THE RELATIONSHIP BETWEEN GROWTH OF COMPANIES AND LABOUR PRODUCTIVITY IN PORTUGUESE SMES: A DYNAMIC PANEL DATA APPROACH

ABSTRACT . In this study, applying various dynamic panel estimators and considering three measures of company growth, we find that there is a positive relationship between growth and labour productivity in small and medium-sized Portuguese companies. Based on the results obtained, we can conclude that labour productivity is persistent over time and Portuguese small and medium-sized companies with higher levels of debt and liquidity and lower levels of tangible assets have greater labour productivity values. The results suggest greater relevance of motivation, efficiency and giving employees responsibility, when faced with the possible breakdown of informal labour relationships as a consequence of increased company growth. KEYWORDS : companies growth, dynamic panel data, labor productivity, SME. JEL classification : C13, G32, J24. Introduction The study of Greiner (1972) indicates that the relationship between growth and productivity companies can be positive or negative, depending on the effect they can have on growth business organization. On the one hand, the motivation of employees can be a determining factor for the growth of SMEs would result in increased labour productivity. On the other hand, the possibility of breaking the informal relationships that exist especially in smaller firms, may contribute to the growth of SMEs, with the consequent breakdown of informal relationships among workers, contributing to the decrease in their productivity levels (Greiner, 1972). The major formality in labour relationships, as a consequence to greater size, contributes negatively to labour productivity (Rollag, 2001). According Rollag (2001) is necessary owners/managers motivate the employees in order to avoid that larger size do not contribute to reduction of labour productivity, as a consequence to greater formality of labour relationships. Labour factor are a greater relevance in SMEs context (Heskel, 1999). In Portugal, SMEs are represented 99.5% of total companies, contributed to greater employment and to economic growth (Instituto Nacional de Estatistica, 2004). The empirical studies about growth influence on company performance do not consider the labour productivity as measure of company performance. For example, the studies by Adams, Buckle (2003) and Goddard