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MWANSA CHABALA
Small firm growth in a Least Developed Country
How small firm owners affect the growth of their firms in Zambia
Mwansa Chabala
Reading committee:
prof. dr. C.T.M. Elbers
prof. dr. G. Romme
prof. S. N. Khapova
dr. I.A.W. Wakkee
dr. J. Small
Chabala, Mwansa
Small firm growth in a Least Developed Country: How small firm owners affect the growth of their firms
in Zambia
This book is number 29 in the ABRI Dissertation series
Front and back cover design: Mwansa Chabala Tonny Hartog, Haveka.
Front cover photo: Mwansa Chabala. The photo shows one of the construction sites for small firm that
participated in the research OneWest Minerals Limited. The photos have been used with permission from
the firm owner.
Printed by HAVEKA
VRIJE UNIVERSITEIT
ACADEMISCH PROEFSCHRIFT
door
Mwansa Chabala
Chapter 2 Measuring Small Firm Growth in African Least Developed Countries: Evidence from
the Construction Sector in Zambia ........................................................................................................................ 18
Chapter 3 Which Founders Do Extract Wealth from their Venture? The Moderating Role of Start-
up Motivation .. ................................................................................................................................................ 50
Chapter 5 Entrepreneurial Orientation and Firm Growth in Least Developed Countries: The
Moderating Role of the Business Environment ................................................................................................... 76
Chapter 6 How Does Entrepreneurial Passion Affect Small Firm Growth? The Mediating Role of
Entrepreneurial Alertness......................................................................................................................................... 97
Table 2.1. Summary of small firm growth indicators and measuring methods in entrepreneurship
research (2007 to 2013) ................................................................................................................... 26
Table 2.4. Number of experts recommending a particular small firm growth indicator ............... 33
Table 2.5. Response rates for small firm growth indicators ............................................................... 38
Table 2.6. Result of factor analysis for firm growth measurement scales ........................................ 41
Table 2.7. Confirmatory factor analysis results for growth measurement scales ............................ 42
Table 2.8. Reliability assessment results for growth measurement scales ........................................ 44
Table 2.9. T-test results comparing NCC “growth” and “no growth” Groups .............................. 45
Table 2.10. Reliability and validity results for all measurement scales .............................................. 46
Table 3.1. Factor loadings and reliability results for firm start-up motivation ................................ 64
Table 3.3. Final cluster centres based on EFA factor scores ............................................................. 67
Table 3.4. Regression Results of relationship between personal wealth, motivation and firm
growth ............................................................................................................................................... 69
Table 4.2. Correlations and descriptive statistics for firm growth, EO and business environment
............................................................................................................................................................ 91
Table 4.3. Regression results for relationship between EO and sales growth ................................. 92
Table 5.1. Factor analysis and reliability results for entrepreneurial passion ................................. 111
Table 5.2. Factor analysis and reliability results for entrepreneurial alertness ............................... 112
Table 5.3. Factor analysis and reliability results for firm growth ..................................................... 114
Table 5.4. Factor analysis and reliability results for growth intentions ........................................... 115
Table 5.5. Descriptive statistics and correlation results for passion, alertness and firm growth 116
Table 5.6. Hierarchical linear regression results for relationship between passion, alertness and
firm growth ..................................................................................................................................... 117
Table 5.7. Indirect effects of passion for developing (via alertness) on firm growth ................... 119
List of figures
Figure 3.1 Relationship between firm growth and growth in personal wealth ................................ 71
Figure 4.1. Research model and hypothesis for the relationship between EO and firm
performance...................................................................................................................................... 86
Figure 5.1. Results of the mediating effect of alertness on the relationship between passion and
firm growth ..................................................................................................................................... 118
List of abbreviations and acronyms
AAC Anglo-American Corporation
CI Confidence Intervals
EA Entrepreneurial alertness
EO Entrepreneurial Orientation
EP Entrepreneurial Passion
KMO Kaiser-Meyer-Olkin
UN United Nations
MHSRIEP
1
1.1 Introduction and study background
The importance of small and medium enterprises (SMEs) for economic growth has been widely
acknowledged in entrepreneurship research (Ayyagari et al., 2007; Acs et al., 2008; Box et al., 2016).
SMEs represent substantial portions of national economies in both developed and developing
countries (Soininen et al., 2011) and entrepreneurial activities of small firm owners have been
associated with economic growth (Lazear, 2005; Thurik and Wennekers, 2004; Wennekers and
Thurik, 1999; Thurik et al., 2008; Carree et al., 2007; van Stel et al., 2005). It is often argued that
innovation, and employment creation through small firm formation, survival and growth (Friis et
al., 2006; Acs and Storey, 2004). To this effect, Minniti and Levesque (2010) attribute economic
growth of emerging and developing economies such as China partly to the increase in
entrepreneurial attitudes and suggest that entrepreneurship can play an equally pivotal role in
that SMEs drive economic growth through job and wealth creation (Dobbs and Hamilton, 2007).
as a source of job and wealth creation (Cornwall and Naughton, 2003; Lazear, 2005; Naudé, 2011).
However, Shane (2009) argues that not all forms of entrepreneurship and business
formation may lead to economic growth, job and wealth creation. He labels policies that encourage
people to become entrepreneurs as “bad public policy”, on the basis that the contribution of
entrepreneurship to economic growth is not about quantity but about the quality and growth of
small firms. The quality of entrepreneurship regarding small firms in an economy can be construed
from the number of small firms which survive and grow. Small firms that grow have better chances
of survival (Andersson and Tell, 2009) and can make more significant contributions to economic
growth than those that do not (Barringer et al., 2005; Hessels et al., 2008). Similarly, the economic
benefits of entrepreneurship and business ownership may only be realised when small firms
achieve sustainable growth (Dobbs and Hamilton, 2007; Moreno and Casillas, 2007). Therefore,
2
from an economic development perspective, small firm growth is a significant aspect of the
essence of entrepreneurship (Davidsson et al., 2006). Entrepreneurs1 who grow their firms would
to a large extent, be considered as successful and their firms are likely to contribute to national
numerous studies on what constitutes and determines firm growth in both developing countries
(Goedhuys and Sleuwaegen, 2010; Naudé et al., 2010) and developed countries (Davidsson et al.,
2010; Leitch et al., 2010; McKelvie and Wiklund, 2010). Although such studies have provided a
substantial body of knowledge, it is still not yet very clear what constitutes small firm growth and
how firm growth is achieved. In particular, the conceptualisation and measurement of small firm
growth has been problematic (Davidsson et al., 2013). Leitch et al. (2010) observe that not much is
known about firm growth. Kiviluoto (2013 pp. 569) further observes that firm growth research
has often been criticised as “stagnated, characterised with inconclusive research results and slow
theory development” due to lack of coherence in the way it is conceptualised and measured.
Understanding small firm growth and its antecedents has resulted in a significant debate
in entrepreneurship research (Simpson et al., 2012; Rogoff et al., 2004; Brush and Vanderwerf,
1992; Murphy et al., 1996). Firm growth has been recognised as a key dimension of business
performance (Wennekers and Thurik, 1999; Shepherd and Wiklund, 2009) resulting in research
interest in understanding differences in growth rates for small businesses. Firm growth signals high
performance and provides a positive return on investment for the business owners and is also
regarded as a way to both improve and protect the firm owner’s investment (Dobbs and Hamilton,
2007). Contrarily, lack of growth may significantly reduce the probability of survival for a small
1 In this thesis, the terms entrepreneurs, small business owners and owner-managers are used
interchangeably based on Gartner’s (1989, pg. 26) definition of entrepreneurship as the “creation of new
organisations”.
3
Firm growth research has focused on predicting and measuring growth, as well as gaining
cognisance of how different factors affect it (Unger et al., 2011; Song et al., 2008; Murphy et al.,
1996). Such research has produced lists of different operationalisations and determinants of firm
growth (Shepherd and Wiklund, 2009; Weinzimmer et al., 1998). The operationalisations of firm
growth that have been identified include change in number of employees, sales volume, revenue,
profitability, and size. Similarly, various factors at different levels have been found to affect firm
growth. They include factors related to the entrepreneur, the type of firms and the external
business environment. Factors in these categories have been studied individually and in different
combinations to determine how they influence business growth (Frese et al., 2002; Rauch et al.,
2009). The general conclusion that can be drawn from the body of knowledge resulting from such
research is that a variety of factors at individual, firm and environment level interact, in simple and
The complexity of the relationship between firm growth and its antecedents has affected
the development of firm growth theories (Simpson et al., 2012; Shepherd and Wiklund, 2009). The
problem of developing firm growth theories is further compounded by the diverse nature of small
firms and idiosyncrasy of the environments in which they operate (Davidsson and Klofsten, 2003).
Therefore, it is vital to continue research in this area, especially in environments such as Least
Developed Countries (LDCs). Disparities in the business environment can be attributed to stages
economic development can influence the drivers and obstacles of small firm growth (Okpara and
Wynn, 2007; Nichter and Goldmark, 2009; van Stel et al., 2005). It is therefore important that in
the quest to understand firm growth, economic, cultural and contextual variations between regions
Most firm growth research has been conducted in western developed countries, making
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LDCs, less feasible. The environmental conditions faced by small firms in western developed
economies are different from those in African LDCs. Despite recognizing that the nature of
growth and its determinants would be influenced by context-specific factors (Dobbs and
Hamilton, 2007; Davidsson and Klofsten, 2003), relatively little is known about the subject in
African LDCs.
Besides being major contributors to economic growth and job creation (Acs and Mueller,
2008), small firms also have the potential to act as means for increasing personal wealth of the
owners (Cagetti and De Nardi, 2006). The role of small firms as a major source of employment
and income is even more important in LDCs (Mead and Liedholm, 1998; Unger et al., 2009). In
most African LDCs, negative environmental conditions such as unemployment and the difficulty
in finding a suitably paid job can “push” potential entrepreneurs to become de facto entrepreneurs
(Dawson and Henley, 2012; Uddin et al., 2014). Especially for such push-motivated entrepreneurs,
wealth creation is one of the primary motives to start a firm, as they do not have other (good)
options to generate sufficient income. Thus, at least for push-motivated entrepreneurs, extracting
wealth from the firm is a key motive. The rate at which the firm owners extract wealth from the
firm may affect the growth of the firm. Yet, the extent to which firm growth translates into growth
of personal wealth and how the relationship is affected by the motivation for starting a business is
It is also known that the strategic orientation of firms and their owners affects firm
growth. This demands that firms adopt a strategic orientation which would enable them to acquire
strategic entrepreneurial aspects of decision making, methods and practices (Wiklund and
Shepherd, 2005). Although research has shown that firms that adopt a more entrepreneurial
strategic orientation are relatively likely to grow (Krauss et al., 2005; Hughes and Morgan, 2007;
Lumpkin and Dess, 2001; Madsen, 2007), the exact nature of the relationship is still unknown.
This has been attributed to the differences in a firm’s entrepreneurial behaviour that are influenced
5
by context specific conditions based on the environment in which the firm operates (Lumpkin and
Dess, 2001; Miller, 2011). Entepreneurial orientation regulates the strategic decisions and resource
allocations in a firm. Therefore, understanding the effects of the strategic orientation of the
Small firm growth is one of the important variables of entrepreneurial success (Unger et
al., 2011). Concerning entrepreneurial success, one of the central questions in entrepreneurial
research revolves around why some entrepreneurs become more successful than others (Baron,
2004a). Although part of the answer to this question is attributed to economic factors that are
external to entrepreneurial firms, the actions of entrepreneurs are also deemed relevant for small
firm growth (Shane, 2001). With such propositions, the entrepreneur, as a person, takes centre
stage as entrepreneurship research searches to better understand the role that an entrepreneur
plays in venture growth. This is despite prior research having investigated and accumulated
substantial knowledge on the effects that individual level factors, such as personality traits and
characteristics, may have on firm performance (Brandstätter, 2011; Gartner, 1989; Zhao et al.,
2009; Mitchell et al., 2002). To further enhance understanding about the role of the entrepreneur
in entrepreneurial success, entrepreneurship research has begun to focus more on the role of
entrepreneurial cognition in venture creation and success (Baron, 2004b; Shepherd, 2015; Mitchell
et al., 2002; Mitchell et al., 2007; Baron, 2000). This has led to a resurgence in research focusing on
the people-side of entrepreneurship that targets the understanding of how entrepreneurs reason,
form judgements and make decisions given the differences that exists in entrepreneurial cognitions
in order to understand while some are successful while others are not (Tang et al., 2008). However,
one key aspect of entrepreneurial cognition regarding how entrepreneurs are alert to opportunities
in the environment, and the affection that they have towards undertaking entrepreneurial activities,
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Given these remaining questions and puzzles, this thesis investigates the measurement of
firm growth, and evaluates factors that influence firm growth in the context of an African LDC,
Zambia. The thesis sets out to contribute to answering the general question: How do small firm owners
affect the growth of their firms in LDCs? This question is relevant and important because it seeks to
identify the important dimensions and factors that can help improve the performance of small
organizations. For example, the World Bank classifies countries based on Gross National Income
(GNI) per capita as low income, low middle income, upper middle income, and high income. It
uses the term “developing country” to represent low and middle-income countries although it
does not imply that all countries in this category are in the process of developing (World Bank,
2013b). The International Monetary Fund (IMF) extends this criterion to include export
diversification and the degree of integration into the global financial system. The IMF classification
divides countries into two major categories: advanced economies and emerging and developing
economies (International Monetary Fund, 2013). The United Nations Development Programme
(UNDP) criterion uses the Human Development Index (HDI), which is derived from GNI per
capita, life expectancy and educational indices. In the UNDP classification, developing countries
occupy the lower three percentiles of the distribution and countries at the lowest end of the
LDCs are the poorest and weakest of the international community and are at the bottom
of all development rankings. According to the United Nations (2013), they have a low level of
socio-economic development, characterised by weak human and institutional capacities, low and
7
unequally distributed income and scarcity of domestic financial resources. They often suffer from
governance crises, political instability and, in some cases, internal and external conflicts. Their
largely agrarian economies are affected by a vicious cycle of low productivity and low investment.
The category of LDCs consists of 47 countries, out of which 32 are from Sub-Saharan Africa.
Zambia is one of the LDCs located in Sub-Saharan Africa (United Nations Conference on Trade
a landlocked country covering an area of 752,614 km2. According to the 2010 census, the country
had a population of 13.1 million people (Central Statistics Office, 2011). More recent estimates
suggest a population of 16.59 million (World Bank, 2017). It is located in the Southern Africa Sub-
region. Figure 1.1 shows the map of Zambia. Zambia's economy underwent strong growth in the
last fifteen years, with GDP growth between the years 2000 and 2005 averaging 5.8 % per year,
while the 2006 to 2015 period recorded increased growth averaging 6.9% (Ministry of National
Development Planning, 2017). The Zambian economy has been dominated by copper mining
from the time the first commercial copper mine was opened in Luanshya at Roan Antelope in
1928 (Lungu, 2016; Boos and Holm-müller, 2016). Zambia is the largest copper producer in Africa
and the sixth largest in the world. Copper accounted for between 70% and 78% of the country’s
foreign exchange earnings and about 70% of total merchandise exported in the period 2008 to
2016 (Bova, 2012; Trimmer III, 2016; Kragelund, 2017; Bank of Zambia, 2016).
The country also experienced economic growth which led to growth in other sectors
such as manufacturing, construction, trading and transport. During that period, Zambia was
considered to be a middle-income country. The mining sector was owned and controlled by two
private companies, namely the Roan Selection Trust (RST) and the Anglo-American Corporation
(AAC). However, during between 1964 and 1970, the Zambian government led by Kenneth
8
Kaunda became dissatisfied with the level of investment into the mines by both RST and AAC.
The government was also concerned about the distribution of the country’s mineral wealth and
wanted revenue from the mining sector to be used to support other sectors such as education and
health (Kragelund, 2017; Lungu, 2008). Such discontent, coupled with the desire for public
ownership of the means of production in line with the government’s political philosophy at that
time, socialism, resulted in the nationalisation of the mines. Nationalisation was implemented
through economic reforms commonly known as the Mulungushi Reforms of 1968 and the Matero
reforms of 1969 (Chirwa and Odhiambo, 2017). Through these reforms, the Zambian government
sought to develop local industry through increased participation in key economic sectors. The
Zambian government obtained a 51 percent share in mining and other major industries resulting
Source: http://www.un.org/Depts/Cartographic/map/profile/zambia.pdf
9
The nationalisation programme was developed at the time when copper prices were high
and was anchored on a policy agenda that promoted broad social and economic development
(Fessehaie, 2012). Consequently, the government used resources from the mining sector to
support other social sectors such as education and health (Sikamo et al.; 2015, Lungu, 2008).
During the mid-1970s, the mining sector experienced difficulties due to the collapse of copper
prices and the increase in oil prices on the world market (Fraser and Lungu, 2007; Chirwa and
Odhiambo, 2017). However, just as was the case in the pre-nationalisation period, the government
did very little re-investment in mineral exploration and mine development. The mines became
undercapitalised and employed old mining technology using obsolete equipment (Fessehaie, 2012;
Lungu, 2008). Furthermore, the ore deposits became deeper and mineral grades leaner, requiring
modern advanced mining technology to exploit these deposits (Sikamo et al., 2015).
Since Zambia’s economy was heavily dependent on mining (Lungu, 2016; Boos and
Holm-müller, 2016) the resultant fall in production and revenue from the mining sector forced the
government to rely on foreign loans to support health and education facilities. Likewise, other
sectors of the Zambian economy were affected due to their dependency on the performance of
the mining sector. The local industry which was also borne of the Nationalisation programme (that
created state enterprises) was import-dependent and relied heavily on foreign exchange from
copper export earnings. The inability to import inputs both for local industries and mining led to
low capacity utilisation, inefficiency and increased costs in all the state-owned enterprises. The
situation was exuberated by weak management and the conflicting objectives that these
organisations pursued at the time. The enterprises were viewed by government as a way of
employment creation and source of lowly priced consumer goods, while these enterprises also
needed to make a profit for their survival. The country experienced severe economic decline in
the 1980s and 1990s partly due to poor economic management and the decline in international
10
copper prices (Lungu, 2008). The poor performance of the state-owned enterprises led to the
country experiencing severe shortages of consumer goods leading to public discontent. This
The new government implemented broad economic reforms that transformed the
economy from a socialist orientation to being market driven. One of the key issues that the reforms
dealt with was the privatisation and commercialisation of state-owned enterprises. This involved
a roll back of the state’s involvement in enterprise management. In the wake of privatisation, state-
owned enterprises collapsed after years of operating under a protectionist economic environment
(Central Intellingecy Agency, 2013; Rakner, 2003; N’gona and Dube, 2012). One of the most
observable effects of the privatisation process were mass job losses in the mining and other sectors
as employment reduced by 66% (Fraser and Lungu, 2007; Gough et al., 2015). The resultant job
losses and reduced employment prospects led to an increase in small firm formation (Kragelund,
2017). It is estimated that small firms accounted for 97% of the total enterprises and 18% of the
total labour force in Zambia in 2007 (Clarke et al., 2010; Ministry of Commerce Trade and Industry,
2009; Phillips and Bhatia-Panthaki, 2007). Because of the change in government policy, many
In recent years, Zambia’s economy has experienced strong growth because of the
economic reforms that have been implemented. The country has sustained an impressive record
of macroeconomic stability, achieved single-digit inflation and average Gross Domestic Product
(GDP) growth rates of 6.7% since 2004 (World Bank, 2013c). Zambia has been one of the most
open trade regimes in Africa and is among the top ten African countries on the World Bank’s
“ease of doing business index” (World Bank, 2013a). Zambia has experienced political stability
and no civil conflicts since independence. These factors make Zambia suitable for studying small
firm growth since they reduce external factors that may potentially affect small firm growth and
11
may impair the researchers’ ability to adequately measure firm growth and factors that affect it
(2007) note that the term SME encompass an array of definitions and measures, differing from
country to country, as well as between the sources reporting SME statistics. The commonly used
criteria classify firms as small, medium or large enterprises based on the number of employees.
Most developed countries set the upper limit of number of employees in small firms between 200-
250 (Organisation for Economic Cooperation and Development, 2004). Most LDCs consider
firms with less than 100 employees as small (Richardson et al., 2004). In Zambia, small firms can
be defined based on the national definition of SMEs, which categorise firms by the total
investments in assets, sales turnover, number of employees and legal status. Firms with up to 100
employees, total investment in assets less than ZMK2 300,000 (about US$30,000 in 2016) and
annual turnover less than ZMK 800,000 (about US$80,000 in 2016) are categorized as SMEs. A
firm is considered informal if unregistered, the value of its assets is less than ZMK 50,000 (about
US$5,000 in 2016) and employs less than ten people (Ministry of Commerce Trade and Industry,
2004; United Nations Conference on Trade and Development, 2003). Senderovitz (2009) points
out that small firms should be defined based on a deliberate and well-grounded choice, taking the
methodology, purpose and/or content of the study into account. For this study, we adopt Ayyagari
et al.’s (2007) definition of small firms as formal businesses with less than 250 employees.
Formality, in this case, implies being registered and having the necessary permits to operate (Thai
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1.2.4 Zambian Construction Sector
In this thesis, we specifically focused on the construction sector, which has been pivotal
to Zambia’s economic growth in recent years. The sector contributed 21.1% to economic growth
and accounted for 13.0% of the GDP in 2012 (Zambia Development Agency, 2012). Additionally,
all firms in this sector are required by law to register annually with a national regulatory institution
called National Council for Construction (NCC). NCC uses a six-tier grading system based on
number of employees, level of sales and value of assets. The values the criteria take between the
different NCC grades are shown in Appendix 3. In the NCC grading system, grade 1 is the highest
and grade 6 is the lowest. The grades 4, 5 and 6 are reserved for small firms. The NCC grade for
each firm is reviewed annually and a firm with a grade improvement is considered to have grown
in the period under consideration. From the data collected during the annual registration, NCC
has maintained a database of firms in the construction sector in Zambia. The database contains
data such as yearly number of employees, level of sales and value of assets.
firm growth in Zambia. To answer this question, a number of factors will be considered in the
following four empirical chapters. They include: start-up motivation, personal wealth,
In chapter 2, we investigate what constitutes small firm growth and how it should be
firm growth has continued to be problematic, especially for research conducted in non-western
settings such as LDCs. It is also important to recognise that measurement of small firm growth is
affected by context-specific factors such as the level of economic development of the region where
the firm operates. This chapter addresses the research question: What constitutes firm growth in LDCs
13
and how should it be measured? This is vital because before we embark on investigating how individual
level factors affect firm growth; we must first understand what constitutes firm growth and how
to measure it. Therefore, in chapter 2 we develop a scale for measuring small firm growth in
African LDCs.
In chapter 3 we investigate how firm growth translates into economic rewards for the
small firm owner, to further explore the relationship between personal wealth and other firm
growth aspects. This chapter presents an empirical examination of how firm founders extract
wealth from their ventures based on the understanding that increasing personal wealth is one of
the key motives of starting a business, especially in environments with few employment
opportunities such as LDCs. Additionally, having recognised that the amount of wealth extracted
by the founder is related to firm start-up motivation, we further evaluate how start-up motivation
moderates the extraction of wealth from firms by firm founders. The chapter addresses the
research question: What is the relationship between small firm growth and growth in personal wealth of the firm
owner, and how is this relationship affected by the motivation for starting the business?
Chapter 4 focusses on how entrepreneurial practices and behaviour guide the firm’s
growth strategy. The chapter presents an analysis of the effect of entrepreneurial orientation (EO)
on firm growth and the moderating role of the business environment. Although various studies
have investigated the relationship between EO and firm growth, the results have been largely
mixed. The contradictory findings may be due to the context in which a firm operates (Lumpkin
and Dess, 1996). Country-specific business environment conditions have known to affect
entrepreneurial behaviour (Marino et al., 2002; Lee and Peterson, 2000). Nevertheless, the
relationship between EO and firm growth has mostly been studied in western, developed
countries, where the business environment in which the small firms operate is different from that
in LDCs. Therefore, this chapter focusses on how different dimensions of EO affect firm growth
14
in the context of LDCs by seeking answers to the following question: How does entrepreneurial
orientation influence firm growth in LDCs and how does the business environment moderate this relationship?
In chapter 5, the focus shifts to how entrepreneurial passion and alertness of the firm
owners affect firm growth. Entrepreneurial cognition has emerged as one of the major
perspectives for understanding how entrepreneurs as individuals affect the performance of their
firms (Mitchell et al., 2002). This chapter presents an investigation of how firm owner’s
entrepreneurial passion affects firm growth, and the mediating role of entrepreneurial alertness.
As such we address the research question: What is the relationship between entrepreneurial passion and firm
Chapter 6 presents a summary of the general conclusions from chapter 2, 3, 4 and 5, with
a view to address the overall research question: How do small firm owners affect the growth of their firms
in LDCs? The general theme of this thesis concerns how factors related to entrepreneurial decision
making and behaviour of small firm owners affect the growth of their firms. We first discuss what
constitutes small firm growth in LDCs. In our quest to investigate how firm owners affect the
growth of their firms, we focus on the effects of their decision making and behaviour concerning
the management of their firms. Specifically, we investigate how extraction of wealth from the firm
for personal use is affected by the growth of the small firm. Additionally, we investigate how
growth. It is important to note that these chapters represent stand-alone research papers which
are intended to be self-contained and can be interpreted independently. However, since the setting
for empirical data collection is the same, some overlap and repetition between chapters may occur.
1.4 Methodology
The methodological approach used in this thesis is a mixed methodology employing
qualitative and quantitative methods. Qualitative methods were used in the early stages of the field
work to establish the relevance of the variables to be included in the study to the context of LDCs.
15
This process was conducted through expert interviews with various key stakeholders in Zambian
in November 2012. The interviews were mainly aimed at establishing the contextual relevance of
the measures of growth and other constructs. A total of 13 expert interviews were conducted with
officials from small business support institutions and government agencies in charge of SME
policy, local and national chambers of commerce, financial institutions, prominent entrepreneurs
and trade associations and a former Minister of Commerce. Additionally, expert interviews were
The expert interviews served as a guide on the relevance of variables included in the
quantitative research in the context of LDCs. This approach of checking which individual variables
were most relevant for this thesis was important because the effect of an entrepreneur’s behaviour
and decision making on firm performance is a complex and context-dependent process. Therefore,
it was important that we considered variables that were relevant to our research setting but are
From the expert interviews, we observed that small firms in Zambia were achieving
varying levels of growth despite initially being similar in size, structure and operating under same
conditions. Data from the interviews also revealed that differences in firm growth levels could be
that some entrepreneurs become more successful than others due to differences in individual
behaviour and decision making (Baron, 2004a, Shane, 2001). Through the expert interviews, we
identified the individual level factors which were key determinants of firm growth in Zambia. The
findings from the expert interviews and literature review provided a basis for the development of
two questionnaires that were used to collect quantitative data. The identified factors that, among
other factors, influence firm growth are personal wealth extraction, strategic orientation of the
firm owner, and emotions and cognition of the entrepreneur. Accordingly, this thesis focused on
16
how start-up motivation (chapter 3), entrepreneurial orientation (chapter 4), entrepreneurial
Quantitative data collection was conducted in two phases. The first phase was preceded
by a pilot study in November 2012. In the pilot phase, we administered the questionnaire to thirty
owner-managers drawn from our sample. The aim was to check the clarity in the wording of the
questions, time taken to answer the questionnaire, and to find the most convenient way of
administering the questionnaire. In March 2013, we embarked on the first wave of data collection.
We collected data on firm growth, firm start-up motivation and entrepreneurial alertness. Firm
growth data was used in chapter 2, data on start-up motivation and entrepreneurial orientation was
used in chapters 3 and 4 respectively. A year later in March 2014, we conducted the second
fieldwork and collected data on firm growth, entrepreneurial passion and entrepreneurial alertness.
The firm growth data collected in the second wave was used in chapters 4 and 5 while the data on
Our sample for the quantitative analysis was drawn for the Zambian construction sector.
All the data used in this thesis were collected from small firms in the Zambian construction sector.
Apart from its economic importance to Zambia, the construction sector was selected because of
the existence of a national regulation that required all firms in the industry to register with the
NCC, which made it easier to select and locate the firms to be included in the study. The
methodology sections in each empirical chapter provide more detailed explanations of the sample,
data collection and methods used to analyse the data. The questionnaires used during data
collection are in Appendix 2 and 3. Now we turn to the chapters representing the four empirical
17
Chapter 2 Measuring Small Firm Growth in African Least
Developed Countries: Evidence from the Construction
Sector in Zambia3
3 This chapter is based on a paper currently under review (second round) for publication in the African
Journal of Management entitled “Measuring Small Firm Growth in African Least Developed Countries: Evidence
from the Construction Sector in Zambia” with as authors M. Chabala, L. Paas, E. van Burg, and E. Masurel.
18
Abstract
19
2.1 Introduction
The contribution of entrepreneurship to economic growth in both developed and developing
countries is widely recognised in entrepreneurship research (Acs et al., 2008; Carree and Thurik,
2005; van Stel et al., 2005). It is often argued that economic growth is achievable when
firm formation and development (Friis et al., 2006; Acs and Storey, 2004). However, small firms
only contribute to economic growth if they survive and grow (Shane, 2009; Wennekers et al., Wong
et al., 2005). Thus, from an economic development perspective, small firm growth is a significant
aspect of the essence of entrepreneurship (Davidsson et al., 2006). This realisation has resulted in
numerous studies on small firm growth in both developing countries (Goedhuys and Sleuwaegen,
2010; Naudé et al., 2010) and developed countries (Davidsson et al., 2010; Leitch et al., 2010;
McKelvie and Wiklund, 2010). Although such studies have provided a substantial body of
problematic (Davidsson et al., 2013b). Consequently, small firm growth research is often criticised
for being “stagnated, characterised with inconclusive research results and slow theory
development” (Kiviluoto, 2013 p 569). Leitch et al. (2010) observe that not much is known about
small firm growth and that confusion and misunderstanding surround the phenomenon.
The dominant theoretical concerns in the field relate to incoherence in the way small firm
growth is measured. Davidsson et al. (2007) attribute this to differences in theoretical and
and analysis approaches, as well as the inherent complexity of the phenomenon itself. Additionally,
there is heterogeneity in form and characteristics of small firms and the environment in which they
operate. All these factors are important elements of small firm growth and their variation affects
its conceptualisation and operationalization (Delmar et al., 2003). As a result, researchers make
21
choices between different small firm growth measurement methods, but there is little guidance on
which choices are most appropriate (Wiklund et al., 2009). As a result, the findings of small firm
growth research are often incomparable, which in turn impedes theory development.
The problem of measuring small firm growth is further compounded when research is
undertaken in contextually different settings such as in Western contexts as well as African Least
Developed Countries (hereafter abbreviated as LDCs). LDCs have different social challenges and
structural characteristics compared to developed countries that have been the focus of most
entrepreneurship research (Naudé et al., 2010; Bruton et al., 2008). Small firm growth is affected by
context-specific factors (Stenholm et al., 2013; Dobbs and Hamilton, 2007; Davidsson and
Klofsten, 2003) such as the national level of economic development (Leitch et al., 2010). Contextual
differences affect key aspects of research design and administration (Kriauciunas et al., 2011;
research variables account for the context in which research is conducted. Contextualisation
involves considering the various attributes of the research setting as an integral part of the research
process (Zahra et al., 2014). Therefore, testing and adapting theoretical and epistemological
perspectives and operationalizations used for research in developed countries are important points
to consider when conducting research in African LDCs. Despite this, most entrepreneurship
studies conducted in LDCs have adopted small firm growth conceptualisations and
improving the conceptualisation and operationalization of small firm growth from the perspective
This chapter addresses the research question: What constitutes firm growth in LDCs and how
should it be measured? We present the development of a small firm growth measurement scale that
considers the LDC context. This chapter’s contribution is twofold. First, we assess the suitability
22
of existing small firm growth conceptualisations and operationalizations used in developed
countries for research conducted in LDCs. Second, we evaluate the validity and reliability of small
firm growth measurement scales that specifically consider the LDC context. Although there has
been an increase in research in LDCs with firm growth as a dependent variable, much of it has
been conducted without proper operationalization of firm growth. This chapter provides an
operationalization of small firm growth for future research in LDCs. The chapter also provides
guidance on how to adapt existing operationalizations of small firm growth to different contexts.
The chapter is organized in five main sections. First, in the theory section, we outline the
theoretical foundations of measuring small firm growth and present a review of literature on small
firm growth measurement in entrepreneurship research. Second, the qualitative study section
presents an assessment of the suitability and contextualising of existing small firm growth
measurement methods for LDCs. Third, in the quantitative study section we present an evaluation
of the validity and reliability of small firm measurement scales using growth data from small firms
in an African LDC, Zambia. Fourth, in the final section we discuss the results and draw main
to the classical work of Edith Penrose (Lockett et al., 2011; Bradley et al., 2011; Leitch et al., 2010;
McKelvie and Wiklund, 2010; Davidsson et al., 2007). Penrose (1959) considered firm growth as
having two meanings; first as “increase in amount” and second, as the “internal process of change”.
The former, which is the most emphasised in entrepreneurship literature (Leitch et al., 2010),
focuses on outcome-based indicators that are used when measuring firm growth. From this
perspective, the common indicators of small firm growth that have been used in research include
23
the change in the number of employees, sales volume, revenues, and profitability (Achtenhagen et
al., 2010; Shepherd and Wiklund, 2009; Dobbs and Hamilton, 2007). Firm growth as an internal
process of change is concerned with how growth is achieved and mainly focuses on growth modes.
Therefore, when studying small firm growth, it is important to understand “what is changing” and
by “how much’. In considering “what is changing”, defining the unit of analysis in which the change
is to be observed is key. The “how much” issue involves deciding on how to measure change.
conditions of their studies. Therefore, measuring small firm growth in entrepreneurship research
is an issue that lacks general agreement on the suitability of the available choices. The key decision
points involve selecting which growth indicator(s) to use, the type of data to collect, and the method
of calculating growth (Delmar et al., 2003). The choices made by researchers lead to different
modelling and analysis procedures, which often produce different results. As a result, the
interpretation and generalizability of research results regarding firm growth has been problematic
(Shepherd and Wiklund, 2009; Dobbs and Hamilton, 2007; Delmar, 2006b).
A number of review articles have analysed and reported the variations in small firm
them are studies by Weinzimmer et al. (1998), Shepherd and Wiklund (2009) and Achtenhagen et
al. (2010). These reviews assessed articles with firm growth as a dependent variable that were
published between 1981 and 2008 in leading entrepreneurship and management journals. These
three key papers report a range of growth indicators that included financial and non-financial firm
growth measures. The methods of measuring growth ranged from absolute differences and
24
Wiklund (2009), reviewing 82 articles, found that ‘sales’ was used 61 times, ‘number of employees’
13 times, ‘profit’ 9 times, ‘equity and assets’ 16 times while some other indicators were used 15
times. Achtenhagen et al. (2010) and Weinzimmer et al. (1998) also reported variations in the use of
firm growth indicators and firm growth measurement methods in entrepreneurship research.
We adopted the methodology used by Shepherd and Wiklund (2009) to update the
findings of these studies to include recently published research. We reviewed articles published
between 2007 and 2013 in the current leading entrepreneurship journals, namely Academy of
Management Journal, Entrepreneurship: Theory & Practice, Journal of Business Venturing, Journal of Small
Business Management, Journal of Management Studies, International Small Business Journal, Organization
Science, Small Business Economics, Strategic Management Journal and Entrepreneurship and Regional
Development. Additionally, we analysed how small firm growth has been measured in studies
operationalization of small firm growth. We observed that sales, the number of employees and
assets are still the commonly used indicators of growth. The different methods of measuring small
firm growth still being used include: change measured by absolute difference, relative change,
logarithmic difference and change as perceived by the owner-managers. The results of the analysis
are shown in Table 2.1. Other recent studies that focused on how small firm growth, as a dependent
variable, has been operationalized in recent years show similar results (see Rosenbusch et al., 2011;
25
Table 2.1. Summary of small firm growth indicators and measuring methods in
entrepreneurship research (2007 to 2013)4
Firm growth
References Growth indicators
measurement method
Chowdhury (2011) Revenues Absolute difference
Bradley, Wiklund, and Shepherd (2011) Sales Absolute difference
Brinckmann, Salomo, and Gemuenden
Employees, sales Absolute difference
(2011)
Bruneel, Van de Velde, and Clarysse (2013) Employees, revenue Absolute difference
Headd and Kirchhoff (2009) Employees Relative growth
Stam and Wennberg (2009) Employees Relative growth
Davidsson, Steffens, and Fitzsimmons
Sales Relative growth
(2009)
Bogner and Bansal (2007) Sales Relative growth
Gilbert, McDougall, and Audretsch (2008) Sales Relative growth
Mai and Zheng (2013) Sales Relative growth
Watson (2012) Sales Relative growth
Delmar and Wiklund (2008) Sales, employees Relative growth
Steffens, Davidsson, and Fitzsimmons
Sales, sales and profit Relative growth
(2009)
Tomczyk, Lee, and Winslow (2013) Sales and employees Relative growth
Anderson and Eshima (2013) Sales, employees, market share Relative growth
Watson (2007) Total income (sales plus other income) Relative growth
Goedhuys and Sleuwaegen (2010) Employees Logarithm difference
Rauch and Rijsdijk (2013) Employees Logarithm difference
Younsuk, Jaeun, and Taejong (2010) Employees Logarithm difference
Saridakis, Mole, and Hay (2013) Employees Logarithm difference
Chandler, McKelvie, and Davidsson (2009) Employees, sales Logarithm difference
Coad et al. (2013) Sales Logarithm difference
Coad and Tamvada (2012) Gross output Logarithm difference
Davis et al. (2010) Market share, sales Perceived change
West and Noel (2009) Overall growth Perceived change
Oswald, Muse, and Rutherford (2009) Sales Perceived change
Sales rate, market share, profit rate,
Tang et al. (2008) Perceived change
overall performance
Sales, market share, employees,
Eddleston et al. (2013) Perceived change
profitability
Sales, profit, transaction volume,
Gielnik, Zacher, and Frese (2012) Perceived change
income, employees
Perceived change and
Wright et al. (2008) Employees
Relative growth
Relative growth and
Rutherford, Kuratko, and Holt (2008) Sale, employees
absolute difference
Relative growth and
Wiklund, Patzelt, and Shepherd (2009) Sales, employees
absolute difference
Relative growth and
Moreno and Casillas (2008) Overall growth, sales
perceived change
26
Firm growth
References Growth indicators
measurement method
Perceived change and
Wright et al. (2008) Employees
Relative growth
Annual growth rate of
Hamelin (2013) Sales, investment rate
retained earnings
Falk (2012) Employees Geometric growth rate
Coleman (2007) Sales Average yearly change
Pirolo and Presutti (2010) Sales Average yearly change
Patel, Fiet, and Sohl (2011) Employees, number of products Average yearly change
Wang and Altinay (2012) Employees, sales Average yearly change
Zahra and Hayton (2008) Revenues, sales Average yearly change
and non-financial. Financial indicators include sales, assets, profit, equity, value added, transaction
volume, stock market performance, and cash flow. Non-financial indicators include the number of
employees, the number of customers, market share, new market entry, and export propensity.
Small firm growth indicators are chosen based on availability of data (Bruton and
Rubanik, 2002), what has been used in prior studies, relationship with the other variables under
study (Davidsson et al., 2007), and relevance for policy makers (Davidsson and Wiklund, 2006).
Sales is the most frequently used indicator followed by number of employees and value of assets
(Bradley et al., 2011; Wiklund et al., 2009). Researchers using sales argue that it is a precursor to
other measures urging that an increase in sales leads to increases in assets and employees and
subsequently rising profits or market share (Davidsson et al., 2007; Delmar et al., 2003). Others
contend that the other two indicators (that is: employees and assets) are more inclined to show
change in inputs than in performance outcomes (Casillas and Moreno, 2010; Davidsson and
Wiklund, 2006). From the foregoing, it can be noted that there is still ambiguity on how to select
growth indicators.
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2.2.1.3 Method of collecting data
There are two prominent methods used for collecting small firm growth data (Coad,
2009). First, data found in secondary sources such as company reports and national databases have
been used. In such cases the data are often termed as “secondary data”. Second, in the absence of
objective data, researchers use self-reported data from owner-managers. Such data is called
perceptions and knowledge about the firm (Achtenhagen et al., 2010). Subjective data comes in two
forms: the respondent can either report values of growth indicators or his/her perceptions on how
by the researchers. In most cases, researchers ask for objective performance data or perceptions of
owner-managers on changes in firm growth indicators. So-called objective performance data can
be obtained from secondary data sources such as firms’ financial reports and tax registration
equipment. However, such data are not always readily available for small firms, especially in LDCs.
In such research settings, researchers usually obtain the relevant data by asking for figures of
performance data from the survey respondents. Such data are then referred to as self-reported
performance data. For both objective performance data and self-reported performance data,
formulas are used to calculate firm growth. Several formulas have been used to calculate small firm
growth in entrepreneurship research. The most commonly used formulas are shown in Table 2.2.
Based on the analysis by Delmar et al. (2003), Shepherd and Wiklund (2009) and Coad (2009), we
identified five formulas that have been prominent in entrepreneurship research. These formulas
include 1) absolute size growth, 2) relative size growth, 3) logarithm difference growth 4) size
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In research where data are collected based on perceptions, owner-managers are requested
to estimate growth in the chosen small firm growth indicators on a scale that describes possible
changes. For example, the owner-manager may be asked to rate how sales changed over a period
of time on a five-point Likert scale, with possible responses ranging from “increased very much”
to “decreased very much”. In other research, owner-managers are asked to compare the growth of
their firms with that of competitors or peers in the same industry (Ahmad et al., 2011; Krauss et al.,
2005; Madsen, 2007). Small firm growth measured on Likert scales using the perceptions of the
Note: = Git = growth in firm i at time t, Sit= size in selected indicator at (e.g. sales, number of employees
𝐺" #
A number of researchers who use perceived growth justify its appropriateness by the high
correlation that has been shown by prior research between firm growth based on perceptions and
on objective performance data (Casillas and Moreno, 2010; Delmar et al., 2003). Others rationalise
its use by pragmatic reasons such as availability of data and the reluctance among owner-managers
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2.2.1.5 Multiple indicator indexes versus independent indicators
Some researchers have conceptualised small firm growth as a latent variable (Diambeidou
and Gailly, 2011; Avlonitis and Salavou, 2007) and created multiple indicator indexes to measure
growth. This is based on the understanding that growth can manifest itself in several related but
unique indicators. To illustrate this phenomenon, Davidsson et al. (2007) explain that a firm may
increase turnover through innovative means that do not translate into an increase in assets nor in
employees. Similarly, an increase in the number of employees or assets would not always relate to
the need to meet increased sales. Furthermore, in other types of firms, growth may be moderately
spread across the different indicators (Delmar et al., 2003). Therefore, selecting certain indicators
at the expense of others may lead to failure to capture certain aspects of firm growth properly. In
this situation, combining all indicators into a multiple-indicator index becomes an appropriate
method for capturing growth in all its possible manifestations (Davidsson et al., 2010).
Other researchers select only one small firm growth indicator or a select group of
indicators but analyse the results for each of them independently. Researchers who use the former
justify their choice by referring to the correlations among the different indicators (Casillas and
Moreno, 2010; Delmar et al., 2003). Analysing select groups of indicators is justified from the
perspective that small firm growth is a multi-faceted construct. It is therefore argued that by using
more than one growth indicator, the different aspects of firm growth can be captured (Kiviluoto,
countries, with some success (Davidsson et al., 2013; Wiklund et al., 2009), but the applicability of
30
what is going on in LDCs (Naudé, 2010). However, there are apparent differences between small
firms in developed countries and LDCs. Kiggundu (2002) identified such differences in the form,
structure, size, management and purpose of the firm. Small firms in LDCs are usually home based,
family businesses or self-employed individuals; the majority of which experience very low sales and
productivity (Clarke et al., 2010). They often face severe market, institutional and resource
constraints. As a result, many of them operate in the informal sector since these constraints largely
impede their ability to register their firms. The contextual differences between small firms in LDCs
and developed countries can be mainly attributed to differences in national economic development.
The existence of such heterogeneity among small firms and their environments is one of the leading
causes of variability in findings in entrepreneurship research (Soininen et al., 2011; Delmar et al.,
2003). Therefore, it is important that measures of firm growth consider the context in which the
firm is operating. We now turn to the qualitative study we performed to further understand the
thoughts and beliefs of people who have experienced the phenomenon (Patton, 2002). In scale
development and validation, qualitative research is used for generating items to represent the
construct and assess the content validity of the items (DeVellis, 2011; DeVon et al., 2007;
Worthington and Whittaker, 2006; Chandler and Lyon, 2001) Specifically, Hardesty and Bearden
(2004) recommend that research using new, changed, or previously unexamined scale items, should
at a minimum be judged by a panel of experts for content validity. Therefore, we conducted expert
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Experts from small firm support institutions, trade associations, chambers of commerce,
and academicians were interviewed for their expert opinions on measuring small firm growth in
Zambia (see Table 2.3). During the expert interviews, we focused on assessing whether existing
small firm growth indicators and operationalizations of growth are suitable for LDCs.
in Table 2.1. However, not all small firm growth indicators were considered suitable for the
Zambian context. Table 2.4 shows the list of small firm growth indicators and the corresponding
number of experts recommending each indicator as suitable for the Zambian context.
Some of the experts interviewed cautioned against using financial indicators because of
the lack of accurate and reliable data. Small firms in Zambia often operate without credible and
reliable accounting information management systems and are not legally obliged to produce audited
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financial statements. The experts indicated that owner-managers in Zambia had a tendency of
overstating profits and sales when the information is meant for financial lenders while understating
them if the recipients were tax authorities, policy makers and creditors.
Table 2.4. Number of experts recommending a particular small firm growth indicator
Growth indicator Responses
Sales 12
Employees 11
Assets 10
*Personal wealth 9
*Expenditure on purchase of key process input 8
Profit 5
Cash flow 4
Credit limit 4
Transaction volume 3
Level of formalisation 2
New market entry 2
Product innovation 2
Value-added 2
Equity 0
Export propensity 0
Financial market performance 0
Market share 0
Number of customers 0
Note: * represents firm growth indicator added from expert interviews
Accounting ratios, equity and cash flow were considered unrepresentative for the day-to-
short-term performance management due to uncertainties in the business environment. One expert
added that the “low levels of financial literacy among the majority of small owner-managers make
characteristics of small firms in Zambia. They include number of customers, market share, new
market entry, export propensity, and product innovation. For the market-based indicators, it was
noted that most small firms in Zambia had no capacity to monitor and analyse changes in their
33
markets. Export propensity and product innovation were deemed unsuitable because most of the
small business did not export and rarely engaged in activities related to product innovation.
The three commonly used firm growth indicators (number of employees, level of sales
and value of assets) were considered suitable for the Zambian context. Sales were considered to be
the essence of the firm and therefore any observable change would reflect firm growth or decline.
Specifically, for Zambia, it was observed that most owner-managers use their ingenuity to find
work for their firms and are directly involved in sales. The owner-managers also monitor the
Small firm owners use their personal connections to source for orders. They know how many
orders they get and the value of each order. They often refer to the changes in number of
orders and order values when explaining performance.
The experts also observed that change in the number of employees was linked to level of
activity in Zambian small firms. They noted that most small firms used temporary employees to
cater for short-term labour demand fluctuations. They would only hire permanent staff when they
feel the increase in activities is sustainable in the long term. Thus, they recommended the use of
number of employees as an indicator of small firm growth. The value of assets was considered an
important measure of small firm growth. Most owner-managers convert their income into fixed
It’s common to see new business premises built and cars or other assets bought. They (owner-
managers) reinvest in assets to build strong bases for collateral required for future borrowing
from financial institutions. Most credit providers have high collateral requirements and
investing in fixed assets helps to qualify for credit.
change in personal wealth of the owner-manager and 2) expenditure on purchase of key process
input. Using personal wealth as an indicator of small firm growth entails measuring the change in
personal belongings of the entrepreneur resulting from owning the firm. This was justified by the
34
view that most owner-managers do not separate their personal wealth from the firm and vice versa.
The premises we use were bought from the money I earned while I was still in employment,
why should I charge myself rent? It’s all my money and charging myself doesn’t make sense at
all. All these assets are mine! It doesn’t matter if I bought them from my personal income or
business income.
In most small firms, assets of the firm and assets of the owner-manager are intertwined.
Measuring small firm growth at firm level has the potential of leaving out a key component of
growth that that may be revealed in changes in personal wealth of the owner-manager.
using profitability as an indicator of small firm growth. Some experts noted that most small firm
owners monitored expenditure more than profitability. An expert who supported this view
commented:
Most of the entrepreneurs pay a lot more attention to expenditure on inputs than they do with
profit. They know, for example, better how much cement they buy than how much they earn
from it.
of operationalizing growth. From extant literature, we found that growth can be measured by
comparing firm performance with that of competitors. For this method, it was observed that most
owner-managers are time-constrained and wary of sharing objective performance data with others.
One expert noted that most small firms in Zambia are still shrouded in secrecy. He explains that
“most small business owners did not know how much their colleagues earn and the range of
activities they undertake”. This reduces their ability to compare their performance relative to
35
competitors. Additionally, they are likely to provide approximate figures and perceived growth
rather than the objective performance data. Two experts who had encountered these challenges
The qualitative study therefore confirmed the three, established small firm growth
indicators (number of employees, level of sales and value of assets) and unveiled two LDC context
specific small firm growth indicators (personal wealth and expenditure on purchase of key process
inputs). These small firm growth indicators have been used to calculate small firm growth in
previous entrepreneurship research. Researchers have used either the formulas shown in Table 2.2
to calculate growth when objective data is available or they have relied on perceptual assessment
of scales developed from the small firm growth indicators and measurement methods that were
identified from the literature and confirmed through expert interviews. In this section, we present
2.4.1 Methodology
included firms registered with National Construction Council (NCC) in the years 2009 to 2013 in
grades four to six, which are the appropriate categories for small firms. Additionally, the inclusion
of personal wealth as one of the indicators of small firm growth meant collecting data about the
wealth of the owner-manager. Consequently, we included in our sample only small firms that had
36
The firms in the sample were drawn from Lusaka and Copperbelt regions. Lusaka is the
capital and largest city of Zambia and is the centre of both commerce and government. Copperbelt
province covers the mineral-rich areas of the Northern parts of Zambia and is considered the
backbone of the economy. The two regions form the commercial and industrial areas in Zambia
and account for 82% of the urban population (Central Statistics Office, 2011) and 56% of the
country’s self-employed population (World Bank, 2013c) and as such provide a fair representation
of small firms in Zambia. Out of the total 235 owner-managers that responded to our
questionnaires 55.3% were from the Copperbelt region while 44.7% came from Lusaka and its
surrounding areas. The average firm age was 10 years. In terms of legal status, 94.5% were limited
companies while the remaining 5.5% described themselves either as sole traders or in a partnership.
August 2013. Out of the 475 owner-managers that were contacted 235 agreed to participate in the
study. The majority of the owner-managers who participated in the study were male (89.4%); this
can be attributed to the low level of female participation in commercial sectors such as construction
in Sub-Saharan Africa (Bardasi et al., 2011; Liedholm, 2002). Additionally, the median age group of
the owner-managers was 39 to 40 years and 53.2% of all respondents were below the age of 40.
Nearly all respondents (98.3%) had received formal education and 88.9% completed some form of
tertiary education.
All respondents answered all questions on perceptual small firm growth indicators, hence
the 100% item response rates in Table 2.5. However, for the questions that asked for objective
performance data, disclosure rates were lower as shown in Table 2.5. A number of owner-managers
did not provide objective performance data because they were not comfortable with disclosing
such kind of data despite assurances from the side of the researcher; others said they did not have
37
any archival data available. The information in Table 2.5 supports the ideas from literature (Åstebro
and Chen, 2014; Hurst et al., 2013) and the suggestions from the expert interviews that owner-
managers are reluctant to discuss firm growth based on objective performance data.
2.4.2 Measures
In entrepreneurship research, growth has been operationalized based on owner-managers’
perceptions of change and as actual change. We used both operationalizations because our research
focus was finding a valid and reliable means of measuring small firm growth in LDCs. We asked
our respondents how they perceived their firm’s growth on each small firm growth indicator. All
perception-based data were collected using a five-point Likert scale that measured
increase/decrease in employees, sales, assets, expenditure on purchase of key process inputs and
personal wealth. We used questions such as, “how has your sales changed over the last five years
(2009-2013)”, with possible responses on a scale ranging from 1-decreased very much, to 5-
increased very much. We also requested survey-participants to respond on similar Likert scales for
assessing perceived changes in annual figures concerning the number of employees, level of sales,
value of assets and expenditure on purchase of key process inputs, but not for personal wealth
38
because of the difficulties we anticipated in terms of availability and willingness to disclose such
data.
We also used data from the NCC database (see Section 1.2.4) to calculate firm growth for
the purpose of comparing the growth measurement methods with an independent measure of firm
growth used in the Zambian construction sector. Each firm in the sector is given a grade category
that indicates its size and we considered a change in grade as an indicator of change in size.
Therefore, a firm that has increased its size can be considered as having grown over the period
under consideration. Using the NCC grades for each firm for the period 2009 to 2013, we
calculated firm growth by subtracting the firm’s NCC grade in 2013 from the grade in 2009. We
considered firms that had improved their grade as growth firms, while those that remained in the
same grade or moved from a superior to a lower grade as no-growth firms. For example, a firm
that was in grade six in 2009 and in grade four in 2013 was considered to have grown since it had
improved its grade by two (6-4 = 2), while one in grade four in 2009 and grade six in 2013 had
reduced its grade by two (4-6= -2) and was considered a no-growth firm. We created a dummy
variable for allocating each firm in either the “NCC growth” group or the “no NCC growth” group.
We assessed whether our survey-based growth indicators in Table 5 have a positive relationship
with the NCC-growth dummy. For example, if an entrepreneur states that the firms’ number of
employees, sales, assets and the individual’s expenditures and personal wealth have all increased,
this response is deemed more trustworthy when the NCC-dummy also indicates growth for the
firm.
measurement scale and requires assessing three essential components: dimensionality, reliability
and validity (O'Leary-Kelly and Vokurka, 1998; Venkatraman and Grant, 1986). Construct validity
39
shows the extent to which the measured variables reflect the latent construct they are supposed to
measure (Kline, 2011). We used Exploratory Factor Analysis (EFA) followed by Confirmatory
Factor Analysis (CFA), to establish construct validity of the six growth indicators from Table 2.5.
EFA was used as a preliminary analysis to determine the number of factors and patterns of loadings
that best represented the data (Hair et al., 2010; Worthington and Whittaker, 2006). For this study,
it was important to check the factor structure using EFA since our scales included new indicators
of small firm growth. CFA was then used to assess unidimensionality, reliability and convergent
validity of the scales (Hair et al., 2010; Mullen et al., 2009; Bagozzi et al., 1991).
We also validated our scales by comparing the difference in the mean score of two groups
(one showing growth and the other no growth) that we created from our sample using data from
the NCC database. Diamantopoulos (2005) notes that with the exception of content validity, all
other forms of validity are defined in terms of patterns of relationships with other measures. In
this regard, the concern for validity is to check whether the indicators accurately capture the real-
world phenomena to which they refer (MacKenzie et al., 2011). For this purpose, we compared the
growth measurement scales with the NCC grade growth. We conducted an independent samples
t-test to check whether belonging to the “growth” group or “no-growth” was significantly related
to the scores from the firm growth measurement scales. This relates back to the previously
mentioned example that if an entrepreneur states that the firms’ number of employees, sales, assets
and the individual’s expenditures and personal wealth have all increased, we should find that the
2.4.4 Results
validity (Schjoedt and Shaver, 2012). A measurement scale that represents a single latent trait is
40
considered to be unidimensional (Hair et al., 2010; Gerbing and Anderson, 1988). Since all firm
growth indicators in Table 2.5 intend to measure small firm growth, we assumed unidimensionality.
Both EFA and CFA were used to assess dimensionality for the firm growth indicators using the
six alternative methods presented in Table 2.2. We used EFA to explore the underlying factor
structure by checking the number of factors produced. To conduct EFA, we used principal
components factor analysis with Varimax rotation using IBM SPSS statistics version 24 software.
The results presented in Table 2.6 show the factor loadings for each firm growth measurement
method. It should be noted that the variable personal wealth was only measured based on owner-
managers perceptions, hence only has factor loadings for this method in the table.
Table 2.6. Result of factor analysis for firm growth measurement scales
Standardised factor loadings Variance Avg.
explained Variance
Growth measurement scale Personal
Employees Sales Assets *Purchases by the first Explained
wealth factor (%) AVE
Perceived growth 0.671 0.883 0.849 0.831 0.724 63.29 0.55
Absolute size growth 0.763 0.882 0.896 0.964 83.98 0.76
Relative size growth 0.375 0.791 0.227 0.866 39.18 0.45
Logarithm difference growth 0.688 0.800 0.736 0.851 59.44 0.51
Size weighted growth 0.839 0.543 0.902 0.740 58.98 0.46
Average size growth 0.762 0.818 0.834 0.832 65.89 0.63
Note: * Expenditure on purchase of key process input
Only one growth measurement scale, relative size growth, did not produce a single factor
structure, with only 39.18% of the variance of the observed growth indicators explained by the first
factor, and was therefore not considered in subsequent analyses. That is, this particular scale
produced two factors, with employees, sales and expenditure on purchase of key process inputs
loading on one factor, and assets loading on the second factor. All the remaining scales produced
single factor solutions explaining at least 58.98% of the total variance. The factor loadings for all
growth indicators in the growth measurement methods that had a single latent variable namely
perceived growth, absolute size growth, logarithm difference growth, size weighted growth and
average size growth, were above 0.5. Hair et al. (2010) recommends this as threshold for achieving
41
significance in factor loadings when the sample size is 200 or more. These results provide initial
support for the unidimensionality of five out of the six measurement scales.
We conducted our CFA using AMOS 22 and Maximum Likelihood Estimation (MLE)
procedures. CFA offers a more stringent assessment of unidimensionality than EFA and is
considered to provide better inferential statistics that allow for assessing construct validity (Gerbing
and Anderson, 1988; Hair et al., 2010; Kline, 2011). The fit indices that are taken into account when
determining model fit were Chi-square (𝛸2) with the associated degrees of freedom (df) and p values,
Tucker Lewis Index (TLI), Comparative Fit Index (CFI) and the Root Mean Square Error of
Approximation (RMSEA). Values larger than 0.97 for the TLI and CFI and less than 0.08 for
RMSEA signify good model fit for samples less than 250 with less than 12 variables (Hair et al.,
2010). Separate measurement models for each growth measurement methods were estimated
independently. Table 2.7 shows the CFA results for the five categories of measures that were
Table 2.7. Confirmatory factor analysis results for growth measurement scales
Growth measurement scale df x2 p TLI CFI RMSEA
Perceived growth 5 9.904 0.078 0.981 0.990 0.065
Absolute size growth 2 4.146 0.126 0.968 0.994 0.068
Logarithm difference growth 2 0.482 0.786 1.072 1.000 0.000
Size weighted growth 2 13.001 0.002 0.651 0.930 0.153
Average size growth 2 3.586 0.166 0.981 0.990 0.065
The results are shown in Table 2.7 and indicate that unidimensionality was achieved in
four measurement scales namely perceived growth, absolute size growth, logarithm difference
growth and average size growth. The only scale that did not show unidimensionality was size-
weighted growth.
42
2.4.4.2 Scale validity
The two important components of scale validity are discriminant validity and convergent
validity. Discriminant validity shows the extent to which conceptually similar concepts are distinct,
while convergent validity measures the extent to which measures of the same concept are correlated
(Hair et al., 2010). Since all our firm growth measurement scales had one latent variable, we only
used convergent validity to establish scale validity. There are two prominent methods for assessing
convergent validity. First, convergent validity is assessed by calculating the average variance in the
indicators that is accounted for by the latent variable (MacKenzie et al., 2011). When each growth
indicator is related to one latent variable, the average variance extracted (AVE) is calculated as the
mean of the sum of the squared standardised factor loading (Fornell and Larcker, 1981). Second,
convergent validity is accessed by considering the size of factor loadings. High and statistically
significant factor loadings show that indicators converge on a common point (Byrne, 2013). Hair
et al. (2010) and Fornell and Larcker (1981) recommend that standardised loading estimates and
The results shown earlier in Table 2.6 show that the factor loadings for all growth
indicators in the scales for perceived growth, absolute size growth, logarithm difference growth
and average size growth, had loadings that were above the 0.5 threshold. The values for factor
loadings for sales in the size weighted growth scale were less than 0.5. The AVE value of 0.46 for
size-weighted growth was also below the recommended threshold. These results show evidence of
convergent validity in scales for perceived growth, absolute size difference growth, logarithm
difference growth and average size growth, but not for the size weighted growth. Model fit indices
43
2.4.4.3 Scale reliability
Scale reliability indicates the accuracy and precision of a measurement procedure
(DeVellis, 2011; Chandler and Lyon, 2001). Scale reliability was measured using the two commonly
applied indices, Cronbach’s coefficients alpha (α) and the Composite Reliability, denoted as P(η).
According to Hair et al. (2010) reliability estimates between 0.6 and 0.7 are acceptable provided
other indicators of the model’s construct validity are good, while estimates above 0.7 suggest good
reliability. The results for Cronbach’s alpha and composite reliability are shown in Table 2.8. The
results indicate that only perceived growth, absolute size growth and average size growth are
reliable according to both indices. The Cronbach’s alpha (α) and Composite reliability values for
relative growth and size weighted growth were below the cut-off value. Although Cronbach’s alpha
value for logarithm difference growth was above 0.7, its composite reliability value was below 0.6.
small firm growth measure for the construction sector in Zambia. We compared the three small
firm growth measurement scales (perceived growth, absolute growth, and average size growth) that
were unidimensional, valid and reliable with growth calculated using data from the NCC database.
We used the grade classification from the NCC database for firms in our sample to create the
44
We conducted an independent samples t-test with the “growth” and “no growth” groups
as the categorical independent variable and the score from the firm measurement scale as the metric
dependent variable. Only the scores measured using the perceived growth scale showed statistically
significant difference for the “growth” group (M=3.782, SD= 0.608) and the “no growth” group
(M= 3.395, S.D 0.903): t(87)= -2.49, p=0.019. Absolute size growth and the average size growth,
for the “growth” and “no growth groups” were not statistically significant. The results of the t-test
Table 2.9. T-test results comparing NCC “growth” and “no growth” Groups
Growth Grade growth Std.
N Mean t-value p-value
measurement scale Group Deviation
Perceived growth Growth 43 3.3953 0.90342
No growth 34 3.7824 0.60776 -2.142 0.035
Absolute growth
Employee Growth 26 793,104 1,841,314
No growth 26 456,083 1,365,770 -1.545 0.127
shown in Table 2.10. The results indicate that of the six small firm growth measurement scales that
were evaluated, the perceived growth, absolute size growth and average size growth were
unidimensional, valid and reliable. The perceived growth scale also showed a significant
relationship when compared with the best available measure of small firm growth.
45
Table 2.10. Reliability and validity results for all measurement scales
External
Unidimensionality Validity Reliability
Measure
Growth measurement
Average
scale Factors Model Factor
Variance (α) P(η)
extracted fit Loadings
Extracted
Perceived growth ✔ ✔ ✔ ✔ ✔ ✔ ✔
Absolute size growth ✔ ✔ ✔ ✔ ✔ ✔ ✗
Relative size growth ✗ ✗ ✗ ✗ ✗ ✗ ✗
Logarithm difference growth ✔ ✔ ✔ ✗ ✔ ✗ ✗
Size weighted growth ✔ ✗ ✗ ✗ ✗ ✗ ✗
Average size growth ✔ ✔ ✔ ✔ ✔ ✔ ✗
Note: (α)= Cronbach’s alpha, P(η) = Composite Reliability
entrepreneurship research. This study focuses on identifying small firm growth indicators and
measurement methods that are suitable for entrepreneurship research in LDCs. The difference in
characteristics of small firms and their environment between LDCs and developed countries makes
it difficult to universally apply the conceptualisation and operationalization of small firm growth
indicators that are commonly used in developed countries to research conducted in LDCs. This
study finds that measuring small firm growth through perceptions of owner-managers on changes
in number of employees, level of sales, value of assets, personal wealth and expenditure on
purchase of key process input was the best method for small firms in LDCs.
The major difference between the scale developed in this study and existing ones concerns
the choice of small firm growth indicators. Results from our study indicate that number of
employees, level of sales and value of assets are the common firm growth indicators from extant
literature that are also appropriate for research in LDCs. Two growth indicators, personal wealth
and expenditure on purchases of key process input, were included in the new scale to make it more
suitable for the LDC context. The addition of the two indicators may emanate from differences in
structure, ownership and governance of small firms in LDCs and developed countries (Kiggundu,
46
2002). In most small firms in LDCs, the wealth of firm and that of the firm owner are not clearly
Regarding the type of data collected and method of calculating growth, there are
similarities between the new scale and existing scales. The scale developed in this study uses
subjective rather than objective growth measures. Our results show that in LDCs, measuring small
firm growth based on owner-managers’ perceptions is preferred over using owner reported figures,
that is, exact amount numbers reflecting financial growth in the appropriate currency or the number
of employees of the firm. Although this method is often criticised for being biased, a number of
studies have found correlation between growth measured using owner-manager perceptions and
owner-reported figures data (Casillas & Moreno, 2010; Delmar et al., 2003). One of the main remain
why reasons owner-managers’ perceptions of growth may be more suitable in LDCs is the absence
of accurate sources of objective data. Many small firms in LDCs do not keep detailed accounts of
their activities and when they do, they are not usually willing to disclose such information to third
parties. Further, there are no reliable secondary sources of small firm growth data in LDCs.
Therefore, researchers in LDCs encounter problems in obtaining objective data on firm growth
measurement variables. Under such conditions, using subjective measures such as owner-
managers’ perceptions of firm growth is acceptable both in developed countries and LDCs (Dess
This study also supports the assertions that small firm growth should be measured using
multiple indicators combined into an index to capture the multifaceted nature of growth (Kiviluoto,
2013). The findings of this study indicate that the additional variables, namely personal wealth and
purchase value of key process inputs, provide better firm growth measurement method than using
only number of employees, value of assets, and sales revenue. Since different forms of growth have
to a certain extent common underlying causes, using a composite measure with multiple indicators
47
provides an improved conceptualisation of small firm growth (Delmar et al., 2003). This is especially
important in LDCs where firm growth tends to be affected by external environmental challenges
that affect small firm growth. In LDCs, as firms grow beyond a certain size, they face stringent
regulatory and tax requirements that are bureaucratic and difficult to manage. As a result, most
small firm owners tend to run a number of small firms as opposed to one larger one and convert
some of the business earnings from such firms into personal wealth in order to escape the
challenges of managing a large firm. Therefore, using growth indicators independently of each
other may result in missing certain key aspects of the overall growth (Davidsson et al., 2007; Delmar
et al., 2003). A multi-item scale provides an opportunity to measure the different aspects of growth
that manifests in various forms. The scale developed in this study provides such an
operationalization of small firm growth which can be adopted for future research in LDCs.
Additionally, the scale development process outlined in this chapter provides guidance on how to
of small firm growth is relevant for small firms in different research settings. Thus, we conclude
that there is a need to include context-specific growth indicators of small firm growth whenever
growth is measured in different settings. Additionally, in situations where there are challenges of
obtaining objective data, the perceptions of owner-managers can be used to measure growth.
The findings of this study have important implications for future research because the
measurement scale developed considers contextual issues that affect small firm growth
measurement in LDCs. Contextualisation, in its broadest sense, entails placing the researched firms
within their natural settings to understand their origins, forms, functioning and diverse outcomes
(Welter, 2011). It ensures that the circumstances, conditions, situations, or environments that are
external to the respective phenomenon and enable or constrain it are taken into account (Zahra et
48
al., 2014). Conceptualisation also helps to make research models more accurate and interpretation
of results more robust since it is concerned with appropriate specification of constructs and
generalisability of results (Rousseau and Fried, 2001). Since the choice of research setting can cause
variability in research findings, it is important that existing and future small firm growth theoretical
frameworks consider the use of contextualised small firm growth measurement methods.
This study has some limitations. First, our sample was drawn from one sector in one
country. The results therefore represent the Zambian construction sector only and future research
should be undertaken to test the usability of the developed scale in different sectors and in other
LDCs. Second, we used data for one time frame (that is five years) to test the scales. Variations in
choice of time period studied have been identified as one of the causes of variability in results
(Delmar, 2006b). Since our study only used one time period, further research is needed to check if
the developed growth measurement methods show the same results across different time periods.
49
Chapter 3 Which Founders Do Extract Wealth from their
Venture? The Moderating Role of Start-up Motivation5
5 This chapter is based on a paper currently under review (second round) for publication in the Journal of
Small Business Management. The article is entitled “Which Founders Do Extract Wealth from their Venture?
The Moderating Role of Start-up Motivation” and the authors are M. Chabala, L. Paas, E. van Burg, E. Masurel,
and J. M. Lungu
50
Abstract
Increasing personal wealth is one of the motives for starting a business, especially in
environments with few employment opportunities such as Least Developed Countries
(LDCs). However, the relationship between growth in personal wealth, start-up motivations
and small firm growth has hardly been empirically evaluated. Using primary data from 228
small businesses in Zambia, our findings show that overall firm growth is positively related
to increasing personal wealth. Interestingly, we find that push motivated entrepreneurs
extract wealth at a faster rate than those motivated by pull and mixed factors, thus increasing
the risks of early firm failure.
51
4.1 Introduction
Besides the major contribution of small firms to economic growth and job creation (Acs and
Mueller, 2008), small firms have the potential to act as mechanisms for increasing personal wealth
of the firm owners (Cagetti and De Nardi, 2006). A related topic in entrepreneurship studies is the
motivation for entrepreneurs to start their firms (Carsrud and Brännback, 2011; Stenholm et al.,
2016). For some push motivated entrepreneurs, wealth creation is one of the primary motives to
start a firm, as they do not have other options to generate sufficient income. Negative
environmental conditions such as unemployment or the difficulty in finding a suitably paying job
can “push” potential entrepreneurs to become de facto entrepreneurs (Dawson and Henley, 2012;
Uddin et al., 2014). In contrast, others are more motivated by non-pecuniary benefits like the desire
for independence, recognition, innovation, and self-actualisation (Amit et al., 2000; Hamilton, 2000;
Cassar, 2007; Williams and Williams, 2014). Such entrepreneurs are “pulled” into business
formation by positive factors such as self-fulfilment, change in lifestyle or use of one’s experience
and knowledge or a combination of both pull and push factors (Burke et al., 2002; Benzing et al.,
2009).
For push motivated entrepreneurs, wealth extraction from the firm is a key motive. In
this research, wealth extraction refers to the direct expropriation of cash and other firm resources
to private use by the firm owner (Verheul et al., 2010). Yet, the extent to which firm growth
translates into growth of personal wealth is still largely unknown. In this study, we consider
personal wealth as the firm owner’s disposable wealth, which is the sum of all marketable or
fungible assets held by an individual minus liability (Wolff 1983). Thus, the relationship between
the rate at which the entrepreneur extracts wealth from the business for personal use and the
reasons for starting a business is still puzzling. Do push-motivated entrepreneurs extract more
wealth in early growth phases than pull-motivated entrepreneurs? Could that be the explanation
52
for the effect that firms started by pull motivated entrepreneurs are more likely to survive and grow
than those motivated by “push” factors (Amit and Muller, 1995; Reynolds et al., 2002; Vivarelli,
2004; Block and Sandner, 2009)? Personal circumstances and household needs of the entrepreneur
are some of the key firm start-up motivations (Aldrich and Cliff, 2003), particularly in scarce
resource settings like least-developed countries (LDCs). Since start-up motivation affects both firm
growth and the financial rewards the entrepreneur gets from the business, the relationship between
firm growth and personal wealth of the owner-manager is likely to be dependent on start-up
motivation.
This study sets out to answer the following question: What is the relationship between small
firm growth and growth in personal wealth of the firm owner, and how is this relationship affected by the motivation
for starting the business? This question is not only interesting because current literature does not
provide a complete answer, however, the question is important to understanding the rewards for
decision making in small firms, with severe practical consequences. In sum, the aim of this study
is to assess empirically the extent to which firm growth translates into economic rewards for the
entrepreneur, and how the relationship is moderated by the owner-manager’s motivation for
This study responds to the call for research to consider rewards of entrepreneurship by
exploring the incomes, wealth and economic well-being of entrepreneurs at individual and
household level (Carter, 2011; Wiklund et al., 2011). By selecting the resource-scarce setting of
entrepreneurs in a setting in which there is both push and pull driven entrepreneurship. Thus, we
contribute to the debate on the economic incentives for undertaking entrepreneurial activities and
examining how firm performance translates into economic rewards for the entrepreneur.
Moreover, by examining the role of start-up motivation in the relationship between firm
53
performance and economic rewards, we are able to shed light on why some firms are more likely
This chapter proceeds as follows. The next section provides theoretical foundations of
the relationship between firm growth, personal wealth extraction and start-up motivation and
presents hypotheses. Next, the methodology is discussed, followed by the analysis and results. The
results are discussed and we round off with a number of conclusions and summary of the main
findings.
(Delmar, 2006b, Davidsson et al., 2009; Achtenhagen et al., 2010; Kiviluoto, 2013). Small firm
growth often results from the owners’ positively motivated business intentions and actions, which
are driven by the belief that such efforts provide the best option for attaining desired goals
(Morrison et al., 2003). Entrepreneurs initiate and expend effort when they believe that doing so
will result in performance which in turn would lead to a valued outcome (Shepherd and DeTienne,
choice of where to expend effort, as a choice between self-employment and wage labour, in order
to achieve a desired outcome. This view suggests that starting a business is an individual’s career
choice between wage labour and self-employment. From an economic perspective, individuals are
considered to engage in entrepreneurial activities after assessing the available opportunities for
choose to become entrepreneur because they expect to be rewarded for their undertaking in terms
54
of income and wealth (Benzing and Chu, 2009). In this regard, an individual’s decision to engage
and alternative avenues of earning income such as wage labour (Douglas and Shepherd, 2002;
Increasing personal wealth as a primary motive for business ownership is one of the
common assumptions in entrepreneurship research. Indeed, most entrepreneurs believe that they
have better prospects of improving their personal wealth through business formation (Amit et al.,
2000). Firm ownership is also empirically linked to improving the personal wealth of the business
owner (Caliendo and Kritikos, 2010; Frankish et al., 2014; Mwaura and Carter, 2015). Although
et al., 2014).
This situation is likely to be more prominent in LDCs, where a large number of people
are pushed to start businesses because of poverty and lack of opportunities in the formal wage
sector (Acs and Mueller, 2008; Frankish et al., 2014; Naudé, 2010; Tamvada, 2010). Business
formation is an attractive route for survival and escaping poverty (Kimhi, 2010; Jennings et al.,
2016). In such regions, it is highly likely that one of the main goals of business formation is
increasing personal wealth. However, such potential is to a large extent dependent on the
performance of the firm. Economic rewards of entrepreneurship may only accrue when small firms
actually survive and grow (Wennekers et al., 2005; Shane, 2009). On the basis that firm growth has
H1: Small firm growth is positively related to growth in personal wealth of the business owner.
55
4.2.2 Moderating effect of entrepreneurial motivation
Numerous scholars have contributed to our understanding of the motivations for starting
a business. This has led to various categorisations of entrepreneurial motivations. Overall, the
common motivations associated with becoming an entrepreneur are desire for financial success,
self-realization, roles, innovation, recognition, and independence (Carter, et al. 2003; Cassar, 2007).
Some researchers have classified motives for business formation as “pull” and “push” motives
(Amit and Muller, 1995; Dawson and Henley, 2012; Gilad and Levine, 1986; Hughes, 2003; Uddin,
Bose and Ferdausi, 2014) while others use the terms “necessity” and “opportunity” motives (Block,
et al., 2015; Hessels, van Gelderen and Thurik, 2008; Verheul, et al. 2010; Williams and Williams,
2014).
The reasons for starting a business can stem from both external environmental factors
which may act as attractors of constraints or as a result of internal personal objectives or self-
perceptions. Both these factors can either “pull” or “push” an individual to form a business. For
example, regarding external factors, loss of employment can be a “push” factor while the desire to
pursue an opportunity in the market can be a pull factor. Similarly, for internal personal objectives
or self-perceptions, job dissatisfaction can be a push factor, while the desire to be your own boss
Individuals who start firms to exploit an (attractive) business opportunity are “pulled”
into entrepreneurship. People are also attracted positively to engage in entrepreneurship because
development (Amit and Muller 1995; Benzing, Chu and Kara, 2009; Gilad and Levine 1986; Thurik,
et al., 2008). In contrast, those individuals that feel compelled to start their own business because
all other options for work are either absent or unsatisfactory are “pushed” into entrepreneurship
out of necessity. Such push factors relate to negative external forces that make people engage in
56
entrepreneurship, like the inability to find a job, underemployment, facing discrimination in the
Motivation plays an important role in firm growth (Carsrud and Brännback, 2011).
Research has shown that entrepreneurs, also in developing economies, are not solely motivated by
economic purposes but in fact pursue a variety of motives through business venturing. For
example, Amit, et al. (2000) found that out of eleven reasons for starting a business, increasing
wealth was ranked the least important among high technology entrepreneurs in British Colombia.
Other reasons for starting a business such as the desire to be innovative, independence and finding
a more challenging job were considered more important than increasing wealth. Similarly, Wiklund,
Davidsson and Delmar (2003) found that non-economic concerns may be more important than
environmental factors and/or human agency (Shane, Locke and Collins, 2003). In this regard, firm
formation can be motivated by a combination of pull and push factors acting together (Dawson
and Henley 2012; Kirkwood, 2009). Indeed, studies have argued that classifying motivations
dichotomously as pull versus push is an oversimplified depiction (Dawson and Henley, 2012;
Williams and Williams, 2014). Furthermore, research conducted in LDCs and other economically
deprived communities indicate presence of pull and push motivations acting for the same
entrepreneur (Adom and Williams, 2012; Benzing and Chu, 2009; Bewayo, 2015; Eijdenberg, Paas
The prevalence of pull and push entrepreneurial motives at country level is affected by
the level of economic development (Acs 2006; Thurik, et al., 2008). Therefore, in LDCs, with their
weak job markets and low incomes, small business creation is more likely to be push than pull
57
motivated (Gries and Naudé, 2010; Smallbone and Welter, 2006; Wennekers, et al., 2005).
Individuals faced with unemployment and small prospect of gaining wage-work are likely to be
pushed into starting a business (Dawson and Henley, 2012; Ritsila and Tervo, 2002; Storey, 1991).
The decision between self-employment versus wage-work is also influenced by the unattractive
uncertain income, potentially offers satisfactory income. Therefore, in the absence of attractive
employment choices, entrepreneurs are more likely to be motivated by extrinsic rewards such as
increasing their personal wealth and creating jobs for their economic survival than by intrinsic
In this context, firms that are formed by entrepreneurs who are predominantly motivated
by pull factors are more likely to achieve higher growth than those founded by entrepreneurs who
are predominantly motivated by push factors (Dobbs and Hamilton, 2007). This may be because
one of the primary goals of push-motivated entrepreneurs is to increase income, which is likely to
be used for personal economic survival (Hessels, van Gelderen and Thurik, 2008). Specifically, in
the context of LDCs, push motivated entrepreneurs are primarily forced into entrepreneurship
because of the absence of attractive alternatives for increasing income (Benzing and Chu, 2009;
Rosa, Kodithuwakku and Balunywa, 2006). On the other hand, entrepreneurs who are
predominantly motivated by pull factors tend to pursue non-pecuniary rewards such as desire for
independence and innovation. Therefore, we argue that push motivated entrepreneurs are likely to
extract wealth from the firm and use it for personal needs. Pull motivated entrepreneurs are more
likely to postpone the personal wealth benefits of owning a business until the business has grown
to a level that they consider optimal. They are more likely to reinvest their returns from the firm
into the firm in order to improve its performance and chances of success. We argue that this could
be the mechanism behind the relationship between the importance the entrepreneur places on
58
economic motives and the growth achieved by the firm (cf. Cassar, 2007; Edelman, Brush and
Manolova, 2005).
In sum, the effect of entrepreneurial motivation on the relationship between firm growth
and personal wealth is likely to depend on start-up motivation factors. The personal wealth of push
motivated entrepreneurs is likely to increase when their firms grow because they are likely to extract
wealth from the firms at a faster rate than entrepreneurs motivated by pull and mixed factors. To
H2: The relationship between firm growth and growth in personal wealth is stronger for entrepreneurs
predominantly motivated by push factors than those predominantly motivated by pull factors or
a combination of both.
4.3 Methodology
Zambia is a suitable context to study firm start-up motives, as in such an LDC-setting necessity-
entrepreneurship is likely to be predominately driven by push factors, and those who are driven by
pull factors are more likely to pursue promising opportunities. Zambia has a mix of entrepreneurs
who consider themselves as driven by factors related to push (32%) and pull (46%) factors
(Herrington and Kelley, 2013). Moreover, the Global Entrepreneurship Monitor (Brinckmann et
al. 2010) rates Zambia as having one of the highest proportions of the adult population (18 to 64)
engaged in business activities (42%). By sampling only small firms in the construction sector, we
effectively controlled for variations in firm size and industry effects in our sample (Davidsson,
2004). Construction is chosen as a sector in which firm growth is regularly observed, and it
accounted for 21.1% of the country’s economic growth in 2012 (Zambia Development Agency,
2012).
59
The small firms in the study were selected from the database of the regulator for the
industry, the National Council for Construction (NCC). The sample included firms that had been
operational for at least five years. This threshold was set on the basis that Zambia has been reported
to have a high business failure rate (Global Entrepreneurship Monitor, 2014). Out of the 475
questionnaires that were administered 228 were fully completed, yielding a response rate of 48.0%.
We checked for non-response bias by comparing the means of early and late respondents. There
were no significant differences in early and late responses, indicating that non-response bias is less
likely to be a problem (Armstrong and Overton, 1977; Lambert and Harrington, 1990; Arend,
2012).
The mean firm size was 29 employees and the mean firm age 10 years. All respondents
were owner-managers of their firms. The majority (89.4%) of the respondents were male, which is
representative of the situation in Sub-Saharan Africa with low levels of female participation in
goods-producing sectors such as construction (Liedholm, 2002; Bardasi et al., 2011). Nearly all
respondents (98.3%) had formal education, with 89.0% having successfully completed some form
of tertiary education. The firms in the sample were from two major commercial and industrial
areas, Lusaka and Copperbelt provinces which account for 82.0% of the 5.068 million people living
in urban areas (Central Statistics Office, 2011) and 55.7% of the country’s self-employed population
4.3.2 Measures
study, personal wealth is operationalised as personal financial reward accruing from entrepreneurial
activities. Growth in personal wealth was measured by asking the respondent to rate on a five-
60
point Likert scale with responses ranging from 1 (increased very much) to 5 (decreased very much),
“How has your personal wealth changed as a result of owning the business over the last five years?”
In other studies, the methods to measure entrepreneurial earnings include dividing net
profit by the number of hours worked, establishing the amount of money drawn from the business
by the owner-manager, and the growth in business equity of the owner-manager (Parker et al., 2005;
Dobbs and Hamilton, 2007). However, these methods have been questioned because owner-
managers tend to either underestimate or are reluctant to disclose their entrepreneurial earnings.
The use of net profits and hours worked to calculate the entrepreneurial earnings has been
considered unreliable because net profit values are usually understated and there are also difficulties
in establishing the number of hours worked by entrepreneurs. Money drawn from the business is
also deemed to be under reported, as it has been observed that most entrepreneurs’ lifestyles often
exceed the consumption otherwise afforded by the value of money they draw from their firms.
Since most entrepreneurs are able to achieve a higher standard of living than indicated by
conventional measures of earnings, solely relying on wage- and drawings-based methods often fail
to correctly depict the actual entrepreneurial earnings (Carter, 2011). Additionally, for such
methods to be effective, there need to be reliable sources of data such as national surveys of
personal incomes. Since such databases are not available in LDCs, use of these methods for
various ways in entrepreneurship research (Dobbs and Hamilton, 2007). For this research, we
measured firm growth using the three most commonly used growth indicators: growth in number
of employees, sales and assets (Delmar, 2006b, Shepherd and Wiklund, 2009; Wiklund et al., 2009;
Achtenhagen et al., 2010). Respondents were asked to rate on a five-point Likert scale the growth
61
in the number of employees, sales and assets over the last five years (1-decreased very much to 5-
increased very much). The use of subjective performance measures in entrepreneurship is common
and has been found to have a high correlation with ‘objective’ performance measures (Delmar et
al., 2003; Casillas and Moreno, 2010). Based on the view that all three indicators are unique but
related attributes of firm growth (Delmar et al., 2003; Shepherd and Wiklund, 2009; Davidsson et
al., 2007) we combined the measures into a multiple-indicator index of firm growth.
We used Principal Component Analysis (PCA) with Varimax rotation and factor
extraction based on Eigenvalues larger than one, to assess the underlying structure for the three
growth indicators. The PCA produced a single factor solution which accounted for 73.01% of the
variance. All three growth indicators had factor loadings greater than 0.7, indicating convergent
validity. The scale also showed a high reliability level indicated by Cronbach’s Alpha (α) value of
0.813. Therefore, we computed the composite score of firm growth based on growth in number
motivation is dominated by pull and/or push related factors. Start-up motivation can be attributed
to multiple motivations related to both pull and push factors acting solely or in combination
(Dawson and Henley, 2012; Williams and Williams, 2014). We conducted a two-stage approach.
First, principal components factor analysis with Varimax rotation was used to extract the
underlying dimensions of start-up motivations (Hair et al., 2010). This was necessary because we
needed to confirm the underlying factor structure of start-up motivation in our sample since there
are many dimensions of the construct found in entrepreneurship literature (Benzing and Chu, 2009;
Dawson and Henley, 2012; Jayawarna et al., 2013). Principal components factor analysis was used
to reduce the items in the questionnaire to their latent variables and to explore the underlining
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theoretical structure of start-up motivation in the sample Second, cluster analysis served to identify
the distinct start-up motivation profiles of the respondents (Punj and Stewart, 1983; Jayawarna et
al., 2013). This procedure was necessary because some respondents had a mix of push and pull
The questions were adapted from the scales developed by Kuratko et al. (1997) and
Robichaud et al. (2001). These questions have been previously used to study start-up motivation by
entrepreneurs in Africa and have high reliability levels (Chu et al., 2007; Benzing and Chu, 2009;
Isaga et al., 2015) and also other regions (Benzing et al., 2005; Benzing et al., 2009). Respondents
were asked to rank on a five-point Likert scale (1-strongly disagree to 5-strongly agree) the extent
to which they agreed with ten statements related to pull and push factors of starting a business (see
appendix 2).
Statements that related positively to the desire to engage in entrepreneurship for reasons
revealed pull motives while those that indicated that business formation was as a result of lack of
better choices for work were classified as push motives (Hessels et al., 2008). The Kaiser-Meyer-
Olkin (KMO), a measure of sampling adequacy, was 0.703 and Bartlett’s Test of Sphericity (BTS)
was significant at p < 0.001, indicating factorability of the ten items representing firm start-up
motivations. The diagonals of the anti-image correlation matrix were all over 0.5, confirming that
each item shared some common variance with other items (Hair et al., 2010). Given these overall
indicators, we proceeded with PCA with Varimax rotation and we included all ten items. Hair et al.
(2010) suggest that researchers can use relevant theoretical conceptualisations to determine the
appropriate number of factors. Since this study used the pull and push categorisation of start-up
motivation, we adopted a two-factor solution. All items loaded as expected on either pull or push
factors without any large cross-loadings. The reliability of the two-factor solution was satisfactory
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with the Cronbach's Alpha (α) values of 0.622 and 0.719 for pull and push motives respectively.
Table 4.1. Factor loadings and reliability results for firm start-up motivation
Question Factor loadings
I started my business; *Factor 1 **Factor 2
To be my own boss 0.573
To get recognition for my accomplishments 0.738
To emulate the person I admire 0.762
To continue a family tradition 0.613
To achieve a better position for myself in society 0.516
Because I was not able to find a paid job at that time 0.728
Because I was not able to sustain my family at that time 0.829
Because I was dissatisfied with my previous work at that time 0.693
Because it gave me an opportunity to earn more money than I was earning at the
time 0.463
Because it was the only way of making a living 0.707
Cronbach’s alpha 0.656 0.726
KMO = 0.705
*Factor 1 = Pull motivation.
** Factor 2 = Push Motivation.
Note: For the interpretability of the table factor loadings below the 0.300 threshold have been omitted.
For the purpose of grouping respondents based on start-up motives, which had a stronger
influence of firm formation, we used a two-step clustering method based on Punj and Stewart
(1983) and Jayawarna et al. (2013). The factor scores for pull- and push motivations are used for
clustering the respondents. First, hierarchical cluster analysis was performed in order to find the
number of clusters in the data. We assessed the number of clusters by examining the changes in
since it indicated the largest percentage change in cluster heterogeneity (Hair et al., 2010). Although
hierarchical clustering can help to determine the number of clusters, it does not produce the most
cluster analysis using the three-cluster solution obtained in the first stage. Factor scores from
principal components factor analysis were used as variables for pull and push motivation in the
cluster analysis. We compared the cluster centres of the three clusters to come up with the cluster
profiles. The results of the cluster analysis are presented in Table 3.3.
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4.3.2.4 Control variable.
The control variable used in this study was firm age. Previous research has shown that
firm age tends to have a negative effect on firm growth with younger firms growing at faster rates
than older firms (Wiklund and Shepherd, 2003; Delmar and Wiklund, 2008; Thurik et al., 2008).
Therefore, the rate at which the personal wealth of the firm owner grows is likely to decrease with
the increase in the firm’s age. Firm age was measured as the number of years the firm has been in
existence.
regression analysis. First, we used cluster analysis to allocate respondents into groups based on the
predominant firm start-up motivations, based on factor scores presented in Table 3.1. Cluster
analysis helps to create subgroups of respondents that are homogenous to each other and
heterogeneous from other groupings (Cardon et al., 2008; Hair et al., 2010).
Second, we used multiple regression analysis, with moderation effects, to test the two
hypotheses. In model 1, we checked for the effect of the control and independent variables on the
dependent variable. In the second model, we adopted the procedure of Tabachnick et al. (2007) for
testing moderation. We choose this procedure because our cluster analysis solution for grouping
that k − 1 dummy-variables must be created to code group membership (where k is the number
of categories in the variable). Therefore, the three categories in the moderator variable (i.e. pull
motivated group, push motivated group and mixed motivations group) were dummy-coded to
create two groups. The two dummy-coded variables were the pull and the push motivated groups,
while the mixed motivations group was treated as a reference group. We created the moderator
65
variable by multiplying each of the two dummy variables with the mean centred values of the
In model 2, we estimated a moderated regression model. The two dummy coded variables
(pull and push motivations), and the two interaction variables (i.e. pull motivation X firm growth
and push motivation X firm growth) were added to the regression in model 1 to estimate the
moderation effects. The third group, mixed motivation was used as the reference group and
therefore not included in the regression model (Hayes and Preacher, 2014). The moderation effect
was assessed by checking whether the regression model that included two additional variables
representing the interaction between start-up motivation and firm growth had a higher R2 value
than the model that excludes these interaction variables (Tabachnick et al., 2007; Aguinis, 2004;
Hayes, 2009b).
4.4 Results
Table 3.2 shows the means, standard deviations, and correlations for all our variables. Some
significant correlations were observed among the dependent, independent, and control variables,
but given that the variance inflation factor values were all below the critical value of 10,
multicollinearity does not seem to be a problem. (Hair et al., 2010). However, the correlations
between the interaction variables and other variables are expected to be higher than those shown
in Table 3.2.
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Table 4.2.Descriptive statistics and intercorrelations of variables
Variables Mean SD 1 2 3 4 5
1. Personal Wealth growth 3.700 1.161
2. Firm growth 3.506 1.004 0.604**
3. Age of Company 9.410 6.944 -0.148* -0.114
4. Pull Motivation 0.417 0.494 -0.002 0.005 0.145*
5. Push Motivation 0.263 0.441 -0.016 0.026 -0.092 -0.505**
6. Mixed Motivation 0.320 0.468 0.017 -0.031 -0.067 -0.580** -0.410**
** Correlation is significant at the 0.01 level
* Correlation is significant at the 0.05 level
three clusters. The cluster profiles of the respondents in our sample are reported in Table 3.3.
low scores on push factors. For this group, the underlying motivation to start a business is related
to an individual’s desire to exploit an attractive business opportunity. This group accounted for
motivations but low scores on pull motivations. Push factors were the primary drivers for business
formation in this group, which accounted for 26.31% of respondents in our sample.
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4.4.1.3 Mixed motivation group
The third cluster consists of individuals who were driven by a combination of both pull
and push motivations. Respondents in this cluster had high scores on both pull and push factors,
and the group accounted for 32.02% of respondents in our sample. This group reaffirmed the
assertion that starting a business is a complex process involving a variety of motivations (Benzing
and Chu, 2009; Dawson and Henley, 2012; Williams and Williams, 2014; Eijdenberg et al., 2015).
hypothesis 1, we added to model 1 firm age (control variable) and firm growth (independent
variable). We then tested hypothesis 2 in model 2 by adding the two dummy coded variables
representing pull and push motivation, as well as the interaction variables (i.e., the product of each
of these two dummy coded variables and firm growth respectively). The dummy coded variable
representing mixed motivation was treated as the reference group (Aguinis, 2004; Hayes, 2009b).
The detailed results of each regression model are presented in Table 3.4.
The results for testing hypothesis 1, which proposes a positive relationship between firm
growth and growth in personal wealth are shown in Model 1 in Table 3.4. Model 1 is statistically
significant and explains 37.1% of the variance in personal wealth (F (2,225) = 33.134, p<0.001).
This provides support for hypothesis 1 and indicates that there is a positive relationship between
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Table 4.4. Regression Results of relationship between personal wealth, motivation and
firm growth
Model 1 Model 2
Variables B SE B SE
Intercept 3.820** 0.104 3.844** 0.103
Firm age -0.013 0.009 -0.017 0.009
Firm growth 0.688** 0.062 0.682** 0.061
Pull motivation 0.026 0.083
Push motivation -0.076 0.092
Pull X Firm growth -0.014 0.085
Push X Firm growth 0.228** 0.086
F 33.134 ** 24.165 **
Model R2 0.371 0.396
Adjusted R2 0.365 0.380
Change in Adjusted R2, F(2,221) = 4.280 0.025*
*p<.05; **p<.001
We used Model 2 to examine hypothesis 2, proposing that the relationship between firm
growth and growth in personal wealth is stronger for those predominantly motivated by push
factors than those motivated by pull or mixed motivations. In Model 2, firm age, firm growth, start-
up motivation and the moderator variables were entered as the independent variables of the
regression. The results of the analysis are shown in Table 3.4. These results indicate that the
addition of the interaction variables in Model 2 fits the data better than Model 1, as shown by the
statistically significant increase in R2 of 0.025, F(2,221) = 4.280, p<.05. This gives evidence of the
(p<.001) positive linear relationship between firm growth and personal wealth development in all
motivational groups. However, the strength of the effect differed according to groups and is largest
when start-up motivation was predominantly push (b = 0.910, SE = 0.104), followed by pull (b =
0.667, SE = 0.103) and mixed motivation (b = 0.468, SE = 0.109) as shown in Table 3.5.
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Table 4.5. Conditional Effects for motivation groups
Motivation group b SE
Mixed Motivation 0.468** 0.109
Pull motivation 0.667 ** 0.103
Push motivation 0.910** 0.104
𝑝<.05; **𝑝<.001
These results provide support for hypothesis 2, as they indicate that the relationship
between firm growth and growth in personal wealth is stronger for the push motivated group than
We observe that the strength of relationship between firm growth and increase in personal
wealth varied across the start-up motivation groups depending on the level of firm growth achieved
(See Figure 3.1). In contrast to expectations based on theory, we find that when firm growth is low
or non-existent, the personal wealth of push motivated owner-managers emanating from owning
a business, is lower than that of those motivated by pull and mixed factors. Only at higher levels
of firm growth is the relationship between personal wealth and firm growth of push-motivated
entrepreneurs stronger than the groups with pull and mixed motivations. Yet, interestingly, at all
levels of firm growth, push motivated entrepreneurs extracted wealth from the firm at a faster rate
(i.e., the slope in Figure 3.1 is steeper) than of those motivated by pull and mixed factors.
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Figure 4.1 Relationship between firm growth and growth in personal wealth
4.5 Discussion
One of the key questions in entrepreneurship research concerns motivations to start a
entrepreneurship at the individual level (Carter, 2011). In this study, we assessed how firm growth
translates into economic rewards for the firm owners, and how this relationship is moderated by
start-up motivation.
Consistent with previous studies (e.g., Cassar, 2007; Frankish et al., 2014; Kimhi, 2010) we
find that firm growth has a positive effect on the development of the personal wealth of the firm
owner. Thus, individuals who start businesses have a chance to increase their personal wealth,
suggesting that entrepreneurial activity is a viable route for addressing economic challenges at the
micro level. The results of this study may appear to contradict other research findings, which
suggest lower incomes for push motivated entrepreneurs and argue that these individuals are
instead attracted to entrepreneurship for non-pecuniary benefits (Hamilton, 2000; Benz, 2009). It
is important to note that, the focus of such studies has been on comparing the differences in
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earnings between entrepreneurship and wage employment. These studies do not dispute the
entrepreneurship pays more than wage employment. In developing countries, where there are
limited choices for generating income, such comparisons are not so meaningful because engaging
occupational choice. Entrepreneurs in such regions are more likely to depend on their firms for
survival, and this may prompt them to strive for growth (Hessels et al., 2008; Kimhi, 2010). The
results of this research, therefore, show that entrepreneurship can lead to an improved overall
economic well-being of the entrepreneur (cf. Blackburn and Ram, 2006; Carter, 2011; Frankish et
al., 2014).
This study also shows the effect of start-up motivation on the relationship between firm
growth and personal wealth. The effect is largest for entrepreneurs who are predominantly
motivated by push factors, followed by pull factors, and then the cluster with mixed motivations.
The results also suggest that the level at which wealth is extracted from business for personal use
varies according to the growth achieved by the firm. This result is consistent with the assertions in
literature that the economic rewards of entrepreneurship will differ according to the degree of
venture success (Carter, 2011). Yet, in contrast to expectations based on theory on start-up
motivations, we find that at low levels of firm growth push-motivated entrepreneurs extract less
It is important to note that, the effect of firm growth on personal wealth is positive
irrespective of the dominant start-up motive. This finding suggests that the decision to engage in
entrepreneurial activities will lead to increase in personal wealth regardless of the motivation.
However, the strength of the effect differs among all three motivation clusters. As we expected,
push-motivated entrepreneurs have a stronger relationship between firm growth and personal
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wealth development compared to the other two groups. This finding suggests that as the firm
growth rate increases, push-factor motivated entrepreneurs tend to extract more wealth from the
firm than those motivated by push and mixed factors respectively. The findings may be interpreted
as showing that push motivation is related to the entrepreneur’s desire to satisfy extrinsic rewards,
one of which is increasing personal wealth. Push motivated entrepreneurs usually seek to improve
their economic situation and have a high dependency on their firms for economic survival,
especially in economically deprived regions such as LDCs. Push motivated entrepreneurs are likely
to focus more on short-term financial gains than on long-term growth and success of their firm,
yet this also bears the risk that they use too much of a firm’s resources for personal gain. That
could put the firm’s survival at risk. As such, this study provides insight in a mechanism that
explains why some entrepreneurs are more likely to exhaust their firm’s resources, potentially
leading to faster firm failure. On the other hand, pull motivated entrepreneurs are widely associated
with the desire to fulfil intrinsic rewards. Apart from pursuing financial success, pull motivated
entrepreneurs are driven by their desire for inert needs such as independence, autonomy and self-
efficacy (Hessels et al., 2008; Edelman et al., 2010; Dawson and Henley, 2012). Considering that
entrepreneurs in small firms have a substantial leverage in determining the value and timing of their
economic rewards (Tergiman, 2010; Carter and Welter, 2015), pull motivated entrepreneurs are
likely to trade off personal payments and consumption of the business earnings in preference to
Although this study makes multiple contributions, some limitations should be considered.
Since data used in this study were collected from only one LDC (i.e. Zambia), the generalisation of
the findings of this research to other regions must be made with caution because of differences in
firm characteristics and the firm’s operating environment, an issue that is especially salient when
generalising to developed economies. Such differences in firm characteristics can affect the timing
and amount of wealth extracted by firm owners from small firms. Moreover, the level of economic
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development affects the reasons for starting a business. Differences in firm governance regulations
can also affect both the reasons for starting a business and the amount of wealth that can be
extracted by the owner-manager. Therefore, there is a need for future research to be conducted in
other countries with different levels of economic development to ascertain the generalisability of
these findings.
4.6 Conclusion
Small firms are important to any economic system since they provide a source of employment and
economic well-being for individuals (Blackburn and Ram, 2006). Nevertheless, research on the
benefits of entrepreneurship at the national and regional level. Yet, it is important to understand
the outcomes of entrepreneurship at an individual level, since it provides important insights in the
circumstances where entrepreneurship is the only likely source of employment. These insights also
help to understand which entrepreneurs are likely to extract more wealth from their firms, thus
The findings of this study show a positive relationship between the economic rewards of
entrepreneurship and venture growth, moderated by start-up motivation. These findings imply that
regardless of the circumstances that led to starting a business, the decision to do so has a positive
effect on the economic situation of the entrepreneur. Thus, entrepreneurship has a role in fostering
the economic well-being of firm owners. To this effect, promoting entrepreneurship can be
In line with the theory on start-up motivations, we found that push motivated
entrepreneurs extract wealth at a faster rate than those motivated by pull and mixed factors. This
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effect implies that the amount of earnings that push motivated entrepreneurs can reinvest in the
business and potentially boost the firm's long-term growth and success, is lower than those
motivated by pull or mixed factors. Push entrepreneurs, therefore, need institutional support to
improve their management skills if they are to make a meaningful contribution to the growth of
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Chapter 5 Entrepreneurial Orientation and Firm Growth in Least
Developed Countries: The Moderating Role of the
Business Environment
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Abstract
Although the relationship between Entrepreneurial Orientation (EO) and firm growth has
received considerable attention in the entrepreneurship literature, much of the work has been
conducted in Western developed countries. Very few studies have explored this relationship
in the context of Least Developed Countries (LDCs) in sub-Saharan Africa, despite
acknowledging the social-economic and institutional disparities between Western developed
countries and LDCs which can affect the relationship between EO and firm performance.
In this study, we explore the relationship between entrepreneurial orientation (EO) and firm
growth and the moderating role of the business environment in a least developed country,
Zambia. Using primary data collected from 118 small firms in the construction sector, our
findings indicate that of the three dimensions of EO, namely risk-taking, innovativeness and
pro-activeness, only pro-activeness has a significant positive effect on firm growth. Further,
we did not find evidence of the moderating effect of the business environment on the
relationship between EO and firm growth.
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5.1 Introduction
Small firms have been hailed as the primary drivers of economic growth in both developed and
developing nations. Small firms are often considered as an important avenue for economic
and the social welfare effects they have on society (Acs et al., 2008). In both the developed and
developing world, there has been a realisation that business formation and innovation can be major
However, the contribution of small firms to economic growth depends on whether they
achieve superior performance and succeed. This demands that firms adopt a strategic orientation
which would enable them to acquire entrepreneurial aspects of decision making styles, methods
and practices (Wiklund and Shepherd, 2005). Such posture is referred to as entrepreneurial
orientation (EO) and has been defined as strategy making practices, management philosophies, and
firm-level behaviours that are entrepreneurial in nature (Wales et al., 2013; Lumpkin and Dess,
1996). EO generally refers to the strategic process that enhances a firm’s propensity to undertake
risky investments, constantly innovate and be proactive in the market. Research has shown that
firms adopting a more entrepreneurial strategic orientation generally perform better (Hughes and
Morgan, 2007; Krauss et al., 2005; Madsen, 2007; Wiklund and Shepherd, 2005; Lumpkin and Dess,
2001).
Although there have been numerous studies which have investigated the relationship
between EO and firm performance, the overall findings of such research have been largely
inconclusive. While some studies found a positive relationship (Boso et al., 2013; Lumpkin and
Dess, 2001), others found a negative relationship between EO and firm performance (Arbaugh et
al., 2009; Hart, 1992). Furthermore, Su et al. (2011), Wales et al. (2013b) and Kreiser et al. (2013)
78
found a curvilinear relationship, while some other studies have not found any significant
Such contradictory findings have been linked to the differences in firm’s entrepreneurial
behaviour, which is affected by the context specific conditions in the environment in which the
firm operates (Miller, 2011; Lumpkin and Dess, 2001). Nevertheless, EO literature has mainly
focused on Western developed countries and not much has been done to explore the nature of
EO in other contextually different environments such as sub-Saharan Africa (Martens et al., 2016).
Small firms, especially those operating in sub Saharan African’s Least Developed Countries
(LDCs), face severe constraints in accessing and making use of resources for successful
This chapter focuses on the effect of risk taking, innovativeness and pro-activeness on
firm growth and the moderating effect of the business environment on firm growth in LDCs. We
conceptualise EO based on Miller and Friesen (1982) as the firm’s propensity to take risks, be
innovative, and be proactive, while acknowledging that the effect of each of the three dimensions
of EO can vary independently (Lumpkin and Dess, 1996; Kreiser and Davis, 2010) and may have
different effects on firm performance (Hughes and Morgan, 2007). We seek to contribute to
constrained environments such as LDCs. Therefore, this chapter addresses the research question:
How does EO influence firm growth in LDCs and how does the business environment influence this relationship?
This chapter is organised as follows: in Section 4.2, provides the theoretical background
of the relationship between the three dimensions of EO and firm performance and the moderating
effect of the business environment. This culminates into the hypotheses that were tested in this
study. Section 4.3, discusses the methodology used in this chapter while the results of the regression
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analysis are presented in section 4.4. Section 4.5, presents the discussion of the results of the
analysis.
practices and behaviours. The origin of EO has been traced to the work of Mintzberg (1973) and
Khandwalla (1976) who were the first to recognise the benefits of a firm’s entrepreneurial strategic
orientation when they found that entrepreneurial firms tended to take more risks than other types
of firms and were more proactive in searching for new business opportunities.
The current scholarly attention to EO started with the study of Miller (1983, p 771), which
argued that an “entrepreneurial firm is one that engages in product–market innovation, undertakes
somewhat risky ventures and is first to come up with “proactive” innovations, beating competitors
to the punch”. As a result of Miller’s conceptualisation of EO, three dimensions were identified,
namely risk-taking, innovativeness, and pro-activeness, which has been the most extensively used
operationalization in literature (Rauch et al., 2009; Wales et al., 2013). The three dimensions of EO
are usually measured based on the scales developed by Covin and Slevin (1989) and aggregated into
a latent construct representing EO. Nevertheless, research has increasingly called for treating EO
as consisting of unique dimensions which are able to vary independently of one another in different
contexts (Kreiser and Davis, 2010; Lumpkin and Dess, 1996). According to Miller (2011) individual
components of EO may explain more than the aggregated measure. Therefore, for this research
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5.2.2 Entrepreneurial orientation and firm performance
something (Stewart and Roth, 2001). From an entrepreneurship perspective, risk taking entails
committing resources to projects where the cost of failure may be high and outcomes are uncertain
(Madsen, 2007; Kreiser and Davis, 2010; Rauch et al., 2009; Lumpkin and Dess, 1996; Morgan and
Strong, 2003). It entails making risk investments in untried innovations with a view of reaping from
the potential high returns which such opportunities present in the market (Wiklund, 2006). The
rationale for entrepreneurial risk taking is that firms that engage in uncertain, resource consuming
endeavours tend to monitor, respond and capitalize on market changes faster than competitors,
Previous empirical studies on the effects of risk taking and firm performance have
revealed mixed results. While some studies have found a positive relationship between risk taking
and firm performance (Rauch et al., 2009; Wiklund and Shepherd, 2005; Krauss et al., 2005), others
found a negative relationship (Kreiser et al., 2013; Naldi et al., 2007), while there are also studies
reporting a curvilinear relationship (Begley and Boyd, 1987; Miller and Leiblein, 1996).
Consequently, it has been argued that the relationship between risk taking and firm performance
is not very clear. However, a meta-analysis conducted by Rauch et al. (2009c) found that in general,
risk taking is positively related to firm performance, but the effect was smaller compared to the
other dimensions of EO. As indicated by Krauss et al. (2005), a positive orientation towards risk
taking on unavoidable and often sought for challenges can lead to superior performance. Thus, we
hypothesise:
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5.2.2.2 Innovativeness and growth
Innovativeness is regarded as the constitutive element of entrepreneurship which can
Davidsson, 2004). Innovativeness implies a positive inclination towards new ideas targeted towards
new products and processes (Krauss et al., 2005; Rauch et al., 2009; Avlonitis and Salavou, 2007).
According to Wiklund and Shepherd (2003), innovativeness reflects a tendency to support new
ideas, novelty, experimentation, and creative processes, thereby departing from established
practices and technologies. Therefore, innovativeness may enable a firm to explore opportunities
and create a competitive advantage which can lead to growth (Rosenbusch et al., 2011; Wiklund,
2006). Previous research has also shown that a strategy of innovation through new products and
new processes has a positive and significant influence on the firm’s growth rate (Boso et al., 2013;
anticipation of future demand to create change and shape the environment (Lumpkin and Dess,
2001; Kreiser and Davis, 2010; Rauch et al., 2009). It involves engaging in both related and unrelated
diversification of the firm’s product portfolio and strategically eliminating and replacing operations
which are in mature stages of the life cycle (Venkatraman, 1989). Since pro-activeness enables the
firm to introduce goods and services ahead of competitors, it gives firms first mover-advantages
which can enable them to establish a competitive edge. First movers can target premium market
segments and charge high prices resulting in improved firm performance (Wiklund, 2006). Pro-
activeness also leads to the creation of new opportunities for the firm by actively seeking to redefine
markets. Firms that achieve this are likely to improve their performance through increased demand
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for their products and customer loyalty (Kreiser et al., 2013; Covin and Miles, 1999). Thus, we
hypothesise:
boundaries that affect, or are affected by, the organisation’s actions. A firm’s strategy is dependent
on the environment concerning the different resources and opportunities that can be explored and
exploited (Rosenbusch et al., 2013). Previous research has demonstrated the inseparability of the
external environment from the entrepreneurial process and has identified environmental
conditions that can facilitate or impede EO of firms (Zahra, 1993). The relationship between firm
performance and EO is, therefore, contingent on the environmental context in which the firm is
operating (Kreiser and Davis, 2010). The environment acts as a source of information and stock
of resources for firms, and the two common conceptualisations are environmental dynamism and
environmental hostility (Lumpkin and Dess, 2001; Wiklund and Shepherd, 2005). Environmental
dynamism relates to the rate of unpredictable change in the environment, while environmental
hostility relates to the scarcity and intensity of competition for environmental resources and
competitors and rapid changes in the business environment. The constant changes in
environmental conditions in dynamic environments provide opportunities for firms with a strategic
orientation to explore and exploit business opportunities, which can lead to improved firm
performance (Wiklund and Shepherd, 2005; Zahra and Bogner, 2000; Dess and Beard, 1984). For
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firms to compete effectively in such contexts, they need to make high-risk decisions, invest in
highly innovative projects, and must be able to anticipate and adapt to the needs of customers.
Previous research has shown that adopting a higher level of EO on all its three dimensions
(i.e., risk taking, innovativeness and pro-activeness) leads to improved firm performance (Zahra,
1993; Lumpkin and Dess, 2001; Casillas et al., 2010). First, as indicated by Casillas et al. (2010), in
dynamic environments businesses that assume higher risks will be capable of exploring a variety of
potential opportunities, which, when exploited, would offer higher possibilities for growth. Second,
since in dynamic environments there is a greater range of opportunities to explore and exploit,
businesses can reach higher growth rates through product and process innovation. Third, proactive
behaviour entails that a firm acts decisively in opportunity identification and exploitation. In
dynamic environments, the high levels of uncertainties regarding the existing products and services
make firms more likely to take the initiative to explore and exploit opportunities for the
introduction of new products and development of new markets in their quest to minimise the
threat of obsolescence (Lumpkin and Dess, 2001). Therefore, the effect of pro-activeness on firm
order to effectively take advantage of the emerging and existing business opportunities (Rauch et
al., 2009; María José et al., 2013). Therefore, we note that the relationship between all three
because in such environments, as demand constantly shifts, opportunities arise and firms with a
good fit between their strategic orientation and the environment will have higher performance
H4a: The relationship between risk taking and firm performance will be stronger when environmental
dynamism is high compared to when environmental dynamism is low.
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H4b: The relationship between innovativeness and firm performance will be stronger when
environmental dynamism is high compared to when environmental dynamism is low.
H4c: The relationship between pro-activeness and firm performance will be stronger when environmental
dynamism is high compared to when environmental dynamism is low.
intense competition, scarcity of resources and exploitable opportunities (Casillas et al., 2010; Covin
and Slevin, 1989; Lumpkin and Dess, 2001; Rosenbusch et al., 2013). Environmental hostility
indicates the extent to which the business environment poses a threat to the firm’s survival. In such
posture which involves risk-taking, innovativeness and pro-activeness (Miller, 1983). Research has
shown that firms with higher EO achieve better performance in such environments (Casillas et al.,
2010). In hostile environments, firms that have a higher propensity to take risks and that are
innovative and proactive are more likely to identify and exploit the limited opportunities in the
market at a faster rate than risk averse and reactive firms. Firms with low levels of EO will have
H5a: The relationship between risk taking and firm performance will be stronger when environmental
hostility is high compared to when environmental hostility is low.
H5b: The relationship between innovativeness and firm performance will be stronger when
environmental hostility is high compared to when environmental hostility is low.
H5c: The relationship between pro-activeness and firm performance will be stronger when environmental
hostility is high compared to when environmental hostility is low.
Figure 5.1 shows the conceptual framework and hypothesis tested in this chapter.
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Figure 5.1. Research model and hypothesis for the relationship between EO and firm
performance
5.3 Methodology
those that had registered with National Council for Construction (NCC) between 2009 to 2013
and were classified as small firms based on the NCC criteria. According to this criterion, companies
registered in categories four to six are deemed as small enterprises. We only considered firms whose
trading addresses were Lusaka and Copperbelt provinces, the two regions which form the
commercial and industrial hubs of Zambia. These two provinces accounted for 82% of the urban
population (CSO, 2011) and 56% of the country’s self-employed population in Zambia (World
Bank, 2013). Lusaka is the capital and largest city of Zambia and is the centre of both commerce
and government, while the Copperbelt Province covers the mineral-rich areas of the Northern part
of Zambia and is considered the backbone of the economy and as such provide a fair representation
the researcher. We targeted firms where the founders were active owner-managers. Data collection
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was undertaken in two waves. First, data on EO and business environment was collected in 2012.
Out of the 475 owner-managers that were contacted in 2012, 235 agreed to participate in the study.
Second, a year later in 2013, data on firm performance was collected from the same firms. In the
second wave of data collection, only 1186 firms provided complete firm growth data and were
5.3.3 Measures
sales. Sales growth was measured by considering the perceptions of the owner-manager. We asked
owner-managers to rate firm growth compared to other firms in the same sector, on a seven-point
Likert scale (see question 106 in appendix 3). This data was collected a year after we had measured
EO. The one-year time-lag was incorporated on the basis that, it may take some time before EO
can affect firm performance and that the effect would be long-term rather than short-term
(Wiklund, 2006; Madsen, 2007). In this case, EO was deemed to apply to the whole period for
which sales growth was measured. This implies that research needs to adopt a longitudinal
approach in analysing the relationship between EO and firm performance (Hughes and Morgan,
with actual performance and has been widely used in entrepreneurship research (Casillas and
Moreno, 2010; Delmar et al., 2003; Naldi et al., 2007). Specifically, regarding the EO-performance
relationship, Rauch et al. (2009c) found that EO has similar relationships with perceived financial
6 The number of respondents differs from the sample size in chapter 3 because we use data from both the
first and second wave of data collection. We could not locate all the respondents from the first wave of
data collection while others did not provide proper firm growth data and were hence not included in the
study in chapter 4. Further, some firm performance data were outliers and hence excluded from the
analysis.
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performance, perceived non-financial indicators of performance, and performance measured using
objective data. Additionally, subjective performance measures are also appropriate when there is
no verifiable objective data as is the case in most LDCs (Anderson and Eshima, 2013; Rosenbusch
et al., 2013). Our study in chapter 2 also found that owner-managers’ perceptions of firm growth
were the most suitable measure of small firm growth in LDCs (see section 2.5).
The use of sales growth as a measure of firm performance has been widely accepted in
entrepreneurship research (Casillas et al., 2010; Delmar et al., 2003). Sales growth is considered to
reflect both long- and short-term changes in the firm and is easily obtainable (Wiklund, 2006).
Additionally, sales growth is considered a precursor to other measures of firm performance, such
as assets and employees growth (Davidsson et al., 2007; Delmar et al., 2003), while increase in assets
or employees is more likely to show growth in inputs, sales growth indicates increase in business
activities and is hence considered a performance outcome (Casillas and Moreno, 2010; Davidsson
and Wiklund, 2006). Although in chapter 2 we argued for the use of a composite measure that
includes also personal wealth and purchasing expenditure on key process inputs, we only used sales
growth in this study. This is because sales growth has been widely used in models that involve the
effect of EO on firm growth. This study replicates such models in LDCs and hence the use of
additional variables would affect the comparability and generalisability of the findings. Additionally,
apart from sales growth being the preferred measure in the relationship between performance and
EO, we also had a major challenge with missing data on the other performance indicators. When
we included the other financial performance indicators shown from question 100 in appendix 3,
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pro-activeness. To measure EO, we adapted the nine-item scale originally developed by Miller and
Friesen (1982) and refined by (Covin and Slevin, 1989), which is the most widely used scale for EO
(Brown et al., 2001; Covin et al., 2006; Andersén, 2010; Alegre and Chiva, 2013; Rauch et al., 2009;
George and Marino, 2011). We used three questions for each dimension measured on a seven-
point Likert scale with anchors: 1 = strongly disagree; and 7 = strongly agree. The questions are
We conducted Principal Component Factor Analysis with Varimax rotation to assess the
convergent and discriminant validity of the EO scales in the Zambian context. The factor analysis
results for EO are shown in Table 4.1. The Kaiser-Meyer-Olkin (KMO), a measure of sampling
adequacy, was 0.880. Bartlett’s Test of Sphericity (BTS) was significant at p < 0.001. Communalities
for all variables where above the critical value 0.300. All the items on the scale loaded as expected
and the result produced a three-factor solution which accounted for 73.57% of the total variance.
The resulting three scales showed reliability with the Cronbach’s alpha values for risk-taking (α =
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0.698), innovativeness (α = 0.871), and pro-activeness (α = 0.828 being above or on the
adapted questions from Lumpkin and Dess (2001). We measured both variables on a five-point
Likert scale with 1=strongly disagree and 5=strongly agree. The scale had five and three questions
measuring dynamism and hostility respectively. The scales showed reliability with Cronbach’s alpha
younger firms are more likely to exhibit higher EO than older firms (Andersén, 2010; Luo et al.,
2005). Firm age was operationalised as the logarithm of the number of years the firm has been in
existence.
5.4 Results
The means, standard deviations and correlations of the variables are displayed in Table 4.2. Overall,
the correlations between the variables were relatively moderate, ranging from 0.192 to 0.644 (p
>0.001). To ensure that multicollinearity was not a problem, we tested for possible co-linearity
among all the variables by using the variance inflation factors (VIF). All VIF values were below the
critical value of 10, indicating that multicollinearity was not a problem (Hair et al., 2010).
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Table 5.2. Correlations and descriptive statistics for firm growth, EO and business
environment
Variable Mean SD 1 2 3 4 5 6
Sales Growth 3.71 0.849
Firm age 8.76 4.309 -0.551**
Risk taking 5.92 0.593 0.249** -0.162
Innovativeness 6.16 0.629 0.419** -0.268** 0.267**
Pro-activeness 6.01 0.751 0.644** -0.487** 0.280** 0.518**
Dynamism 3.53 0.701 0.192* -0.200* 0.033 0.227* 0.170
Hostility 3.04 0.908 -0.350** 0.214* -0.126 -0.161 -0.214* 0.150
** Correlation is significant at the 0.01 level (2-tailed).
*Correlation is significant at the 0.05 level (2-tailed).
We tested the hypothesis using multiple linear regression models. The results are shown
in Table 4.3. In model 1, we only considered the control variables and the EO variables
representing the direct effects on sales growth, i.e. risk taking, innovativeness and pro-activeness.
In models 2 and 3, we added the variables representing the interaction effect between the three
dimensions of EO and environmental dynamism and hostility respectively. The results of the
analysis are shown in Table 4.3. Model 1 was statistically significant (F=28.87; p < 0.001) with the
R2 value of 0.514, with firm age (β = -0.559; p < 0.001) and pro-activeness (β = 0.327; p < 0.001)
being the only variables with a significant influence on sales growth. The other two dimensions of
EO, risk taking and innovativeness were not statistically significant. This means that hypotheses
H1, proposing a positive relationship between firm performance and risk taking, as well as H2
proposing a positive relationship innovativeness and sales growth, are not supported.
Model 2, which included the interaction between the three dimensions of EO and
dynamism, was also statistically significant with R2 value of 0.543 (F=15.601; p < 0.001) but the
∆R2 value of 0.027 was not significant. Similarly, Model 3, which included the interaction between
the three dimensions of EO and hostility, despite being statistically significant (R2 = 0.563
F=16.887; p < 0.001), the ∆R2 (0.019) was not significant. The results of both Model 2 and 3
indicate that environmental dynamism and hostility did not moderate the relationship between all
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the three dimensions of EO and sales growth. Therefore, all moderation hypotheses, H4a, H4b,
Since the relationship between EO and performance has also been found to be non-linear
(Kreiser et al., 2013; Su et al., 2011; Tang et al., 2008; Wales et al., 2013), we also carried out post hoc
tests to check the robustness of the regression models which tested the hypotheses. We added the
quadratic terms of each of the three dimensions of EO to Model 2 to test for the curvilinear
Table 5.3. Regression results for relationship between EO and sales growth
ß coefficients
Variables Model 1 Model 2 Model 3
Control
Firm Age -0.559** -0.587** -0.545**
Main effects
Risk Taking 0.031 0.032 0.008
Innovativeness 0.098 0.137 0.087
Pro-activeness 0.327** 0.292** 0.325**
Moderating effects
Dynamism 0.085
Risk X Dynamism -0.063
Innovation X Dynamism 0.130
Pro-activeness X Dynamism -0.150
Hostility -0.178*
Risk X Hostility -0.043
Innovation X Hostility 0.119
Pro-activeness X Hostility 0.035
R2 0.514 0.543 0.563
∆R2 0.027 0.019
R2 adjusted 0.497 0.508 0.529
F 28.87 15.601 16.887
According to Aiken and West (1991), in such models, a significant positive coefficient of
the linear term would indicate a predominantly positive relationship, while a significant negative
interaction variables between the quadratic terms of the EO dimensions and environmental
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dynamism and hostility. None of the quadratic terms and neither the interaction variables were
significant, indicating that the relationship between EO and firm performance was not curvilinear.
5.5 Discussion
The aim of this chapter was to explore the relationship between EO and firm performance and
whether the relationship is moderated by the business environment. The survey data from 118
small firms in the Zambian construction sector yielded three main findings. Based on Lumpkin
performance. Small firms that exhibit higher levels of EO are more innovative, tend to undertake
risky activities and are likely to be proactive in the market (Covin and Slevin, 1989). Such
entrepreneurial firms are likely to monitor changes in the business environment and achieve higher
growth. EO allows firms to be innovative in developing products and services that respond to changes
in customer needs. Risk taking and proactive behaviour facilitates the firm’s ability to discover and
exploit opportunities in the market, thereby enabling the firm to create a competitive advantage that
However, the findings of this research indicate that only pro-activeness had a significant
effect on sales growth. Although, the finding are consistent with those of Hughes and Morgan
(2007) and Morgan and Strong (2003), who also found that implementing EO using all its
dimensions does not guarantee improved firm performance, we show in addition that the research
context may contribute to insignificant results. In the context of this research, the non-significant
effects of risk-taking and innovativeness may be attributed to other unobserved firm and
environmental characteristics that are peculiar to LDCs. Entrepreneurs are likely to be proactive,
but take as little risk as possible, and only innovate when it is necessary and yet they are a major
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force for business creation and economic development (Covin and Miller, 2014). In LDCs, pro-
activeness is required for the firm’s future survival and helps the firms to anticipate and act on
future needs by seeking new opportunities which may or may not be related to existing lines of
business. Small firms that are not proactive in discovering and exploiting business opportunities
have high chances of failure when their existing knowledge and competencies become obsolete
(Rosenbusch et al., 2013). Firm survival is critical in LDCs’ environments because firm ownership
may be the most viable option for firm owners’ economic well-being (Kimhi, 2010; Jennings et al.,
2016).
(Lumpkin and Dess, 1996; Memili et al., 2010). Like most entrepreneurial strategies, risk-taking and
2005). Since small firms in African LDCs face difficulties in accessing financial capital (Kiggundu,
2002), entrepreneurs in such environments are unlikely to rely on potential returns from large and
risky resource commitments in novel projects for achieving firm growth. Furthermore, failure in
risk-taking may lead to financial and personal losses in organisations (Dess and Lumpkin, 2005).
In LDC contexts, difficulties in accessing capital may severely limit the extent to which
entrepreneurs may be willing to make large and risky resource commitments which may have a
reasonable chance of failure. In such environments, entrepreneurs are likely to adopt a conservative
approach and would be discouraged from taking risks that they deem unnecessary and might harm
the firm’s survival (Kreiser and Davis, 2010; Rosenbusch et al., 2013).
firms to dedicate substantial resources to engaging in experimentation with products and processes
usually through research and development (Rosenbusch et al., 2011; Hughes and Morgan, 2007;
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Kreiser et al., 2013). Therefore, better access to finance could increase the innovativeness in a firm
(Brown et al., 2012). Additionally, innovativeness would only be beneficial to small firms when the
of costs of engaging in such activities outweigh the benefits of imitating (Barney, 1991). Firms
engaging in innovative ventures ought to believe and perceive that their innovations would be easy
to commercialise and result in gaining competitive advantage. Small firms that are faced with
resource constraints are only likely to use innovativeness as a strategy for firm growth when it is
absolutely necessary.
Our findings do also not support the hypothesis that environmental dynamism and
hostility moderate the relationship between the three dimensions of EO and sales growth. This
entails that irrespective of how entrepreneurs perceive the environment in terms of dynamism and
hostility, risk taking and innovativeness will have no effect on sales growth. Additionally, positive
the dynamism or hostility of their business environment. Similar results have been found in
research in African countries (Shehu and Mahmood, 2015). The possible reasons for the lack of
support for the moderating effect of environmental dynamism and hostility may be due to the
presence of other dominant factors in the external environment such as national culture and the
general conditions in which business is conducted. National culture dimensions such as uncertainty
avoidance, power distance and individualism (Hofstede, 2001) influence EO. Hofstede (2016)
classifies Zambian culture as relatively high on uncertainty avoidance (50) and power distance (60),
sector in one LDC. The insignificant results for the relationship between EO and firm growth may
be attributed to the characteristics of the firm in this sector and the environment in which they
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operate. Future research should investigate the EO-performance relationship in other sectors in
LDCs. Second, due to the difficulty in obtaining time-lagged sales data our sample size was
drastically reduced. We therefore cannot completely rule out sample size deficiencies as one of the
reasons for not finding significant results. Future research definitely should investigate the
relationship between EO and firm growth in such an LDC-context using a larger sample. Third,
although this research investigated the moderating role of environmental dynamism and hostility,
there are other contextual variables that may impact the EO-firm growth relationship. Especially
in the context of LDCs, the role of other firm and environmental characteristics that may influence
5.7 Conclusions
The findings of this research reaffirm the assertion that not all aspects of EO have the same effect
face severe resource constraints like LDCs, risk-taking and innovativeness may not be beneficial
for small firms. A conservative approach towards the use of resources may be a more appropriate
strategy. At the same time, firms that adopt a higher proactive stance may outperform others since
they are more forward-looking. Firms that are proactive are able to anticipate opportunities and
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Chapter 6 How Does Entrepreneurial Passion Affect Small Firm
Growth? The Mediating Role of Entrepreneurial
Alertness
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Abstract
Although there has been growing interest and substantial development of knowledge
regarding the role of cognition and passion in the entrepreneurial process, there remain
several unanswered empirical questions on how entrepreneurial cognition and passion
directly or indirectly affect firm growth. In this study, we investigate the effects of
entrepreneurial passion on firm growth and the mediating role of entrepreneurial alertness.
Based on primary data collected from 124 small firm owners in Zambia our findings show
that entrepreneurial passion has a direct positive effect on firm growth and that the
relationship was partially mediated by entrepreneurial alertness.
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6.1 Introduction
One of the central questions in entrepreneurial research revolves around why some entrepreneurs
become more successful than others (Baron, 2004a). Although part of the answer to this question
is attributed to economic factors that are external to entrepreneurial firms, most researchers argue
that decisions and actions of entrepreneurs are particularly relevant for the performance of firms
(Shane, 2001). Such propositions have put the entrepreneur, as a person, at the centre of
understand the role that an entrepreneur plays in venture formation and performance. For instance,
some have focused on the role of personality characteristics on firm performance (Rauch and
Frese, 2007; Brandstätter, 2011; Gartner, 1989; Zhao et al., 2009; Mitchell et al., 2002).
success, recent research has shifted from less or more stable characteristics to more fluid individual-
level aspects, in particular to the role entrepreneurial cognition plays in venture creation and success
(Baron, 2004b, Shepherd, 2015; Mitchell et al., 2002; Mitchell et al., 2007; Baron, 2000). Cognitive
processes play a vital role in understanding entrepreneurship because they are closely related to
activities involved in venture creation and performance (Baron, 2007; Foo, 2011). Entrepreneurial
cognition has been defined as “the knowledge structures that people use to make assessments,
judgments or decisions involving opportunity evaluation and venture creation and growth”
(Mitchell et al., 2002 p. 97). Suggestions to study entrepreneurial cognition have led to a resurgence
in research focusing on the people-side of entrepreneurship that targets the understanding of how
entrepreneurs reason, form judgements and make decisions given the differences that exist in
entrepreneurial cognitions (Tang et al., 2008). The use of the cognitive perspective in understanding
entrepreneurial behaviour has been hailed as a means to imploring a theoretically rigorous and
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empirically testable approach capable of systematically explaining the role that individuals play in
One key, yet empirically relatively unexplored, aspect of entrepreneurial cognition relates
to how entrepreneurs are alert to opportunities in the environment and the affection they have
towards undertaking entrepreneurial activities (Baron, 2008). Entrepreneurial alertness has been
defined as “a distinctive set of perceptual and cognitive processing skills that direct processes of
they identify as some spot the value of resources that others do not (Barney et al., 2001). Kirzner
(1979) further asserts that the mental representations and interpretations of entrepreneurs differ
because they are driven by entrepreneurial alertness. Therefore, some studies have started to show
identification and as an important aspect of venture creation and success (Tang et al., 2012; Gaglio
Similarly, entrepreneurial passion has been found to influence many aspects linked to
human cognition which are directly related to entrepreneurial activities (Baron, 2008; Vallerand et
al., 2003; Drnovsek et al., 2016). In fact, entrepreneurial passion has emerged as one of the key
motivational drivers of entrepreneurship and some studies have even suggested that passion is
perhaps the most observed phenomenon of the entrepreneurial process (see Smilor, 1997; Baum
and Locke, 2004; Chen et al., 2009). Although extant empirical research has provided insights into
investments outcomes (Chen et al., 2009), employee organisational commitment (Breugst et al.,
2012), start-up survival (Stenholm and Renko, 2016), and firm growth (Baum et al., 2001; Baum
and Locke, 2004), we do not yet understand how entrepreneurial alertness complements
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In this study, we set out to investigate how entrepreneurial passion and alertness jointly
influence small firm growth. Specifically, we focus on the following research question: What is the
relationship between entrepreneurial passion and firm growth and how is the relationship influenced by entrepreneurial
alertness? As noted by Tang et al. (2012), entrepreneurial passion can lead to entrepreneurial
alertness, which may affect entrepreneurs’ ability to discover and exploit opportunities with
business potential. Although research has shown that firm performance can be influenced by
entrepreneurial passion (Baum and Locke, 2004; Shane et al., 2003; Cardon et al., 2009; Baum et al.,
2001), it is still not clear how entrepreneurial alertness affects this relationship. Based on prior work
on entrepreneurial passion by Cardon et al. (2013) and alertness by Tang et al. (2012) we examine
how entrepreneurial alertness affects the relationship between entrepreneurial passion and firm
growth.
This research contributes to literature on the relationship between micro level variables
and macro level measures of firm success (Baum et al., 2001; Baron, 2008). Specifically, by
examining the relationship between entrepreneurial passion and firm growth and the mediating
role of entrepreneurial alertness, this study helps to understand how both entrepreneurial passion
and entrepreneurial alertness affect venture performance. This is especially important as extant
literature tends to focus on how passion influences entrepreneurial cognition and individual
behaviour (Murnieks et al., 2012), but little is known about how affect influences firm-level
outcomes such as firm growth (Drnovsek et al., 2016). Additionally, by examining how
entrepreneurial alertness. This is in response to the call by Baron and Tang (2011) to investigate
the relationship between affect and alertness in order to get a deeper understanding of the nature
of alertness. Similarly, Tang et al. (2012) urged for more research on how an individual's passion
for a specific human need may lead to greater alertness, while Ho and Pollack (2014) call for
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research to investigate mediators that can link entrepreneurial passion to key outcomes, such as
venture growth.
This chapter is arranged as follows: in section 5.2 discusses the theoretical background to
the relationships between entrepreneurial passion, entrepreneurial alertness and firm growth,
leading to the development of the hypotheses for this study. Next, section 5.3, explains the
methodology used to test the hypotheses of this study while section 5.4 presents the results of
analysis. In section 5.5, we provide discussions and conclusions of the results of the hypotheses
test, and finally, section 5.6, highlights the limitations of this study and areas of future research.
Achtenhagen et al., 2010; Kiviluoto, 2013; Delmar, 2006b). Small firm growth is often driven by
the firm owners’ positively motivated business intentions and actions, fuelled by the belief that
such efforts provide the best option for attaining desired goals (Morrison et al., 2003).
Entrepreneurs initiate and expend effort when they believe that doing so will result in high levels
of performance which in turn would lead to the attainment of some valued goals (Shepherd and
DeTienne, 2005; Edelman et al., 2010). Such efforts could lead to the entrepreneur having some
affectionate connection to the firms that they build and may result in the development of intense
positive emotions towards their entrepreneurial actions that drive firm success (Stenholm and
Renko, 2016). To this effect, Cardon et al. (2009) propose that the experience of such intense
positive emotions targeted toward activities that are central to the identity of an entrepreneur (i.e.
effectiveness in the pursuit of the desired goals. The self-regulation process involves being alert to
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Although research has shown that entrepreneurial passion is among the key antecedents
of firm growth (Baum and Locke, 2004; Drnovsek et al., 2016; Shane et al., 2003) and that
entrepreneurial passion can lead to alertness (Syed and Mueller, 2015; Campos, 2016), there is
limited empirical research on how alertness may indirectly affect firm growth through its effect on
entrepreneurial passion. Few studies have empirically investigated the mediating role that
the relationship between entrepreneurial passion and firm-level outcomes (Omorede et al., 2015;
effect on entrepreneurial cognition, behaviour, and outcomes (Baron, 2008; Drnovsek et al., 2016;
Foo, 2011; Cardon et al., 2012). Cardon et al. (2012 p. 3) define entrepreneurial emotions as the
“affect, emotions, moods, and/or feelings—of individuals or a collective—that are antecedent to,
concurrent with, and/or a consequence of, the entrepreneurial process.” They further describe the
exploitation of a possible opportunity”. The role of affect in the entrepreneurial process has
become one of the important avenues in the quest to understand the role the entrepreneur plays
in venture formation and success because of its effect on people’s thinking, judgement and
behaviour (Hayton and Cholakova, 2012; Cohen, 2005; Chan and Park, 2013). One of the key
aspects of affect in relationship to entrepreneurship is passion (Foo, 2011; Cardon et al., 2009).
Entrepreneurial passion involves experience of intense positive feelings and may have
some benefits for individuals operating in an entrepreneurial context. Drnovsek et al. (2009)
contend that, entrepreneurial passion is a powerful motivational resource that drives thoughts,
actions and the pursuit of activities. Consequently, entrepreneurial passion may facilitate idea
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generation and opportunity recognition since individuals experiencing positive affect are more
that one experiences when engaged in entrepreneurial activities (Vallerand et al., 2003; Murnieks et
al., 2012), rather than as a personality trait (Murnieks et al., 2016). As such, Cardon et al. (2009 p.
517) define entrepreneurial passion as a “consciously accessible, intense positive feeling resulting
from engagement in activities with identity meaning and salience to the entrepreneur.” Cardon et
al. (2009) also refer to entrepreneurial passion as the “fire of desire” capable of driving
three-stage process (Stenholm and Renko, 2016), Cardon et al. (2009) identify the primary role-
identities of the entrepreneurial process as inventing, founding, and developing ventures (Cardon
et al., 2009; Cardon et al., 2012). Accordingly, Cardon et al. (2013) conceptualise entrepreneurial
passion as a three-domain construct comprising passion for inventing, passion for founding, and
passion for developing. Passion for inventing relates to activities concerned with scanning the
environment for new market opportunities and developing new products or services (Cardon and
Stevens, 2009). The experience of passion for invention will lead entrepreneurs to have greater
desire to deliver new solutions to the important needs in the market. Passion for founding concerns
entrepreneurial tasks that are associated with organising the resources necessary for establishing a
venture for commercialisation of opportunities. Passion for developing refers to activities related
to nurturing, growing and expanding the venture (Cardon et al., 2013). Since this study is concerned
with firm growth, we focus on entrepreneurial passion for developing because it deals with passion
concerning the activities related to the growth of firms (Drnovsek et al., 2016).
Stenholm and Renko (2016) noted that entrepreneurial role identity is important for
passionate entrepreneurs because they associate strongly with such an identity, which, in turn,
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makes their entrepreneurial actions more persistent. Similarly, research has shown that passion for
work affects venture growth (Drnovsek et al., 2016; Baum and Locke, 2004; Baum et al., 2001),
and make it successful (Shane et al., 2003). Additionally, as indicated by Drnovsek et al. (2016), the
positive feelings associated with entrepreneurial passion provide entrepreneurs with information
that conveys positive assessment of the current status and motivates them to persist in their
entrepreneurial activities. Persistence is enhanced when behaviours are both relevant and invoke
founding, sustaining and developing a venture (Cardon and Kirk, 2015). This could translate into
superior firm performance (Stenholm and Renko, 2016) in the form of firm growth, since
entrepreneurs who are passionate may not just accept current performance levels but will be
Additionally, entrepreneurs value and think about their role identity and act in ways that
re-enforce and promote that identity. As such, when entrepreneurs experience entrepreneurial
passion, they become more creative and persistent towards achieving the goals of developing their
firms. Similarly, the absence of entrepreneurial passion would make entrepreneurs direct their
efforts towards other entrepreneurial activities that are central to their identity. This suggests that
entrepreneurial passion will have a direct positive effect on firm growth. Therefore, we hypothesise
that:
valuable business opportunities (Minniti, 2004; Shane and Venkataraman, 2000; Brockman, 2014;
Zahra, 2008). One of the important cognitive concepts related to opportunity identification is
entrepreneurial alertness (Tang et al., 2012; Shepherd and DeTienne, 2005). Entrepreneurial
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alertness consists of a set of unique perceptual and information-processing skills that assist
entrepreneurs to be alert to opportunities (Gaglio and Katz, 2001; Kaish and Gilad, 1991; Amato
et al., 2016; Baron, 2004a). Alertness can lead entrepreneurs to make discoveries that are valuable
to the satisfaction of human needs and can be traded at a profit (Yu, 2001). The concept of
entrepreneurial alertness stems from the work of Kirzner (1985; 1973; 1979). Kirzner initially
defined alertness as “the ability to notice without searching opportunities that have hitherto been
overlooked” (1979 p.48) and later as a “motivated propensity of man to formulate an image of the
can influence venture outcomes. The three complementary dimensions identified were scanning
and searching, association and connection, and evaluation and judgement. The first dimension,
scanning and searching, indicates the entrepreneur’s propensity to continuously probe the
environment in search of new information, changes and shifts that are unnoticed by others.
Scanning and searching can enable the entrepreneur, using prior knowledge and experience, to pick
out entrepreneurially relevant information from the environment to identify and take advantage of
opportunities with a profit potential (Li, 2012; De Koning, 2003). Therefore, entrepreneurs with
more substantial scanning and searching will have a more extensive information and knowledge
span, which can enable them to attain greater alertness to business opportunities (Tang et al., 2012).
The second dimension, association and connection, relates to putting together seemingly unrelated
pieces of information and building them into logical alternatives. This process refers to how
entrepreneurs cognitively respond to and process the new information obtained by scanning and
searching the environment. It involves the entrepreneur’s cognitive ability to “connect the dots”,
think outside the box, and recognise the patterns in the new information (Amato et al., 2016; Tang
et al., 2012; Baron, 2006). The third dimension, evaluation and judgment, involves the
entrepreneur’s evaluation of the opportunity and deciding on its viability. If entrepreneurs judge
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the opportunity as positive, they are likely to exploit that opportunity by engaging in entrepreneurial
Kirzner (1973; 1997) identifies entrepreneurial alertness as a source and profit and
contend that entrepreneurs who are sensitive to the profit potential of opportunities in the
environment become successful. In the same vein, Li (2012) characterises entrepreneurial alertness
as a set of perceptual and cognitive processes by which individuals break and/or construct a
means–ends framework for certain future situations with an aim to create value. The opportunity
to create value emerges when entrepreneurs have insights into the value of resources unnoticed by
others (Barney et al., 2001). Alert entrepreneurs may direct their attention towards finding under-
priced products, services and processes and may evaluate such opportunities based on how they
can enhance company profits. As such, alert entrepreneurs are likely to be more sensitive to the
profit potential of ideas than non-alert entrepreneurs (Gaglio and Katz, 2001). Additionally, as
indicated by Shepherd and DeTienne (2005) potentially profitable business opportunities will
attract alert individuals to undertake entrepreneurial activities. The cognitive ability of alert
entrepreneurs allows them to spot high potential opportunities that could lead to superior firm
performance (Markman and Baron, 2003). Therefore, alert entrepreneurs have a higher chance of
exploitation and evaluation decisions (Welpe et al., 2012). Entrepreneurs who exhibit positive affect
for their work are more likely to make unusual associations, identify seemingly unrelated patterns
in changes and shifts in the environment, and evaluate business opportunities differently compared
to those who do not exhibit positive entrepreneurial passion (Isen and Labroo; 2008, Drnovsek et
al., 2009). Entrepreneurial passion can promote sensitivity to information changes and creativity
that lead to recognition and evaluation of entrepreneurial opportunities (Foo, 2011), which is a vital
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aspect of entrepreneurial alertness (Tang et al., 2012; Brockman, 2014; Gaglio and Winter, 2017).
Entrepreneurial passion increases entrepreneurs’ beliefs that their work is meaningful, and can lead
to greater levels of persistence and engagement in venture activities (Drnovsek et al., 2016). As
opportunities in the environment (Baron, 2008). In this regard, entrepreneurial passion could drive
an alert entrepreneur to look for new information, cognitively respond to and process the new
Previous research has shown that entrepreneurial passion has both direct and indirect
positive effects on venture growth (Drnovsek et al., 2016). Given the relationship between
entrepreneurial passion and entrepreneurial alertness, entrepreneurial passion may also influence
firm performance through the process of entrepreneurial alertness. Entrepreneurial passion can
have a positive effect on the entrepreneurs’ ability to continuously search for new information in
the environment, use their perceptual and cognitive skills to recognise the patterns in the new
information and identify entrepreneurial opportunities, then evaluate if those opportunities are
viable and make a judgment on how to exploit them. To this effect, we hypothesise that:
H2 : Entrepreneurial passion for developing has an indirect effect on firm growth through
entrepreneurial alertness
6.3 Methodology
a suitable research setting due to the economic and political stability, and in particular the
construction sector features the presence of many young and small firms. In Zambia, it is
mandatory for all construction firms to register annually with the sector's regulatory institution, the
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National Council for Construction (NCC). The firms included in our study were those that had
We targeted firms classified as small businesses based on a criterion used by the NCC (see
appendix 1). This criterion employs a six-tier grading system based on number of employees, level
of sales and value of assets to categorise firms as large, medium or small enterprises. In this grading
system, grade 1 is the highest and grade 6 is the lowest and firms in grades 4, 5 and 6 are small
businesses. We sampled firms located in the Lusaka and Copperbelt Provinces, the two regions
which form the commercial and industrial hubs of Zambia. The two provinces account for 82%
of the urban population (Central Statistics Office, 2011) and 56% of the country's self-employed
population in Zambia (World Bank, 2013c). A check on the NCC database also revealed that 74.4%
of the companies in the construction sector were from Lusaka and Copperbelt Provinces. Lusaka
is the capital and largest city of Zambia and is the centre of both commerce and government, while
the Copperbelt Province covers the mineral-rich areas of Zambia and is considered the backbone
of the economy; as such the two provinces provide a fair representation of small firms in Zambia.
Data were collected using a structured questionnaire which was directly administered by
the researcher in Zambia in 2014. We targeted firms where the founders were active owner-
managers. Out of the 228 questionnaires that were administered 1247 were returned fully
completed, yielding a response rate of 54.4%. We checked for non-response bias by comparing the
means of responses of early and late responders during this wave of data collection. There were no
significant differences in responses indicating that non-response bias could not be a problem
(Lambert and Harrington, 1990; Arend, 2012; Armstrong and Overton, 1977).
7 The sample size for this chapter was reduced as compared to chapter 3 because we did not manage to find
all the respondents that we used in the first wave of data collection.
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6.3.2 Measures
scale asks individuals about the intensity of their positive feelings towards entrepreneurship
relevant activities and the centrality of these activities for their self-identity as entrepreneurs. Based
on Cardon et al. (2013), we used two separate subscales measuring intense positive feelings and
identity centrality, and then multiplied the two to form the entrepreneurial passion variable. Despite
passion for developing being the only relevant dimension for this study, we also measured passion
for inventing and founding to validate and establish discriminant validity for the passion
measurement scale. Our questionnaire included three questions for each of the three dimensions
of passion (inventing, founding and developing) and single questions for identity centrality (see
question 400 in appendix 3). Both subscales were anchored in a five-point Likert scale, ranging
We conducted Principal Component Analysis (PCA) with Varimax rotation to check the
convergent and discriminant validity of the Cardon et al. (2013) scale for measuring entrepreneurial
passion in the Zambian context. The PCA results are shown in Table 5.1. The Kaiser-Meyer-Olkin
(KMO), a measure of sampling adequacy, was 0.776 and Bartlett's Test of Sphericity (BTS) was
significant at p < 0.001. All communalities for the variables were above the critical value of 0.300.
The factor loadings for the scale items for measuring the dimension of passion that was used in
this research, passion for developing, were all above 0.6. All items on the scale loaded as expected,
indicating that the adopted scale measured passion for developing as a distinct dimension of
entrepreneurial passion that was related to passion for inventing and founding since the PCA result
produced a three-factor solution. The three factors accounted for 67.0% of the total variance.
Cronbach's alpha values for passion for inventing (α = 0.786), founding (α = 0.704), and developing
(α = 0.614) indicate reliability of the passion measurement scale, see Table 5.1.
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Cardon et al. (2013) further advises that passion measured based on their scale should be
treated as a multiplicative interaction between intense positive feelings toward an activity and the
identity centrality of the activity. The multiplication produces a weighted score of passion.
Therefore, to calculate the factor score for entrepreneurial passion for developing, we first
calculated the average score for intense positive feeling items related to passion for developing and
then multiplied it with the corresponding measure for identity centrality (Drnovsek et al., 2016;
Table 6.1. Factor analysis and reliability results for entrepreneurial passion
Factor Cronbach's
loading alpha (α)
Passion for Inventing
Searching for new ideas for products/services to offer is enjoyable to me 0.696 0.786
I am motivated to figure out how to make existing products/services better 0.771
Scanning the environment for new opportunities really excites me 0.754
Passion for Founding
Establishing a new company excites me 0.569 0.704
Owning my own company energizes me 0.762
Nurturing a new business through its emerging success is enjoyable 0.784
Passion for Developing
I really like finding the right people to market my product/service to 0.694 0.614
Assembling the right people to work for my business is exciting 0.673
Pushing my employees and myself to make our company better motivates me 0.750
who conceptualised alertness as having three complementary dimensions: scanning and searching
for new information, associating and connecting previously-disparate information, and evaluating
and judging whether the new information represents an opportunity. Five items were used for each
subscale (see question 300 in appendix 3) and ratings were made on a five-point Likert type scale
We conducted PCA with Varimax rotation to check the convergent and discriminant
validity of the scale of Tang et al. (2012) for measuring entrepreneurial alertness in the Zambian
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context. The PCA results are shown in Table 5.2. The Kaiser-Meyer-Olkin (KMO), measure of
sampling adequacy, was 0.911 and Bartlett's Test of Sphericity (BTS) was significant at p < 0.001.
All communalities for the variables where above the critical value of 0.300 (Hair et al., 2010). All
items on the scale loaded as expected without any cross loadings and the result produced a three-
Table 6.2. Factor analysis and reliability results for entrepreneurial alertness
Factor Cronbach's
loading alpha (α)
Scanning and searching
I have frequent interactions with others to acquire new information 0.745 0.884
I always keep an eye out for new business ideas when looking for information 0.816
I read news, magazines, or trade publications regularly to acquire new information 0.696
I browse the Internet every day 0.776
I am an avid information seeker 0.718
I am always actively looking for new information 0.682
Association and Connection
I often make novel connections and perceive new or emergent relationships
0.647 0.832
between various pieces of information
I see links between seemingly unrelated pieces of information 0.805
I am good at “connecting dots.” 0.654
I often see connections between previously unconnected domains of information 0.620
Evaluation and Judgement
I see links between seemingly unrelated pieces of information 0.680 0.835
I have a gut feeling for potential opportunities 0.630
I can distinguish between profitable opportunities and not-so-profitable
0.569
opportunities
I have a knack for telling high-value opportunities apart from low-value
0.668
opportunities
When facing multiple opportunities, I am able to select the good ones 0.648
Reliability for all three variables is indicated by Cronbach’s alpha values for searching and
scanning (α = 0.884), association and connection (α = 0.832), and evaluation and judgement (α =
0.835) were above the recommended threshold of 0.7 (Hair et al., 2010; Nunnally et al., 1967), see
Table 5.2. We calculated the composite scores for the three dimensions of alertness (namely,
scanning and searching, association and connection and evaluating and judging) by averaging
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6.3.2.3 Firm growth
We measured firm growth based on owner-managers’ perceptions on growth in
employees, sales and assets. We asked the respondents to rate on a five-point Likert scale (1-much
worse to 5- much better) their growth in employment, sales and assets compared to that of their
competitors. Growth in employment, sales and assets are commonly used indicators of firm growth
(Hamann et al., 2013; Achtenhagen et al., 2010; Bradley et al., 2011; Delmar, 2006a). Similarly, the
entrepreneurial research and has been found to have a high correlation with more ‘objective’
performance measures (Delmar et al., 2003; Moreno and Casillas, 2008). In addition, such a
and/or not reliable, as is the case for most research conducted in least-developed countries
(Rosenbusch et al., 2013; Anderson and Eshima, 2013). Although in chapter 2 we developed a scale
for measuring firm growth which included personal wealth and purchasing expenditure, we did not
include these variables in our conceptualisation of firm growth in order to keep the measurement
We computed the composite score for firm growth by averaging the scores on growth in
employment, sales and assets. This is based on the view that all three indicators used in this study
are unique but related measures of firm growth (Davidsson, 2010; Shepherd and Wiklund, 2009;
Delmar et al., 2003). To assess convergent validity and reliability, we used PCA with Varimax
rotation and factor extraction based on Eigenvalues greater than one. The analysis produced a
single factor solution which accounted for 76.16% of the variance extracted. All three growth
indicators had factor loadings greater than 0.8 and the scale also is considered reliable (Cronbach's
alpha α = 0.840). The results of the analysis are shown in Table 5.3.
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Table 6.3. Factor analysis and reliability results for firm growth
Factor
loading
Growth in Sales 0.905
Growth in Employment 0.820
Growth in Assets 0.891
measure growth intentions, we used the scale developed by Wiklund et al. (2003) which relies on
the owner-manager's attitude towards firm growth. The use of owner-manager’s attitude towards
firm growth as a control variable is based on the understanding that a firm owner-manager’s growth
intention are major contributors to the growth achieved by a firm (Davis and Shaver, 2012).
Question 200 in appendix 3 was used to measure growth intentions. We asked respondents whether
they would perceive a 25% and a 100% growth in sales and number of employees in five years as
positive or negative on a seven-point Likert scale ranging from 1 (very negative) to 7 (very positive).
The use of a specific amount of growth over a specified time is deemed important because both
the amount of growth and the time span in which it is achieved can affect the owner-managers’
growth intentions (Wiklund et al., 2003). To assess convergent validity of the growth intentions
scale, we used PCA with Varimax rotation and factor extraction based on Eigenvalues greater than
one. The analysis produced a single factor solution which accounted for 57.02% of the variance
extracted. All four growth intentions indicators had factor loadings greater than 0.6. The scale also
showed reliability with Cronbach's alpha (α) value of 0.746. The results of the analysis are shown
in Table 5.4. We computed a global growth intentions index by calculating the average scores of
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Table 6.4. Factor analysis and reliability results for growth intentions
Factor
loading
Growth Intention of Employment by 25% 0.612
Growth Intention of Employment by 100% 0.809
Growth Intention of Sales by 25% 0.766
Growth Intention of Sales by 100% 0.815
Further, firm size has been found to affect subsequent firm growth, with smaller firms
growing at a faster rate than larger firms (Collewaert et al., 2016; Delmar et al., 2003; Parker et al.,
2010; Moreno and Casillas, 2007). Therefore, in this study we controlled for the effect of firm size
on subsequent firm growth. We measured firm size using number of employees, which is a most
commonly used measure in entrepreneurship research (Coad et al., 2016; Yasuda, 2005). The other
control variable used in this study was firm age. Previous research has shown that younger firms
are more likely to exhibit higher entrepreneurial orientations than older firms (Luo et al., 2005;
Andersén, 2010), suggesting that entrepreneurial passion and entrepreneurial alertness might also
differ depending on firm age. Firm age was operationalized as the logarithm of the number of years
6.4 Results
study. Entrepreneurial passion for developing and all the dimensions of entrepreneurial alertness
were positively correlated, ranging from 0.544 to 0.746, p < 0.001. Similarly, correlation between
passion for developing, entrepreneurial alertness and firm growth was equally strong and positive
ranging from 0.668 to 0.727, p < 0.001. Firm growth was negatively correlated with growth
intentions (0.249, p < 0.001), firm age (0.732 p < 0.001) and firm size (0.395, p < 0.001). In general,
the correlation results suggest a strong relationship among the variables in the study.
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Table 6.5. Descriptive statistics and correlation results for passion, alertness and firm
growth
Correlations
Mean SD
1 2 3 4 5 6 7
Passion for developing 17.60 4.363
Firm age 14.50 9.639 -0.518** -0.595** -0.623** -0.568** -0.732** 0.219*
Firm size 35.55 38.37 -0.253** -0.331** -0.376** -0.384** -0.395** 0.268** 0.448**
model fit that can be problematic when structural equation modelling is used on a smaller data set
(Kline, 2011; Cardon and Kirk, 2015). The use of hierarchical linear regression to test mediation is
common in entrepreneurship research, and studies with smaller sizes are acceptable especially when
identifying the population (Short et al., 2010). To test Hypothesis 1, where we propose a direct
positive relationship between entrepreneurial passion and firm growth we entered first in our
regression model, growth intentions, firm size and firm age which were our control variables. Table
5.6 shows the full details of the hierarchical regression models. Model 1 shows the effect of the
control variables on firm growth and was statistically significant, R2 = 0.078, F(3,120) = 3.37, p <
0.050. In Model 2 we added passion for developing, which led to a statistical significance increase
in R2 of 0.480, F(4, 119) = 37.53, p < 0.001. Passion for developing had a statistically significant
positive effect (p<.001) on firm growth. Based on these results, Hypothesis 1 proposing that
entrepreneurial passion for developing has a significant direct positive effect on firm growth is
accepted.
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Table 6.6. Hierarchical linear regression results for relationship between passion,
alertness and firm growth
Model 1 Model 2
Control variables
Growth intentions -0.251** -0.118
Firm size 0.078 0.064
Firm age -0.146 -0.148*
Independent variable
Passion for developing 0.705**
R2 0.078 0.558
Adj. R2 0.055 0.543
𝛥 R2 0.480
F 3.37* 37.23**
Note: Dependent variable = Passion for developing, ** p < 0.001, *p < 0.05
through entrepreneurial alertness. One of the most common methods used for testing indirect
effects or mediation is the Baron and Kenny (1986) procedure. However, the rigor of this method
has faced some criticism lately (see Zhao et al., 2010). The bootstrapping procedure of Preacher
and Hayes’ (2004) has emerged as a better alternative tool for analysing mediation and recent
studies on entrepreneurial passion have adopted this approach (e.g., Breugst et al., 2012; Huyghe et
al., 2016; Biraglia and Kadile, 2017). Therefore, in this study, we tested the mediation hypothesis
using the Preacher and Hayes (2004) procedure using the SPSS PROCESS macro. This macro also
allows for testing models with multiple mediators arranged in a sequence in a single regression
model (Hayes, 2009a). The procedure was therefore appropriate since we conceptualised
entrepreneurial alertness as a process starting with searching and scanning, followed by association
and connection and then evaluation and judgement (Tang et al., 2012). Additionally, this procedure,
unlike other alternatives such as structural equation modelling, does not rely on the assumption of
normality of the indirect effects and is also suitable for smaller sample sizes (Preacher and Hayes,
2008).
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To conduct the mediation analysis, we entered all three dimensions of alertness (scanning
and searching, association and connection and evaluation and judgement) as serial mediators at
once, while the control variables (growth intentions, firm size and firm age) were included as
covariates. Figure 5.1 shows the standardised regression coefficients for the relationship between
passion for developing and firm growth as mediated by the entrepreneurial alertness process. The
direct effects path of passion for developing on firm growth (C) was significant, b = 0.705 p <
0.001. When entrepreneurial alertness is included in the model, the direct effects passion for
developing on firm growth reduced from 0.705, p < 0.001 to 0.337, p < 0.001 (C’). However, since
both the direct and indirect effects are significant despite the reduction in effect size, these results
indicate partial rather than full mediation effect of entrepreneurial alertness on the effect of passion
for developing on firm growth. The addition of entrepreneurial alertness to the model as a mediator
also led to a statistically significant increase in R2 of 0.169, F(7,116) = 44.08, p < 0.001. This
indicates that the model with mediation explained the effect of passion on growth better than the
Figure 6.1. Results of the mediating effect of alertness on the relationship between
passion and firm growth
bootstrapping procedure with 5,000 bootstrap samples. Table 5.7 shows the indirect effects and
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the 95% bias-corrected confidence intervals. Using this method, indirect effects are considered to
be significant when the range of the Confidence Intervals (CI) does not include zero (Preacher and
Hayes, 2004). First, the indirect effect of passion for developing on firm growth were significant
through alertness- scanning and searching (indirect effect = 0.145, 95% CI = 0.066 to 0.239) as
well as through scanning and searching and then association and connection (indirect effect =
0.043, 95% CI = 0.015 to 0.095). Second, the indirect effects were also significant for the entire
alertness process; that is, moving from searching and scanning, through association and
connection, and then evaluation and judgement (indirect effect = 0.020, 95% CI = 0.003 to 0.055).
Table 6.7. Indirect effects of passion for developing (via alertness) on firm growth
Bootstrap Lower Upper
indirect limit 95% limit
Mediation path Effect SE CI 95% CI
Passion → SS → Firm growth, (𝛼1-b1) 0.145 0.043 0.066 0.240
Passion → SS → AC → Firm growth, (𝛼1-d1-b2) 0.043 0.019 0.015 0.095
Passion → SS → AC → EJ → Firm growth, (𝛼1-d1-d2-b3) 0.020 0.013 0.003 0.055
Passion → AC → Firm growth, (𝛼2-b2) 0.099 0.035 0.040 0.180
Passion → AC → EJ → Firm growth, (𝛼2-d2-b3) 0.045 0.024 0.007 0.104
Passion → EJ → Firm growth, (𝛼3-b3) 0.010 0.016 -0.014 0.054
Note: SS=Alertness- scanning and searching, AC = Alertness-association and connection, EJ = Alertness-
evaluation and judgement.
The values parenthesis indicates the indirect effects routes shown Figure 5.1
This shows that entrepreneurial alertness mediates the relationship between passion for
developing and firm growth. Third, the indirect effect of association and connection was significant
as well (indirect effect = 0.099, 95% CI = 0.040 to 0.180), also when combined with evaluation
and judgement (indirect effect = 0.045, 95% CI = 0.007 to 0.104). Fourth, regarding evaluation
and judgement, passion for developing was not a significant predictor and subsequently, it did not
indirectly affect the relationship between entrepreneurial passion and firm growth (indirect effect
=0.010, 95% CI = -0.014 to 0.054). These results provide further evidence to support Hypothesis
2. Therefore, Hypothesis 2, which proposes the indirect effect of passion for developing on firm
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6.5 Discussion and conclusions
Although there has been growing interest and substantial knowledge development regarding the
role of emotions and cognition in the entrepreneurial process (Grégoire et al., 2015), there remain
affects firm performance. In this study, we empirically investigated the relationship between
entrepreneurial passion and firm growth and sought to answer the question how entrepreneurial
alertness mediates this relationship. Our study in particular contributes to a growing body of
knowledge on how passion for developing directly and indirectly relates to firm growth (Ho and
Pollack, 2014; Drnovsek et al., 2016). Additionally, in assessing the mediating role of alertness, we
empirically tested the relationship between passion and alertness and in turn, alertness and firm
entrepreneurial alertness which has been lacking in entrepreneurship research. Gaglio and Winter
(2017) observed that despite alertness being regarded as a fundamental concept in entrepreneurial
cognition, there is relatively limited empirical research on the subject. This study is one of the first
to empirically show evidence of how entrepreneurial passion could interfere with a cognitive
process such as entrepreneurial alertness, and in turn, affect firm growth as suggested by Tang et
al. (2012).
The results of this study indicate that passion for developing has a significant positive
effect on firm growth. These findings are consistent with results of other studies that have
established a positive relationship between passion and performance (e.g., Baum et al., 2001; Shane
et al., 2003; Baum and Locke, 2004; Ma et al., 2017; Drnovsek et al., 2016; Fodor and Pintea, 2017;
Baron et al., 2011). Additionally, our results indicate that passion has an indirect effect on firm
growth via entrepreneurial alertness. The indirect effects work through the entire process of
alertness which involves scanning and searching, association and connection, and evaluation and
judgement. Our findings agree with the proposition advanced by Baron (2008) that positive affect,
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which in our case is in the form of entrepreneurial passion, can influence entrepreneurial alertness.
This can be attributed to the assertion that positive affect strengthens cognitive capabilities, leads
diverse sources of information (Baron et al., 2011; Baron et al., 2012). An entrepreneur who
demonstrates passion for developing will scan and search the environment for information, process
the seemingly unrelated pieces of information into logical alternatives, and evaluate the viability of
the alternatives. Furthermore, as indicated by Delgado et al. (2015), passion favours simplified and
flexible information processing which may enhance entrepreneurial decision making, which in turn
to the understanding of the role of the entrepreneur in venture development and success, it is also
important to note that relationships between characteristics of the entrepreneur and firm
performance are often complex and may involve multiple mediating and moderating variables
(Baron et al., 2011). This research was limited to investigating how entrepreneurial passion directly
and indirectly, through entrepreneurial alertness, affects firm performance. Future research should
investigate how other entrepreneurial characteristics can moderate the relationship between
Second, the cross-sectional nature of this study entails that we should be careful to make
causal conclusions on the nature of the relationship between passion, alertness and firm growth. It
can also be argued that alert entrepreneurs can be more passionate about their firms and that
managing a high growth firm would make the entrepreneur become more alert to the changes in
the environment. Future research should employ longitudinal research designs to establish
causality.
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Third, this study conceptualised entrepreneurial passion as an intense positive emotion
directed towards activities that are important to entrepreneurial role identity (Cardon et al., 2009).
This implied that we did not take in consideration the effects of passion in general on firm
performance. Passion can also have a dysfunctional effect on firm performance (Cardon et al.,
2005). Previous research has shown that positive effects of passion on entrepreneurial performance
have a limit (Baron et al., 2011) and that extremely high levels of passion and negative passion can
have a negative effect on performance (Ho and Pollack, 2014). Future research can investigate how
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Chapter 7 Conclusions
123
7.1 Conclusions
This thesis studied factors related to the firm owner that influence small firm growth in LDCs. The
focus was on the effects of personal wealth extraction, start-up motivation, entrepreneurial
orientation, entrepreneurial alertness and entrepreneurial passion. Using primary data collected
from firms in the construction sector in Zambia, the empirical chapters of this thesis provide an
account of the analysis of the effects of the individual level factors on firm growth.
This chapter presents the general conclusion to the answers given in each empirical
chapter and the overall research questions. Next, the theoretical contribution to the literature and
the limitations of the research are discussed. The overarching question of this thesis is: How do small
in LDCs based on the reasoning that conceptualisation and measurement of small firm growth
requires to be context-specific. Firm growth tends to be affected by context specific factors such
as the level of economic development in a country or region where a firm operates. Before we set
out to understand how small firm owners affect the growth of their firm, we had to establish how
to conceptualise and operationalise firm growth in LDCs. Chapter 2 therefore addressed the
research question: What constitutes firm growth in LDCs and how should it be measured? This chapter aimed
at identifying small firm growth indicators and measurement methods for research in LDCs. The
study in this chapter has shown that owner managers’ perceptions of growth in numbers of
employees, level of sales, value of assets, personal wealth and purchase expenditure on key process
input are suitable ways of measuring small firm growth for research conducted in LDCs. The use
of the owner-manager’s perceptions of firm growth may be suitable in absence of accurate sources
of objective data as is the case in LDCs. Many small firms in LDCs do not keep detailed accounts
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of their activities and when they do, they are not usually willing to disclose such information to
third parties. Further, there are no reliable secondary sources of small firm growth data in LDCs.
Additionally, this study found evidence in support of measuring small firm growth using multiple
indicators combined in an index to take into account the multifaceted nature of firm growth.
Having established the conceptualisation of small firm growth in LDCs, the remainder of
the thesis focused on how factors related to small firm owners affect the growth of their firms. In
chapter 3 we studied the role of wealth extraction in our measurement of firm growth. Therefore,
we explored how wealth extraction relates to firm growth and how firm start-up motivation
moderates the relationship. From this perspective, we discussed the extent to which firm founders
extract wealth from their firms and how the predominant motives for starting a business affect
how much wealth is extracted from the firm for personal use. In this chapter, it was argued that
firm owners increase their personal wealth through a process of extracting wealth from their firms.
should be mentioned that the extent to which wealth is extracted is also moderated by the reasons
for starting a firm. As such, chapter 3 focussed on answering the question: What is the relationship
between small firm growth and growth in personal wealth of the firm owner, and how is this relationship affected by
Using primary data collected from 228 small firms in the construction sector in Zambia,
we found that firm growth is positively related to the increase in the firm owner’s personal wealth.
We also found that the rate at which push-motivated entrepreneurs extracted wealth from the firm
was faster than that for those motivated by pull and mixed factors. It is clear that there are
economic benefits of starting a firm. However, the findings reported in chapter 3 imply that if a
firm’s establishment is primarily influenced by push factors, the firm has lower chances of ultimate
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growth because of the speed at which the founders extract wealth compared to their counterparts
The focus of chapter 4 was the role of the firm owner’s entrepreneurial orientation on
firm growth and the moderating role of the business environment. Prior research has shown that
entrepreneurial firms achieve higher growth compared to firms that do not adopt an entrepreneurial
strategic orientation. The effect of entrepreneurial orientation on firm growth has been linked to
the context in which the firm operates. Firms that adopt an entrepreneurial orientation are inclined
to monitor changes in the environment and respond quickly. Having an entrepreneurial orientation
entails adoption of innovative behaviours that allow firms to develop different products and
services and better respond to changes in customer needs. Similarly, proactive and risky behaviours
enable firms to discover and exploit new opportunities and quickly introduce new products to the
market and adopt new technologies. This can help the firm to create a competitive advantage and
can result in firm growth. Therefore, in chapter 4 we focused on how entrepreneurial orientation
affects firm growth and how the relationship is moderated by the owner-manager’s perception of
the business environment. The research question for the study presented in chapter 4 was: How
does entrepreneurial orientation influence firm growth in LDCs and how does the business environment moderate
this relationship? Based on data collected from 118 small firms in the construction sector in Zambia,
our findings show that of the three dimensions of entrepreneurial orientation, namely risk-taking,
innovativeness and pro-activeness, only pro-activeness has a significant positive effect on firm
growth in LDCs. Contrary to our expectations, the study did not find evidence of the moderating
effect of the business environment on the relationship between EO and firm growth LDCs.
The last empirical study of this thesis is chapter 5. In this chapter, we analysed the effect
of entrepreneurial passion on firm growth and the mediating role of entrepreneurial alertness.
Passion and alertness, which are related to respectively the emotions and cognition of the firm
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owner, are used as a basis for explaining why some entrepreneurs are more successful than others.
We take this perspective as recent research, studying the effect of individual-level factors on firm
success, has advocated a shift of focus from personality characteristics to more fluid individual
level aspects such as entrepreneurial cognition (cf. Baron, 2004b, Shepherd, 2015; Mitchell et al.,
2002; Mitchell et al., 2007; Baron, 2000). Likewise, positive affect, and specifically entrepreneurial
passion, influences many aspects linked to human cognition which are directly related to
entrepreneurial activities. In particular, the focus was on examining the following research question:
What is the relationship between entrepreneurial passion and firm growth and how is the relationship influenced by
entrepreneurial alertness? This question contributes to answering the general research question of the
thesis by focusing on how the alertness and passion of the entrepreneur affects the growth of their
firms.
Based on data collected from 124 small firm owners in the construction industry in
Zambia, chapter 5 revealed that entrepreneurial passion for developing has a significant direct
positive effect on firm growth. The study also showed that passion for developing has an indirect
effect, via entrepreneurial alertness, on firm growth. The indirect effects work through the entire
process of alertness which involves scanning and searching, association and connection, and
by examining the research question: How do small firm owners affect the growth of their firms in LDCs?
The results presented in the empirical chapters indicate a number of ways in which decision making
and overall behaviour of the firm owner influence small firm growth in LDCs. First, we note that
it is very common for entrepreneurs to mix business assets and personal wealth. At the same time,
there is lack of reliable and credible information that can be used as objectively measures of firm
127
growth. In this thesis, we therefore argue for a context-specific firm growth measurement scale
Second, we built on that finding to further explore the interrelationship between firm
growth and wealth extraction and found, not surprisingly, that firm growth has a positive effect on
personal wealth of the firm owner. Importantly, we show that an entrepreneur’s decision making
regarding how much wealth he extracts from the firm for personal consumption can affect venture
survival and is dependent on the motivations for starting a business. Entrepreneurs who start their
business primary as a result of push factors, tend to extract wealth from a firm at a higher rate
significant effect on firm growth, while we did not find support for the effect of risk taking and
innovativeness. Furthermore, we did not find support for the moderating effect of the business
Finally, we observe that having a passion for developing a business has a direct effect on
firm growth as well as an indirect effect through the entrepreneurial alertness process. In sum, the
empirical studies in this thesis show the growth of the firm affects the wealth that the owner-
managers extracts from the firm. Regarding entrepreneurial orientation, pro-activeness had a
significant positive effect on firm growth while passion for developing had a direct positive effect
between individual-level variables and firm-level measures of firm success. This thesis enriches the
understanding of how variables pertaining to motives, strategic orientation, passion, alertness and
128
actions of individual entrepreneurs (i.e., micro-level variables) eventually influence different aspects
of firm’s financial performance (e.g., firm growth in sales, assets, employment) (Baum et al., 2001;
Baron, 2008). More importantly, this thesis contributes to ongoing research on unravelling the role
of emotions and cognition on firm-level outcomes such as firm growth (Drnovsek et al., 2016). By
studying passion and alertness in chapter 5, we use some of the most theoretically rigorous and
empirically testable entrepreneurial behaviour perspectives in the quest to understanding why some
Throughout this thesis we recognise that context-specific factors affect small firm growth.
Most firm growth theories have been predominantly developed based on research from Western,
to the understanding of the role of the individual entrepreneur in firm success in a novel regional
context, differing from the research that was generally conducted in developed economies. The
study reported in chapter 2 reveals the importance of validating the existing conceptualisation and
operationalisation of small firm growth in non-traditional settings and the need to develop context
how entrepreneurial orientation affects firm growth in a resource constrained environment such
as an African LDC. This is important because extant research has to some extent attributed the
inclusive and sometimes contradictory results about the relationship between EO and firm
performance to the context-specific conditions pertaining to the environment in which the firm
Chapter 3 contributed to the debate on the role of economic incentives of small firm
ownership. At individual or household level, extraction of wealth from the firm for personal use
becomes the incentive for the establishement of firms. Besides, by incorporating the role of start-
129
up motivation in the relationship between firm performance and economic rewards, we are able to
shed light on why some firms are more likely to fail early because of speed of wealth extraction.
first limitation relates to the collection of empirical data. Data was collected from only one LDC,
Zambia. Although this helped in reducing variability in the sample, it is also important to recognise
that this can affect the generalisability of the findings. Although Zambia is categorised as an LDC
on the basis of the level of economic and human development, this categorisation is quite broad.
That is, countries in the same LDC category may be undergoing through different economic,
political and technological transitions, placing a challenge on the homogeneity of the group.
Therefore, further research is necessary to establish the overall generalisability of these findings to
other LDCs.
Second, with the exception of firm growth data in chapter 4, all empirical data used in this
research was cross-sectional. This poses a challenge to claiming evidence for causality. Collecting
longitudinal data for this thesis proved to be challenging due to difficulties in locating respondents
Third, in chapters 3, 4 and 5, we adopted and adapted scales for measuring different
variables from extant literature. EFA was used to establish factor structure. One of the distinctive
features of EFA is that it relies more on extracting factors based on statistical results of the data
collected than on theory (Hair et al., 2010). EFA is more appropriate when the number of factors
and factor structure are not known. Since the scales were adopted from literature, both the number
and the factors structure were known. Although, the number of factors to be extracted can also be
specified in EFA, a confirmatory test of the measurement theory of the variables using CFA would
have been more appropriate. CFA helps in determining how theoretical conceptualisation of the
130
measurement of constructs match actual data. However, CFA is a structural equation modelling
technique, based on model fit statistics which is sensitive to sample size (Kline, 2011, Marsh, 1988).
The sample sizes in chapters 3, 4 and 5 where small to be used for CFA and future research should
consider validating the measurement scales with larger samples using CFA.
Forth, since the focus of the thesis was to establish the extent to which different factors
affect firm growth, it is important to recognise that this thesis concentrated on only a selected
by an enormous array of variables. Prior research also suggests that no single factor has a
determining influence on firm growth, all by itself (Davidsson and Klofsten, 2003). Additionally,
different domains of variables predict growth better when multiple direct and indirect effects are
studied simultaneously (Baum et al., 2001). Although, this research has applied unique
configurations of context-specific variables to analyse small firm growth, there still remain a
number of variables whose direct and indirect effects are underexplored in research and have also
not been tested in this thesis. Future research can for instance, explore the integrative effect of
other LDCs. Zambia has developed deliberate policies that encourage private sector participation
in industry, commerce and trade. Such policies are anchored in the belief that growing small firms
are vital for employment and wealth creation. In Zambia, one of the key issues in the Seventh
National Development Plan is the promotion of the growth of small firms (Ministry of National
Development Planning, 2017). In this thesis, we focused on how the decision making and
131
The findings presented in chapter 2 indicate that growth in personal wealth and purchase
expenditure are perceived as key components of firm growth by small firm owners alongside
growth in number of employees, assets and sales. This has practical implications for policies that
promote small firm growth. First, at least for small firm owners in Zambia, firm growth is
considered as a means of increasing wealth and creating job opportunities for themselves and
others. This implies that promoting small firm growth may be favourable for both job and wealth
creation. Therefore, it is important that policies aimed at firm growth are continued and expanded.
Second, since small firm owners see increases in expenditure due to purchase of key process inputs,
impacting firm growth, there is need for policy that can promote increased access to key process
inputs at a competitive cost. Policy makers need to consider tax incentives specifically targeted at
stimulating growth specifically for SMEs, in particular as most of the existing tax incentives appear
In chapter 3, we discussed how firm growth may affect extraction of wealth from the
venture by firm owners. Extraction of wealth is likely to happen when there is no clear separation
between personal and business activities. For entrepreneurs, it is very important to know that the
decision to extract wealth from the firm reduces the amount of money retained for growth
purposes, with potential severe impact on the chances for firm survival and growth. Therefore, it
is beneficial for entrepreneurs to create a better separation of business and personal expenditures.
Moreover, there is need to reinforce policies that encourage entrepreneurs to separate business
In chapter 4, we found that pro-activeness had a positive effect on firm growth. The
practical implication is that, entrepreneurs must adopt a pro-active orientation in order to achieve
132
themselves to be proactive or by hiring proactive others to manage their firms. Policy makers may
In chapter 5, we found that entrepreneurial passion has a direct positive effect on firm
growth and that this relationship was partially mediated by entrepreneurial alertness. This has
practical implications for policy makers as well as entrepreneurs. The findings imply that it is
important for both entrepreneurs and policy makers to understand the significance of the effect of
entrepreneurial passion and alertness on firm growth. There is therefore need for policies targeted
at increasing entrepreneurial effort that focus on nurturing entrepreneurial passion and alertness.
Policies that promote channelling of resources to support entrepreneurs who display high levels of
firm growth. We discussed how some aspects of decision making and behaviour of the owner-
manager can affect firm growth. We focused on the extraction of wealth from firms,
acknowledge that there are other important factors that can affect firm growth that are still under
researched in LDCs. Therefore, this study contributes to the literature by providing a stepping
stone for further research that can identify and investigate other factors that may be important in
the context of LDCs. Overall, the findings in this thesis could provide a basis for entrepreneurs
133
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Appendix 1. Values for NCC grade categories
Source: http://www.ncc.org.zm/wp-content/uploads/2012/11/CONTRACTOR-REGISTRATION-
FORM-2013.pdf
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Appendix 2. Data collection questionnaire – first wave
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161
162
163
164
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Appendix 3 – Data collection questionnaire – second wave
166
167
Please indicate the extent to which you agree with the following statements
Please indicate the extent to which you agree with the following statements, Strongly Disagree (1), Disagree (2), Neither
Agree nor Disagree (3), Agree (4), Strongly Agree (5).
(300) Entrepreneurial Alertness 1 2 3 4 5
(301) I have frequent interactions with others to acquire new information
(302) I always keep an eye out for new business ideas when looking for information
(303) I read news, magazines, or trade publications regularly to acquire new information
(304) I browse the Internet every day
(305) I am an avid information seeker
(306) I am always actively looking for new information
(307) I see links between seemingly unrelated pieces of information
(308) I am good at “connecting dots.”
(307) I often see connections between previously unconnected domains of information
(308) I often see connections between previously unconnected domains of information
(308) I see links between seemingly unrelated pieces of information
(309) I have a gut feeling for potential opportunities
(310) I can distinguish between profitable opportunities and not-so-profitable opportunities
(311) I have a knack for telling high-value opportunities apart from low-value opportunities
(312) When facing multiple opportunities, I am able to select the good ones
Please indicate the extent to which you agree with the following statements, Strongly Disagree (1), Disagree (2), Neither
Agree nor Disagree (3), Agree (4), Strongly Agree (5).
168
English Summary
The importance of small firms to economic growth has been widely acknowledged in
economies in both developed and developing countries nations. They are often hailed as
primary drivers of economic growth because of their contribution to job and wealth
It is also known that not all forms of entrepreneurship lead to the desired
economic outcomes. Entrepreneurship would lead to job and wealth creation when small
firms survive and grow. However, not all small firms grow and those that do, achieve
different levels of growth. It is also those small firms that grow that can make significant
run growth firms are, to a large extent, considered as successful because growth is usually
associated with good performance. The realisation of the importance of firm growth has
led to research interest in understanding what constitutes firm growth and factors that
affect it. Various internal and external factors have been found to affect firm growth.
They include factors related to the entrepreneur, the type of firms and the external
business environment. Factors in these categories have been studied individually and in
different combinations and to determine how they influence business growth. The general
conclusion that can be drawn from the body of knowledge resulting from such research
is that a variety of factors at individual, firm and environment level, interact in simple and
compounded by the diverse nature of small firms and environmental contexts in which
169
they operate. Drivers and obstacles of small firm growth also vary across countries based
quest to understand firm growth, contextual variations between regions are taken into
consideration. Yet, most research on firm growth has been conducted in Western
conditions faced by small firms in Western developed economies are different from those
in African LDCs. Despite recognizing that the nature of growth and its determinants
would be influenced by context-specific factors, relatively little is known about the subject
in African LDCs.
This thesis investigates the measurement of firm growth, and evaluates how
factors related to the entrepreneur influence firm growth in the context of an African
LDC, Zambia. The thesis sets out to contribute to answering the general research
question: How do small firm owners affect the growth of their firms in LDCs? This question is
relevant and important because it seeks to identify the important dimensions and factors
that can help improve the performance of small firms in African LDCs. To answer this
question, a number of factors are discussed in studies presented in four empirical chapters
What constitutes firm growth in LDCs and how should it be measured? This question is necessary
This is mainly because small firm growth is affected by context-specific factors such as
170
the level of economic development of the region where the firm operates. Therefore, it is
important that before we embark on investigating how individual level factors affect firm
growth, we should first evaluate what constitutes firm growth and how to measure it.
Findings from this study indicate that owner- manager’s perceptions of growth in
numbers of employees, level of sales, value of assets, personal wealth and purchase
expenditure on key process input are the most suitable ways of measuring small firm
growth for research conducted in LDCs. The use of the owner-manager’s perceptions of
firm growth may be suitable in absence of accurate sources of objective data as is the case
in LDCs. Many small firms in LDCs do not keep detailed accounts of their activities and
when they do, they are not usually willing to disclose such information to third parties.
Further, there are no reliable secondary sources of small firm growth data in LDCs.
remainder of the thesis focused on how factors related to small firm owners affect the
First, in the second study presented in chapter 3, we investigated how the firm
growth translates into economic rewards for the small firm owner. We focus on the
research question: What is the relationship between small firm growth and growth in personal wealth
of the firm owner, and how is this relationship affected by the motivation for starting the business? This
chapter presents an empirical examination of how firm founders extract wealth from their
ventures based on the understanding that increasing personal wealth is one of the key
opportunities such as LDCs. Additionally, having recognised that the amount of wealth
extracted by the founder is related to firm start-up motivation, we further evaluate how
start-up motivation moderates the extraction of wealth from firms by firm founders. Our
171
findings indicate that firm growth had a positive effect on wealth extracted from the firm
by the firm owner. We also found that the rate at which push-motivated entrepreneurs
extracted wealth from the firm was faster than that for those motivated by pull and mixed
factors. It is clear that there are economic benefits of starting a firm. However, the
findings may also imply that if a firm’s establishment is primarily influenced by push
factors, the firm has lower chances of growth because of the speed at which the founders
extract wealth compared to their counterparts who are motivated by pull and mixed
factors.
practices and behaviour guide the firm’s growth strategy. We evaluated the effect of
entrepreneurial orientation on firm growth and the moderating role of the business
orientation influence firm growth in LDCs and how does the business environment moderate this
relationship? Our findings show that the growth of small firms in LDCs is significantly
affected by only one of the three dimensions of EO, pro-activeness, while risk-taking and
innovativeness had no significant effect. Contrary to our expectations, the study did not
also find evidence of the moderating effect of the business environment on the
Third, in the last empirical study presented in chapter 5, our attention shifted to
how entrepreneurial passion and alertness of the firm owners affect firm growth. We
addressed the research question: What is the relationship between entrepreneurial passion and firm
growth and how is the relationship influenced by entrepreneurial alertness? Entrepreneurial passion
and alertness, which are related to respectively the emotions and cognition of the firm
owner, are used as a basis for explaining why some entrepreneurs are more successful
172
than others. We take this perspective as recent research, studying the effect of individual-
level factors on firm success, has advocated a shift of focus from personality
characteristics to more fluid individual level aspects such as entrepreneurial cognition (cf.
Baron, 2004b, Shepherd, 2015; Mitchell et al., 2002; Mitchell et al., 2007; Baron, 2000).
Likewise, positive affect, and specifically entrepreneurial passion, influence many aspects
linked to human cognition which are directly related to entrepreneurial activities. The
findings in this study revealed that entrepreneurial passion for developing has a significant
direct positive effect on firm growth. Further, we also found that passion for developing
has an indirect effect, via entrepreneurial alertness, on firm growth. The indirect effects
work through the entire process of alertness which involves scanning and searching,
Collectively, all the empirical studies contribute to the wider research on the
This thesis enriches the understanding of how variables pertaining to motives, strategic
In sum, the empirical studies in this thesis show that growth of the firm affects
the wealth that the owner-managers extracts from the firm. Regarding entrepreneurial
orientation, pro-activeness had a significant positive effect on firm growth while passion
for developing had a direct positive effect on firm growth, and an indirect effect through
entrepreneurial alertness.
173
Nederlandse samenvatting
Het belang van kleine bedrijven voor economische groei van zowel ontwikkelde landen
bedrijven worden vaak geprezen als aanjagers van economische groei vanwege hun
bijdrage aan het scheppen van banen en welvaart. Dit heeft ertoe geleid dat de meeste
instrument voor armoedebestrijding. Het is echter ook bekend dat niet alle vormen van
kan leiden tot het scheppen van banen en welvaart wanneer kleine bedrijven overleven en
groeien. Niet alle kleine bedrijven overleven en groeien echter en degene die dat wel doen,
bereiken verschillende niveaus van groei. Het zijn met name de groeiende kleine bedrijven
die een belangrijke bijdrage kunnen leveren aan economische ontwikkeling. Ondernemers
die leiding geven aan groeiende bedrijven worden in hoge mate als succesvol beschouwd,
omdat bedrijfsgroei wordt geassocieerd met goede prestaties. Het belang van bedrijfsgroei
heeft geleid tot interesse van onderzoekers voor het begrijpen van de beïnvloeding van
beïnvloeden, factoren die verband houden met de ondernemer, het bedrijf en de externe
uit het onderzoek is dat een verscheidenheid aan factoren op individueel niveau, op
wordt versterkt door de diversiteit van kleine bedrijven en van de omgeving waarin ze
174
werken. Drijvende factoren achter en obstakels voor bedrijfsgroei verschillen ook van
land tot land, vaak door verschillen in niveaus van economische ontwikkeling. Het is
gehouden met verschillen tussen regio's. Toch is het meeste onderzoek naar bedrijfsgroei
hebben verschilt immers sterk van die in Afrikaanse ontwikkelingslanden. Hoewel wordt
erkend dat de aard van bedrijfsgroei en de determinanten ervan beïnvloed worden door
in Afrikaanse ontwikkelingslanden.
evalueert hoe factoren met betrekking tot de ondernemer de groei van kleine bedrijven
proefschrift beoogt een bijdrage te leveren aan de beantwoording van de algemene vraag:
hoe beïnvloeden ondernemers van kleine bedrijven de groei van hun bedrijven in
ontwikkelingslanden? Deze vraag is relevant omdat het antwoord de prestaties van kleine
beantwoorden wordt een aantal factoren behandeld, in vier empirische hoofdstukken van
in ontwikkelingslanden en hoe moet dit worden gemeten? Beantwoording van deze vraag
175
is nodig omdat het conceptualiseren en het meten van groei van kleine bedrijven
komt vooral omdat groei van kleine bedrijven wordt beïnvloed door context-specifieke
factoren, zoals het niveau van economische ontwikkeling van de regio waarin het bedrijf
actief is. Daarom is het belangrijk dat, alvorens te onderzoeken hoe bedrijfsgroei
beïnvloed wordt, te bestuderen wat bedrijfsgroei nou eigenlijk inhoudt en hoe dat kan
worden gemeten. Bevindingen uit dit eerste onderzoeksproject geven aan dat de perceptie
van de ondernemer van bedrijfsgroei in termen van aantal werknemers, omzet, activa,
persoonlijke welvaart en inkoop de meest geschikte manieren zijn om groei van kleine
ondernemer van bedrijfsgroei kan geschikt zijn in afwezigheid van nauwkeurige bronnen
van objectieve gegevens, zoals vaak het geval is in ontwikkelingslanden. Veel kleine
ze dat al doen, dan zijn ze veelal niet bereid om dergelijke informatie aan derden te
verstrekken. Verder zijn er in het algemeen geen betrouwbare secundaire bronnen van
factoren met betrekking tot de ondernemers de groei van hun kleine bedrijven
Hierbij gaat het om de volgende onderzoeksvraag: wat is de relatie tussen de groei van
kleine bedrijven en de groei van persoonlijke welvaart van de ondernemers en hoe wordt
deze relatie beïnvloed door de motivatie om een eigen bedrijf te starten? Onze
bevindingen geven aan dat bedrijfsgroei een positief effect heeft op de ontwikkeling van
176
persoonlijke welvaart van ‘’push-gemotiveerde ondernemers’ sterker was dan die van
een combinatie van ‘push factoren’ en ‘pull factoren’. Het is duidelijk dat er economische
voordelen zijn bij het starten van een bedrijf. Deze bevindingen kunnen echter ook
impliceren dat als de oprichting van een bedrijf voornamelijk wordt beïnvloed door ‘push
ondernemers waarde onttrekken aan het bedrijf, vergeleken met hun tegenhangers die
worden gemotiveerd door ‘pull factoren’ en een combinatie van ‘push factoren’ en ‘pull
factoren’.
beïnvloedt de externe omgeving deze relatie? Onze bevindingen tonen aan dat de groei
van kleine bedrijven in ontwikkelingslanden aanzienlijk wordt beïnvloed door slechts een
van de drie dimensies van ‘entrepreneurial orientation’, te weten pro-activiteit, terwijl het
nemen van risico's en de mate van innovativiteit geen significant effect hadden op de
bedrijfsgroei. In tegenstelling tot onze verwachtingen vond de studie ook geen bewijs
voor een modererend effect van de externe omgeving op de relatie tussen ‘entrepreneurial
aandacht naar de vraag hoe passie en alertheid van ondernemers de groei van hun
relatie tussen passie van de ondernemer en bedrijfsgroei en hoe wordt deze relatie
177
beïnvloed door alertheid van de ondernemer? Passie en alertheid, die gerelateerd zijn aan
ondernemers. We namen dit perspectief omdat recent onderzoek wees op het belang van
deze focus. De bevindingen in dit onderzoek brachten aan het licht dat alleen passie van
heeft. Verder ontdekten we ook dat passie van de ondernemer voor ontwikkeling een
Gezamenlijk dragen de vier empirische studies bij aan het brede onderzoek naar
succes. Dit proefschrift verrijkt het begrip van hoe variabelen met betrekking tot
dit proefschrift zien dat de groei van het bedrijf van invloed is op de persoonlijke welvaart
van ondernemers.
178
Acknowledgements
The successful completion of this work would have not been possible without the support
I received from different organisations and individuals. I am greatly indebted for their
help and for this reason, I would like to extend my sincere gratitude and great appreciation
to them.
Professor Leo J. Paas (Massey University, Auckland, New Zealand), Professor John
Lungu (The Copperbelt University, Kitwe, Zambia) and Dr. Elco van Burg (Vrije
massive personal and professional guidance on how to undertake scientific research and
life in general. I will forever remain indebted to them individually and severally, for their
guidance.
This work would not have been possible without the financial sponsorship of
the HEART project. Between 2011 and 2018 the HEART project in Zambia helped to
strengthen the capacity of the Copperbelt University (CBU) in developing and providing
quality and relevant education programmes, practical research and consultancy to enhance
the contribution to national human resource and economic development. The Centre for
coordinated and implemented the project in close collaboration with CBU in Kitwe,
(NUFFIC) provided funding for the HEART project to an amount of € 1,6 mln. I would
179
like to appreciate all the people that worked on this project and specifically, Marinus,
Mike, Wim, Dia and Bert for all the help with my travel and living arrangement in
I would like to thank all small business owners in Zambia who agreed to participate
in the empirical studies included in this thesis. I was encouraged by their willingness to discuss
factors that affect the growth of small firms in Zambia despite their demanding schedules.
for Entrepreneurship at Vrije Universiteit Amsterdam. I would like to thanks staff that
worked at the centre (Fransje, Helen, Jessica, Marieke and Ruby) for their support in different
aspects of life at VU. While at the entrepreneurship center, I also met very good people and
made a lot of great friends whom I socialised with during and after work hours. I would like
to appreciate the companionship and I had with Egide, Emiel, Jacob, Jan, Shiferaw, Marco
and Kimeu. I would like to thank Professor T. K. Taylor for all the services he rendered to
me during my studies, especially providing me with a quiet and convenient space to work
Throughout my academic life, my family has been very supportive. Mum and dad
always checked on my progress even when I was working at PhD level. Thank you so much
for your support and encouragement. My wife and kids suffered most during my studies and
had to cope with my long periods of absence from home. Martha, Mwandwe, Zindaba and
Mwansa I sincerely thank your prayers, sacrifice, love, understanding and encouragement. I
also greatly treasure the support, encouragement and challenge I continue to receive from my
siblings - Chungu, Mpundu, Chola, Kalesha, Chabala and Mumba and all life endeavours. Sr.
Justina (MHSRIEP) was so keen on attending my graduation. I will forever miss your kindness
and devotion towards ensuring success amongst your immediate and wider family.
180
Most importantly, I would like to thank Almighty GOD for granting me the
strength, knowledge, ability and opportunity to undertake this research study and to persevere
and complete it satisfactorily. It is through his blessings that this achievement was made
possible.
181
ABRI Dissertation series
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24. Van Dijk, M. (2017) When I give, I give myself: essays on individual
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183
SMALL FIRM GROWTH IN A
LEAST DEVELOPED COUNTRY
Small firms represent substantial portions of national economies in both developed and developing countries and
entrepreneurial activities of small firm owners have been linked to national economic growth. However, not all
small firms survive and grow and those that do, achieve different levels of growth. Various factors related to
the entrepreneur, the type of firms and the external business environment affect the amount and type of
growth achieved by a small firm. This thesis investigates the conceptualisation of small firm growth, and
evaluates how firm start-up motivation, personal wealth, entrepreneurial orientation, entrepreneurial
passion, and entrepreneurial alertness influence small firm growth in the context of a Least Developed
Country (LDC), Zambia. This thesis sets out to contribute to answering the general research question:
How do small firm owners affect the growth of their firms in Least Developed Countries? Based on
primary data collected from small firms in Zambia, we found that; 1) small firm growth should
be conceptualised and operationalised using multiple indicators, that include context specific
measures of changes in personal wealth of the firm owners; 2) firm growth had a positive
effect on wealth extracted from the firm by the firm owner and that, the rate at which
push-motivated entrepreneurs extracted wealth from the firm was faster than that for
those motivated by pull and mixed factors; 3) small firm growth is significantly affected
by only one of the three dimensions of EO, pro-activeness, but not risk-taking and
innovativeness, and; 4) entrepreneurial passion has a direct positive effect on firm
growth and the relationship was partially mediated by entrepreneurial alertness.
ABRI
AMSTERDAM
IN AMSTERDAM
SCIENCE, BUSINESS RESEARCH INSTITUTE
ISBN: 978 90 361 0528 6 WWW.ABRI.VU.NL
BUSINESS
AND SOCIETY