ABSTRACT
This chapter empirically examines the relationships between the ownership structures and organizational and management characteristics of our sample of USM and match firms and their reported profitability over the four-year period immediately prior to their being interviewed. It combines both interview data and the reported financial accounting information required by company law to be lodged with the Registrar of Companies. Although profitability is not the only financial performance measure, or even the most relevant in the case of many small-firm owners, it is a widely used index of firm performance and both private capital suppliers and public policy makers frequently use it for evaluating loan proposals and for making inter-firm and/or inter-temporal comparisons. Moreover, while the actual reported annual profits of a small firm may often be open to manipulation by its director-managers, legal and other regulatory constraints place limits on this form of behaviour. Also, it still remains the case that enterprises that are unable to cover their costs (which includes an ‘adequate’ return on the owners’ human and financial capital) in the medium to long term will not survive. Hence, though the reported profits of firms may not be perfect indicators of the ‘true’ figures, we believe that a four-year average computed using the reported numbers is probably as close as it is practically possible to achieve.
