Symbiotic and parasitic financial bootstrapping among Hungarian small firms

Abstract

AIMS OFTHE STUDY

Financial bootstrapping is often invoked as a way to alleviate problems linked to the access to financial resources. This study investigates the relationship between the use of advantageous (symbiotic) or detrimental (parasitic) bootstrapping techniques associated with different stakeholders, the intensity in the use of these techniques and business performance in new and established businesses. Also, the study seeks to fill a gap in the literature by investigating the effects on peformance of bootstrapping practices in a developing country, namely, Hungary.

METHODOLOGY

The empirical application employs a unique dataset of 80 Hungarian SMEs collected between 2009 and 2012. In the first step, cluster analysis is used to group the analyzed firms according to the use of bootstrapping techniques. The second step links the intensity in the use of bootstrapping techniques to performance - employment growth and labor productivity - at different stages of the businesses’ life cycle (new and established businesses).

MOST IMPORTANT RESULTS

Results show that the use of bootstrapping techniques is heterogeneous across firms and that their impact on performance is dissimilar in new viz-a-viz established businesses. Four groups emerge from the cluster analysis: 1) firms with low use of bootstrapping techniques (passive), 2) firms punishing other stakeholders' parasitic behavior (protective), 3) firms that mostly pursue their own agenda (self-interested) and 4) firms that intensively use bootstrapping techniques (intensive). Further analysis reveals that the use of different techniques impacts performance among groups. Protective users are the most productive among new firms, while in case of established businesses passive users show the highest productivity level.

RECOMMENDATIONS

Bootstrapping techniques are not the solution to the financial problems of Hungarian SMEs in the long run. To achieve superior performance, businesses need both to focus on productive activities and to turn their attention to external financial resources. Instead of using a greater number of bootstrapping techniques seeking short-term financial benefits, sustained performance requires active involvement of entrepreneurs to enhance both business operations and organizational aspects related to human capital development.