Financial Performance of SMEs - Evidence on the Impact of Ownership Structure and Board Composition

This study investigates the impact that ownership structure and board composition have on performance in a sample of Finnish SMEs. Our study is one of few that shed light on how corporate governance and ownership structures affect performance of small firms. Our results suggest that the ownership structure, in particular, affects both the growth and profitability of small firms. Firms with high managerial ownership levels exhibit higher profitability ratios, but have lower growth rates. We further find that firms with high Venture Capital Firm ownership ratios grow faster and are less profitable. These results can be interpreted to indicate that owner-managers are risk averse and that Venture Capital Firms seek investments with high growth potential. Our results on board structure suggest that board structure has little impact on the performance of small firms. The only significant result in this context is that firms with outside board members have lower growth rates and are less profitable.