Small Firm Performance and Ownership Structure

The relation between corporate governance and firm performance is generally focused on the rela-tion between ownership structure and performance. Alignment of incentives, entrenchment and cost of capital arguments identifies a positive respectively negative relation between concentrated own-ership and performance. Empirical studies in general identifie a non-linear relation, but very few studies are based on smaller firms, and these smaller firms may have other objectives than maxi-mising profit, e.g. firm survival. In this study a longitudinal data set of Danish firms is used to ana-lyse whether small firms are nothing but ‘scaled-down firms’; using Gibrat’s Law it is shown that small firms are significantly different than larger firms and in line with these findings it is shown that the ownership structure of small firms also differs from large firms. The empirical study re-veals that non-linearity and endogeneity between ownership structure and performance also hold for small firms