The relationship between firm size and performance

Abstract: The impact of firm size on performance of a firm has been widely debated. There is the view that large firms are able to outperform smaller competitors because of economies of scale. Harsh economic conditions have, however, led to a number of large firms collapsing. Advocates of small firms have noted that the knowledge of niche markets and unique offerings have allowed small firms to remain competitive. This study investigates whether there exists a relationship between firm size and return on assets. To supplement the size variable, the study also considered control variables associated with firm size to determine how they influence the relationship between firm size and return on assets. The study considered a sample of firms in the Industrial Goods and Services sector listed on the JSE to examine the nature of the relationship between firm size and performance, during the period 2004 to 2013. Market capitalisation was used as measure for firm size and return on assets as a measure of firm performance. The study data was analysed by means of a comparative analysis applying descriptive statistics, correlation analysis and a regression analysis. The findings from the correlation and regression analyses indicate that firm size has no influence on firm performance when the combined sample was investigated. However, the results indicate that for small listed firms, firm size has a moderate positive influence on firm performance. For large firms, firm size has no influence on firm performance. The results of the study will be useful for management to focus their efforts on significant variables that influence return on assets.M.Com. (Financial Management