Good Governance and Growth of Entrepreneurial Firms: Are They Related?

Abstract

The issue of what constitutes a small or medium enterprise is a major concern in the SME literature. Different authors, policymakers and the regulators around the globe in most cases have given different definitions for SMEs architecture based on the magnitude of the capital asset used in the business (LoA pez and Aybar, 2000), degree of employment (Van der Wijst, 1989; Jordan, 1998; Michaelas, 1999), turnover level of the firm, legal status assigned to the firm, ownership structure, value of fixed assets used (Weston and Copeland, 1998) and production method used by the firm. In February 1996, however, the European Commission adopted the definitions for SMEs as firms with less than 250 employees; less than Euro 40 million turnover and less than Euro 27 million total assets (Mira, 2002). This fact suggests that there is not a general consensus over what a small business is. It is however, generally admitted that most definitions of SMEs are centred around by size or on the number of employees. In India, SMEs’ contribution to GDP is 30%. (Mahmood, 2007). Moreover, in both developing and developed countries there exist a lot of instances of the successful saga of transformation of so-called ‘Lilliput’ to a corporate ‘Giant’ like Microsoft, Apple in USA, Lenovo in China and Infosys in India. The issue of good governance is not exactly common in the small business setting. Generally this concept of implementing an effective controlling mechanism to ensure the fact that the business is in the path to protect ‘the best interests of all’ stakeholders. There exist a number of key factors which are responsible to substantiate the fact behind adherence to good governance norms in business DNAs of the SMEs viz. (a) drivers for growth; (b) catalyst for better business performance; (c) assistance for better decisionmaking; (d) impetus for good governance and business management; (e) beneficial for firms aspiring for IPO issue etc. However, the present paper humbly attempts to find out a relationship between good governance and growth of entrepreneurial firms to big corporate houses in different economies of the world including India.