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THE FINANCIAL AND ENTREPRENEURIAL CHARACTERISTICS OF INNOVATIVE SMALL FIRMS IN THE U.K.

Mrs. Pooran Wynarczyk
Mr. Alfred Thwaites
Dr. Peter Wynarczyk

Center for Urban and Regional Development Studies
University of Newcastle Upon Tyne
Claremont Bridge
Newcastle Upon Tyne NE1 7RU
England

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Principal Topics
This paper examines empirically the financial and entrepreneurial characteristics of a sample of 51 U.K. innovative small firms. It attempts to :
-evaluate the financial performance and entrepreneurial characteristics of innovative small firms in selected manufacturing industries in the UK;
-Compare and contrast these characteristics of innovative small firms operating in two contrasting areas of the country: the 'South East' and elsewhere in the U.K.;
-examine variations in corporate financial performance associated with decisions taken by owners/directors and ownership structure of firms which in turn may reflect the varying cultures of enterprise and regions.

Method
For the purpose of this paper the SPRU Innovation Database was consulted and a sample of 51 small technologically leading manufacturing firms was identified which, at the time of innovation, were: independent (owners/directors held at least 50% of the issued share capital), small (were enterprises or part of an enterprise in which total employment was less than 500 employees world wide) and had introduced products, processes or materials new to the U.K. in the years 1975 to 1983 inclusive. Selected information from Companies House was attached to these firms for the period 1970 to 1989. This set of information, (which includes turnover, exports, assets, profits, directors remunerations as well as more qualitative data on directors, shareholdings, location, etc.) provides the basis for the empirical analysis. The sample is partitioned into two groups, one comprising of 21 firms located in the 'South East' economic planning region and other comprising 30 firms located elsewhere in the U.K.

Major Findings
For the overall sample, the results confirm earlier findings that substantial innovations introduced by small firms into the U.K. economy over the period 1975 to 1983 were concentrated in a few sectors of industry. Furthermore, surviving and innovative small firms appear to be part of the set of fast growth firms both in terms of financial performance, for example, exports and profitability and entrepreneurial characteristics. As such would seem to warrant the attention they receive from policy makers and academics alike.

At the regional level (i.e. South East and Other Regions) the evidence suggests that significant innovations are more likely to be introduced into the 'South East' region. The empirical analysis also shows that whilst the majority of firms in the "Other Regions" of the U.K. were run by related directors (e.g. husband and wife), in contrast, the 'South East' firms were more likely to have a higher proportion of directors with technical, scientific and managerial background. These professional directors were more closely associated with exports and profitability growth post innovation.

Implications
It is hoped that this paper allows a step forward in our understanding of the economic performance and entrepreneurial characteristics of innovative small firms and their links to local economic development. The policy-maker would seem justified in supporting such firms but there are still sectoral, spatial and cultural factors which appear to influence outcomes the nature of which remained largely in ignorance.

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