Longitudinal Analysis of Relationships Between Planning and Performance in Small Firms

Abstract

This paper investigates causal relationships between planning and performance utilizing a longitudinal database with responses from the same 2,956 businesses over a four-year period. Results confirm the association between planning activity and performance that is evident in most extant literature. They also, however, cast doubt on the traditional perception of the causal sequence of that association. Although subject to a number of limitations, the results indicate that planning is more likely to be introduced into a small firm after a period of growth rather than before a period of growth. These results make an important contribution to understanding the planning performance relationship for two main reasons: they overcome the static data and relatively smaller sample size restrictions of many past studies; and, they provide evidence concerning the sequence of the relationship between planning and performance.