EBRD, 2010; Skorupinska and Torrent-Sellens, 2017).
The second data source is the World Bank national accounts data and the
Organization for Economic Cooperation and Development (OECD) National Accounts
data files, which report percentage changes of annual gross domestic product (GDP) for
each country. The third data source, the WGI, includes data from over 200 countries
from 1996-2018 (Kaufmann and Kraay, 2019; Kaufmann et al., 2010). Prior research has
used the WGI on topics associated with country-level institutions (Anokhin and Schulze,
2009).
Variables and Measures

Employment growth, a proxy for firm growth, was selected for two reasons. First,
Davidsson et al. (2006) argued that the appropriateness of the three growth measures
(i.e., sales, employment, and assets) are contingent on the unit of analysis. When
governance structure is involved, employment growth is appropriate. Since institutional
quality, firm age, state ownership, and managerial experience are all associated with
variance in the organizational complexity in governance structures, the measurement of
firm growth using employment growth is an appropriate proxy. Second, employment
growth is the only measure of firm growth reported in the MOI database.
Absolute or relative employment growth data is often used to operationalize firm
growth (Davidsson and Wiklund, 2006). The dependent variable, firm growth, was
obtained from the MOI. It measures the rate of change in full-time employees within
the three years preceding the survey, the only available time period in the dataset.
Extant research has shown that the growth conditions for SMEs and large firms differ
substantially (Deschryvere, 2014). Given the paper’s focus on SMEs, the t-3 firm size is
limited to the three years preceding the survey year to no greater than 500 full-time
employees, whereas the t firm size is the number of full-time employees preceding the
survey year. The analysis follows Ullah and Wei (2017) by adopting the approach of the
growth rate index outlined in Coad (2009) to operationalize firm growth as follows:
Firm growth i,t = (Employees i,t - Employees i,t-3) / (Employees i,t + Employees i,t-3)
in which i represents the firm and t refers to the year.
At the country level, the effects of six indicators of institutional quality included in
the WGI data have been measured: (1) control of corruption (CC); (2) government
effectiveness (GE); (3) political stability and absence of violence/terrorism (PS); (4) the
rule of law (RL); (5) regulatory quality (RQ); and (6) voice and accountability (VA). The
six indicators were obtained by creating a composite measure of the data averages from
various sources and applying the unobserved component model approach (Harvey,

1989). The resultant composite indicators range from -2.5 to 2.5 with a mean of 0, a
standard deviation of 1, with higher values suggesting better governance (see details:
Kaufmann et al., 2010). The WGI indicators of 2008 and 2009 were used for the
corresponding country and year in the MOI.
Data for the independent firm-level variables (i.e., firm age, state ownership, and
management experience) were collected from the MOI. Firm age is calculated in years
with an upper limit of 30 to enhance the likelihood that a founder may still manage the
business at the time of the survey. State ownership captures whether the firm was fully
or partially state owned. Private firms were coded “0” and SOEs were coded “1.”
Management experience comprises the number of years the top manager has worked in
the firm’s industry.
Two country-level and three firm-level control variables were employed. At the
country level, following Bowen and Clercq (2008), Estrin et al. (2013), and Ullah and
Wei (2017), the World Bank national accounts data on GDP growth measures the
percentage change in a country’s GDP in the year of the survey. Additionally, a control
variable to measure whether the country is a transition economy was incorporated (i.e.,
by coding “India” and “Germany” with a value of “0,” and the other 10 countries “1”).
At the firm-level, industry, the legal form of the firm, and the status of the founder
or manager were included since prior research suggests a link between industry and
overall firm performance (Coad and Tamvada, 2012; Peng and Luo, 2000). The MOI
survey comprises manufacturing businesses coded into 11 sectors, including food,
textiles, garments, chemicals, plastics and rubber, non-metallic mineral products, basic
metals, fabricated metal products, machinery and equipment, electronics, and other
manufacturing plants. Following Baumöhl et al. (2019), Coad and Tamvada (2012),
Harhoff et al. (1998), and Tan (2002), the analysis controlled for the legal structure of
the firm, which includes six forms: (1) share-holding company if shares traded in the
stock market; (2) share-holding company if shares traded privately; (3) sole
proprietorship; (4) partnership; (5) limited partnership; and (6) others. Lastly, following
previous work (Begley, 1995; Daily and Thompson, 1994; Estrin et al., 2013), the analysis
assessed whether the manager was also the founder.
FINDINGS
Although 1,777 firms were included in the survey, Hypothesis 1 was tested at the
country level on a sample of 1,280 firms based on the following screening criteria. First,
the MOI survey was conducted on firms of between 50 and 5,000 employees. Given the
focus of this study on SMEs, the firm size was limited to 500 full-time employees. Second,
only firms established since 1978 were retained because, for the measurement of the
founder/manager status of the firm, it is assumed that some founders are no longer
mangers after 30 years.
Table 1 provides a summary of variables, data sources, and definitions. Firm age
and VA were negatively correlated with firm growth while state ownership positively
correlated with firm growth (see Table 2). Multiple regression analyses were employed
to test the hypotheses capturing factors at multiple levels using Stata (see Table 3). The
grouping variable was country. The regression employed random effect analyses which
allowed random variances within countries. A variance inflation factor (VIF) test was
conducted to detect potential multicollinearity. A full model that included all

independent and control variables was tested. A VIF of 8.64 is below the threshold value
of 10 (Dormann et al., 2013; Hair et al., 2013). Hence, multicollinearity did not present
a significant concern.
Two models were deployed to test the hypotheses as reported in Table 3. Model 1
included institutional quality variables and control variables; it was used to test
Hypothesis 1. Model 2 included all the control variables, institutional quality variables,
and firm characteristic variables; it was used to test Hypothesis 2 through 4. As shown
in Table 3, both of the regression models were statistically significant in that the
significant levels of the Wald tests of both models were less than 0.0001.
H1 was partially supported. As shown in model 1 in Table 3, PS and GE were
positively related to firm growth as hypothesized, whereas RQ, RL, and VA were not.
Interestingly, as opposed to the hypothesized relationship, CC was negatively associated
with firm growth.
As shown in model 2 in Table 3, the remaining hypotheses were tested on 744 firms
in the 12 countries. H2 was supported. The results supported a significant negative
relationship between firm age and firm growth. H3 was not supported. The findings
reported a significant negative relationship between state ownership and firm growth.
H4 was not supported. The results did not support a link between management
experience and firm growth. Interestingly, when firm-level characteristic independent
variables were included in the analyses, the effects of control of corruption and
government effectiveness became insignificant.

Table 1
Variables
Variables Data source Operationalization/Definition
Dependent Variable
1. Firm growth Management, Firm Growthi,t = (Employees i,t - Employees i,t-3) / (Employees i,t + Employees i,t-3)
Organization, and in which i represents the firm and t refers to the year.
Innovation (MOI) The upper bound of the initial firm size is 500 full-time employees.
Independent Variables
Country level-level 1
2. Control of Worldwide Control of Corruption reflects perceptions of the extent to which public power is
Corruption (CC) Indicator (WGI) exercised for private gain, including both petty and grand forms of corruption, as
well as “capture” of the state by elites and private interests
3. Government Worldwide Government Effectiveness captures perceptions of the quality of public services, the
Effectiveness (GE) Indicator (WGI) quality of the civil service and the degree of its independence from political
pressures, the quality of policy formulation and implementation, and the credibility
of the government’s commitment to such policies.
4. Political Stability Worldwide Political Stability and Absence of Violence/Terrorism measures perceptions of the
and Absence of Indicator (WGI) likelihood of political instability and/or politically motivated violence, including
Violence (PS) terrorism.
5. Rule of Law (RL) Worldwide Rule of Law captures perceptions of the extent to which agents have confidence in
Indicator (WGI) and abide by the rules of society, and in particular the quality of contract
enforcement, property rights, the police, and the courts, as well as the likelihood of
crime and violence.

6. Regulatory quality Worldwide Regulatory Quality captures perceptions of the ability of the government to
(RQ) Indicator (WGI) formulate and implement sound policies and regulations that permit and promote
private sector development.
7. Voice and Worldwide Voice and Accountability captures perceptions of the extent to which a country’s
Accountability Indicator (WGI) citizens are able to participate in selecting their government, as well as freedom of
(VA) expression, freedom of association, and a free media.

181
182
Table 1 - Variables (con’t)

Firm level-level 2
8. Firm age MOI Number of years the firm has been in business
9. State ownership MOI Whether the firm was ever fully or partially state owned. No=0, Yes=1.
10. Management MOI Number of years of experience the top manager has in the industry sector
experience
Control Variables
11. Country level: World Bank The percentage growth of national GDP in the year preceding the survey year
Transition National Accounts
economy Data, and OECD
National Accounts
data
12. Country level: MOI India and Germany “0” and the remaining 10 countries “1”
Transition
economy
13. Firm level: MOI 11 industries include food, textiles, garments, chemicals, plastics and rubber,
Industry non-metallic mineral products, basic metals, fabricated metal products,
machinery and equipment, electronics, and other manufacturing plant
14. Firm level: Legal MOI Six forms include share-holding company if shares traded in the stock market;
Form share-holding company if shares traded privately; sole proprietorship;
partnership; limited partnership; and others
A MULTI-LEVEL PERSPECTIVE ON FIRM GROWTH
15. Firm level: MOI Whether the manager is also the founder.
Founder / manager

Table 2
Descriptive Statistics and Correlations
Variable Mean SD Min Max 1 2 3 4 5 6 7 8 9
1. Firm growth 0.037 0.217 -0.934 1
2. Control of
corruption (CC) -0.262 0.897 -1.27 1.76 -0.031
3. Government
effectiveness (GE) -0.004 0.711 -1.13 1.58 0.002 0.941*
4. Political stability
and absence of
violence (PS) -0.075 0.786 -1.35 0.95 0.018 0.623* 0.499*
5. Rule of law (RL) -0.115 0.868 -1.32 1.75 -0.023 0.967* 0.946* 0.579*
6. Regulatory
quality (RQ) 0.106 0.861 -1.47 1.52 -0.031 0.870* 0.841* 0.718* 0.914*
7. Voice and
accountability (VA) 0.062 0.991 -2.10 1.34 -0.087* 0.805* 0.734* 0.466* 0.870* 0.866*
8. Firm age 13.305 6.195 0 30 -0.193* 0.204* 0.217* -0.146* 0.202* 0.056 0.167*
9. State ownership 0.324 0.468 0 1 -0.186* -0.258* -0.286* -0.018 -0.315* -0.277* -0.287* 0.242*
10. Management
experience 17.755 11.177 1 70 -0.030 0.202* 0.202* -0.032 0.211* 0.129* 0.196* 0.236* -0.039
Note: * indicates p< 0.05

183
184
Table 3
Results of Regression Analyses
Variables (hypothesis) Hypothesized Model 1 Model 2

Sign
Number of observations =1280; Number of observations =744;

Number of groups=12 Number of groups=12
Observations per group: average Observations per group: average =62;
=106.7; range:29-64; range 8-23;
p(ɖ2(11)>49.49)<.0001 p(ɖ2(14)>60.20)<.0001
Country-level Hypotheses –Level 1 b p-value s.e. b p-value s.e.
Control of corruption (CC) H1a (+) -0.101** 0.010 0.039 -0.062 0.197 0.048
Government effectiveness (GE) H1b (+) 0.088* 0.050 0.045 0.083 0.111 0.052
Political stability and absence of H1c (+) 0.057** 0.010 0.022 0.049* 0.047 0.025
violence (PS)
Rule of law (RL) H1d (+) 0.058 0.391 0.068 -0.013 0.862 0.077
Regulatory quality (RQ) H1e (+) -0.042 0.297 0.040 -0.014 0.760 0.044
A MULTI-LEVEL PERSPECTIVE ON FIRM GROWTH
Voice and accountability (VA) H1f (+) -0.030 0.183 0.029 -0.030 0.282 0.027

Table 3 (con’t)
Results of Regression Analyses
Firm-level Hypotheses—Level 2 Hypothesized Model 1 Model 2

Sign
Firm Age H2 (-) -0.006*** <0.001 0.001
State Ownership H3 (+) -0.060* 0.014 0.024
Management Experience H4 (+) <0.001 0.577 0.001
Control
Country level: GDP Growth <0.001 0.969 0.001 <0.001 0.807 0.001
Country level: Transition -0.037 0.400 0.044 -0.092 0.076 0.052

Economy
Firm level: Industry <-0.001 0.400 0.001 -0.001 0.398 0.001

Firm level: Legal Form 0.004 0.332 0.005 0.004 0.510 0.007
Firm level: Founder/Manager -0.056*** 0.001 0.013 -0.006 0.717 0.017

Status
*p<0.05; **p<0.01; ***p<0.001

185
DISCUSSION
The overall link between institutional quality and firm growth reinforces the work
of many scholars (Brouthers, 2002; Sobel, 2008; Stenholm et al., 2013). However, the
negative association between control of corruption and firm growth is intriguing. While
the nexus between control of corruption and firm growth remains inconclusive (Anokhin
and Schulze, 2009), higher sales growth has been found in countries with weaker legal
institutions (El Ghoul et al., 2017). Firm growth may be associated with lower costs where
institutions are weaker (Taussig and Delios, 2015), whilst corruption may stifle business
formation but not impact the growth of existing firms.
Theoretical Implications
The positive link between firm age and firm growth supports prior work (e.g., Coad
and Tamvada, 2012) since younger firms often have higher growth aspirations and
potential. Hence, firm age is often used as a control variable when firm performance is
a dependent variable (Begley, 1995). Therefore, younger, non-state-owned enterprises
grew faster than older SOEs. SOE status appears to promote and restrict growth
simultaneously, but in different ways (Parnell, 2008; Peng and Luo, 2000). SOEs are
structurally linked to governments via ownership, so their competitive concerns differ
from those of private firms. They are directly tied to government, and thus executives
in SOEs are often aware of new policies and regulations before their competitors and
the public (Okhmatovskiy, 2010). Government officials often invite input from SOEs
when policies are being developed, with the state/SOE link buffering them from intense
competition.
SOEs are often more reactive, defensive, and cost-centered. In contrast, private
enterprises tend to be more anticipatory, assertive, and innovative (Oliver and
Holzinger, 2008; Jiang et al., 2011). SOEs are positioned to employ social and political
capital, while their private counterparts typically have more flexibility and more
sophisticated capabilities associated with environmental scanning and market analysis
(Jiang et al., 2011; Parnell and Zhang, 2020; Zhang et al., 2020).
Finally, a link between management experience and firm performance was not
identified. Most previous work suggesting an experience-performance nexus has been
conducted in the United States and other developed economies (e.g., Barringer et al.,
2005). The drivers of firm performance can vary markedly between developed and
undeveloped nations (Decker, 2011; Meyer and Peng, 2016; Parnell, 2011). Hence,
management experience might be less valuable in transition economies undergoing
substantial reforms.
Practical Implications
The findings presented herein should be evaluated within the context of the global
financial crisis (Bouslah et al., 2018; Cornett et al., 2016). The MOI data analyzed in this
study were collected during 2008 and 2009, when many firms were responding to a
global financial shock. Indeed, crises have become more common and diverse in recent
years as business activity has become more global (Coleman, 2004; Jakubanecs et al.,
2018; Lalonde, 2007; Robert and Lajtha, 2002). Some crises strike at the organizational
level (e.g., product liability concerns, boycotts, data breaches), but others affect entire
industries and nations (e.g., military conflicts, global recessions, pandemics). Decision-

making during a crisis requires leaders to make expedient decisions under stress, high
uncertainty, and market turbulence (Boin, 2019; de Waard et al., 2012; Greyser, 2009;
Kantur and Iseri-Say, 2012). As a result, decision-makers in both private firms and SOEs
and policymakers should consider the results of this study as they evaluate growth
prospects.
Limitations
Several limitations are apparent. First, the paper focused primarily on emerging
and transitional European economies. The results are applicable to firms elsewhere, but
contextual differences must also be acknowledged given the institutional differences
between transitional economies in Eastern Europe and their counterparts in Africa, Asia,
and South America.
Second, the paper’s focus on firms’ employment growth is consistent with prior
research, but represents only one facet of growth (Davidsson and Wiklund, 2006).
Capital-labor substitution and technological advances permit many firms to grow
substantially without expanding employment. Moreover, growth reflects only one
dimension of firm performance, in contrast to profitability, market capitalization,
competitive position, or nonfinancial factors such as employee and customer satisfaction
(Liedong et al., 2020; Parnell and Brady, 2019).
Further, this study focused on firm growth in the 2000s. Indeed, institutions change
as economies develop (Baumol, 1990; Eberhart et al., 2017). Firms respond to such
changes by reallocating resources and modifying strategies (Parnell, 2008), especially
when they encounter a crisis (Coleman, 2004; Jakubanecs et al., 2018; Lalonde, 2007;
Robert and Lajtha, 2002). The MOI data was collected in 2008 and 2009 when many
firms grappled with the global financial crisis. This “crisis context” likely influenced the
data, but it is difficult to speculate how.
Future Research
There are several opportunities for future research. First, additional research on
other emerging and transitional economies is required (Ovadje, 2016). Firms must
address multiple, increasingly complex institutional requirements simultaneously, so
differences across nations would be expected (Boddewyn, 2016; Frynas et al., 2006;
Gruber-Muecke and Hofer, 2015; Oliver and Holzinger, 2008; van Kranenburg and
Voinea, 2017). Such complexity should not be underestimated (Kobrin, 2015).
Second, integrating market and nonmarket strategies can enhance the performance
of firms operating in countries with weak institutional environments (George et al., 2016;
Liedong et al., 2017). Nonmarket activity is pronounced in emerging economies that
lack appropriate legal frameworks and infrastructure (Barron, 2010; Holburn and
Vanden Bergh, 2008; Mantere et al., 2009; Vázquez-Maguirre and Hartmann, 2013).
Many firms emphasize corporate political activity (CPA) to manage political institutions
and influence political actors favorably (Hillman et al., 2004; Lux et al., 2011). Future
research should consider how CPA and other nonmarket strategies can promote firm
growth in emerging and transitional economies (Zhang et al., 2020).
Third, future research can examine firm growth over a longer time frame. As
Davidsson and Wiklund (2006: 40) noted, “growth is a process that needs to be studied
over time.” Longitudinal research can provide a more robust and comprehensive
evaluation of drivers of firm growth.

Fourth, this study examined the main effects of country-level institutional quality
and firm-level determinants on firm growth. Further investigation into the interaction
effects of institutional quality and firm-level determinants can help explain the
complexity of firm growth. For example, do younger firms grow more than older firms
within a high institutional quality context? Does the relationship between management
experience and firm growth vary as a function of institutional quality?
Furthermore, the impact of SOE status on firm performance is multifaceted and
warrants additional scholarly attention. SOEs often pursue more reactive, defensive,
cost-oriented strategies, whereas private enterprises tend to be more proactive and
innovative. Because of their government connections, SOEs are better equipped to
employ social and political capital, while private firms often enjoy greater flexibility and
develop more robust market capabilities (Jiang et al., 2011). This study reported that
younger and non-state-owned enterprises grew faster than older SOEs, but it is not
entirely clear why this occurred. Future research may investigate the contextual
limitations of SOE status on firm performance.
Lastly, the country-level effects of control of corruption and government
effectiveness disappeared when firm-level independent variables were included in the
analyses. Future research is warranted to investigate the extent to which the firm-level
effects on firm growth are more accentuated than country-level effects.
CONCLUSION
This study has examined the influence of country-level institutions and firm
characteristics on organizational growth. Based on the assessment of nearly 1,800 firms
from 12 countries, government effectiveness, political stability, and the absence of
violence were positively associated with firm growth. However, contrary to the authors’
expectations, control of corruption was negatively associated with firm growth. Firm age
was negatively associated with firm growth as well. Young firms exhibited greater three-
year employment growth. Further, young and non-SOEs grew faster than older SOEs;
hence, state ownership does not necessarily facilitate growth and could hinder it.
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A Multi-Level Perspective on Firm Growth: An Empirical Study of SMEs

Preprint · April 2022

Zhe Zhang Jonathan M. Scott

Chi Keung Marco Lau John Alan Parnell

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Managerial Experience and High Growth Firms View project

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VOLUME XXXIV NUMBER 2

Volume XXXIV Number 2 Summer 2022

The JMI in Brief

Article Abstracts ............................................................................................................

JOURNAL OF MANAGERIAL ISSUES

The Effects of COVID-19 on College Students .............................................................

Team Unity in Diversity: Definition, Conceptualization, and

A Multi-Level Perspective on Firm Growth: An Empirical

Team Unity in Diversity: Definition, Conceptualization, and Scale Validation .............

A Multi-Level Perspective on Firm Growth: An Empirical Study of SMEs ..................

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

A Multi-Level Perspective on Firm Growth:

Jonathan Matthew Scott

Marco Chi Keung Lau

The growth of small and medium-sized enterprises (SMEs) is a multilevel phenomenon.

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

Since Penrose (1959), entrepreneurship and strategy research has focused on

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

LITERATURE REVIEW AND HYPOTHESES

Country-Level Determinants: Institutional Quality

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

between low-quality institutions, indicating extant corruption, and high-growth

Firm-Level Determinants: Firm Age, State Ownership, and Management Experience

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

Country level: GDP growth

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

Variables and Measures

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

crime and violence.

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

Table 1 - Variables (con’t)

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

Variables (hypothesis) Hypothesized Model 1 Model 2

Number of observations =1280; Number of observations =744;

Country-level Hypotheses –Level 1 b p-value s.e. b p-value s.e.

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

Firm-level Hypotheses—Level 2 Hypothesized Model 1 Model 2

Firm Age H2 (-) -0.006*** <0.001 0.001

State Ownership H3 (+) -0.060* 0.014 0.024

Management Experience H4 (+) <0.001 0.577 0.001

Country level: Transition -0.037 0.400 0.044 -0.092 0.076 0.052

Firm level: Industry <-0.001 0.400 0.001 -0.001 0.398 0.001

Firm level: Founder/Manager -0.056*** 0.001 0.013 -0.006 0.717 0.017

*p<0.05; **p<0.01; ***p<0.001

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

Barringer, B., F. F. Jones, and D. O. Neubaum. 2005. “A Quantitative Content Analysis

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

JOURNAL OF MANAGERIAL ISSUES VOL. XXXIV NUMBER 2 Summer 2022

Gruber-Muecke, T., and K. M. Hofer. 2015. “Market Orientation, Entrepreneurial

p<0.05; p<0.01; p<0.001