Modelling the Link Between Management Practices and Financial Performance. Evidence from Small Construction Companies

This paper develops a structural model to investigate the direct and indirect effects of owner–manager and company characteristics and selected management practices on the financial performance of a sample of 218 small Belgian construction companies. The results show that the owner–manager and company characteristics (experience, education, financial knowledge, knowledge of cost accounting, company size and age) have no direct significant impact on financial performance. However, several significant paths have been found between the owner–manager and company characteristics and management practices. As far as the direct effects of the management practices are concerned we observe several significant paths from the management practices to financial performance. Our findings indicate that a model approach by including owner–manager and company characteristics and management practices in an intertwined way is necessary when exploring their effects on small business financial performance. Copyright Springer 2005