Firm Size, Compensation and Firm Deaths in SMEs: A Evidence from America

Daniel Quacoe, Xuezhou Wen, Dinah Quacoe, Ann Dodor


This paper mainly investigates how SMEs compensation affects their collapse and render unsustainable. We utilize annual time series data provided by America’s Small Business Administration from 1988 to 2014. We decompose SMEs into three size categories (micro, small and medium) and analyze the impact of compensation on the collapse of each of these sub-divisions to capture the extent this might help inform policy. Our ARDL Bounds Test analysis shows that compensation and firm deaths or sustainability have long-run relationship. Through VECM Granger causality analysis, we find a unidirectional causality running from compensation to firm death indicating that the compensation system to workers of SMEs significantly contributes to their sustainability.

Full Text:



A., W. R. G. (1993). "Environmental Management and Business Strategy." Pitman. London.

Abdullah, M. M. B. and J. J. Tarí (2012). "The influence of soft and hard quality management practices on performance." Asia Pacific Management Review 17(2): 177-193.

Adams, J. S. (1963). "Towards an understanding of inequity." The Journal of Abnormal and Social Psychology 67(5): 422.

Aldrich, H. and E. R. Auster (1986). "Even dwarfs started small: Liabilities ofage and size and their strategic implications." Research in organizational behavior 8(1986): 165-186.

Audretsch, D. B. and T. Mahmood (1994). "The rate of hazard confronting new firms and plants in US manufacturing." Review of Industrial organization 9(1): 41-56.

Bailey, T. (1993). Discretionary effort and the organization of work: Employee participation and work reform since Hawthorne, Teachers College and Conservation of Human Resources, Columbia University.

Beck, T., A. Demirgüç‐Kunt and V. Maksimovic (2005). "Financial and legal constraints to growth: Does firm size matter?" The Journal of Finance 60(1): 137-177.

Box, M. (2008). "The death of firms: exploring the effects of environment and birth cohort on firm survival in Sweden." Small Business Economics 31(4): 379-393.

Brown, R. L., J. Durbin and J.M. Evans (1975). "Techniques for testing the constancy of regression relationships over time." Journal of the Royal Statistical Society 37: 149–192.

Brundtland, G. H. (1987). "Our common future—Call for action." Environmental Conservation 14(4): 291-294.

Carreira, C. and F. Silva (2010). "NO DEEP POCKETS: SOME STYLIZED EMPIRICAL RESULTS ON FIRMS’FINANCIAL CONSTRAINTS." Journal of Economic Surveys 24(4): 731-753.

Carroll, G. R. and M. T. Hannan (2000). The demography of corporations and industries, Princeton University Press.

Cowherd, D. M. and D. I. Levine (1992). "Product quality and pay equity between lower-level employees and top management: An investigation of distributive justice theory." Administrative Science Quarterly: 302-320.

Dah, M. A. and M. B. Frye (2017). "Is board compensation excessive?" Journal of Corporate Finance 45(Supplement C): 566-585.

Dickey, D. A. and W. A. Fuller (1981). "Likelihood ratio statistics for autoregressive time series with a unit root." Econometrica: Journal of the Econometric Society: 1057-1072.

Dineen, B. R. and I. O. Williamson (2012). "Screening‐oriented recruitment messages: Antecedents and relationships with applicant pool quality." Human Resource Management 51(3): 343-360.

Duong, L. and J. Evans (2015). "CFO compensation: Evidence from Australia." Pacific-Basin Finance Journal 35(Part A): 425-443.

Engle, R. F. and C. W. Granger (1987). "Co-integration and error correction: representation, estimation, and testing." Econometrica: journal of the Econometric Society: 251-276.

Fama, E. F. and M. C. Jensen (1983). "Separation of ownership and control." The journal of law and Economics 26(2): 301-325.

Freeman, J., G. R. Carroll and M. T. Hannan (1983). "The liability of newness: Age dependence in organizational death rates." American sociological review: 692-710.

Gerhart, B. and S. Rynes (2003). Compensation: Theory, evidence, and strategic implications, SAGE publications.

Gomes, P. and Z. Kuehn (2017). "Human capital and the size distribution of firms." Review of Economic Dynamics 26(Supplement C): 164-179.

Greenberg, J. (1990). "" Employee theft as a reaction to underpayment inequity: The hidden cost of pay cuts": Correction."

Gupta, N. and J. D. Shaw (2014). "Employee compensation: The neglected area of HRM research." Human Resource Management Review 24(1): 1-4.

Jenkins Jr, G. D., A. Mitra, N. Gupta and J. D. Shaw (1998). Are financial incentives related to performance? A meta-analytic review of empirical research, American Psychological Association.

Kwiatkowski, D., P. C. Phillips, P. Schmidt and Y. Shin (1992). "Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root?" Journal of econometrics 54(1-3): 159-178.

Lahlou, I. and P. Navatte (2017). "Director compensation incentives and acquisition performance." International Review of Financial Analysis 53(Supplement C): 1-11.

Liu, L. S. and A. W. Stark (2009). "Relative performance evaluation in board cash compensation: UK empirical evidence." The British Accounting Review 41(1): 21-30.

Lucas Jr, R. E. (1978). "On the size distribution of business firms." The Bell Journal of Economics: 508-523.

Mata, J. (1996). "Markets, entrepreneurs and the size of new firms." Economics Letters 52(1): 89-94.

Müller, V.-O. (2014). "Do Corporate Board Compensation Characteristics Influence the Financial Performance of Listed Companies?" Procedia - Social and Behavioral Sciences 109(Supplement C): 983-988.

Olaniyi, C. O., O. B. Obembe and E. O. Oni (2017). "Analysis of the Nexus between CEO Pay and Performance of Non‐Financial Listed Firms in Nigeria." African Development Review 29(3): 429-445.

Peek, J. (2013). "The impact of credit availability on small business exporters." US Small Business Administration working paper.

Pesaran, M. H., Y. Shin and R. J. Smith (2001). "Bounds testing approaches to the analysis of level relationships." Journal of applied econometrics 16(3): 289-326.

Pfeffer, J. (1998). "Six dangerous myths about pay." Harvard business review 76(3): 109-119.

Phillips, P. C. and P. Perron (1988). "Testing for a unit root in time series regression." Biometrika 75(2): 335-346.

Pissarides, C. A. (2000). "Equilibrium Unemployment Theory, second edn." MIT Press, Cambridge.

Shaw, J. D. and N. Gupta (2007). "Pay system characteristics and quit patterns of good, average, and poor performers." Personnel Psychology 60(4): 903-928.

Yarram, S. R. and J. Rice (2017). "Executive compensation among Australian mining and non-mining firms: Risk taking, long and short-term incentives." Economic Modelling 64(Supplement C): 211-220.


  • There are currently no refbacks.