Microeconometrics in Business Management

4 An empirical econometric model of a small-sized enterprise¹

4.1 Specification of a small-sized enterprise’s econometric model

The mechanism linking important economic variables of a small-sized enterprise has many features that are common with a structure of a large- or medium-sized company. There are, however, more differences than similarities, which can be noticed while analyzing Figure 4.1.

Figure 4.1 Economic interdependencies in a small-sized enterprise.

Source: Wiśniewski, J. W. (2003): An econometric model of a small-sized enterprise, Chapter 2.

There is a significant difference in the perception of reality within a small-sized company, in comparison to a large-sized one – the domination of a short time-horizon. In a small business entity, monthly vision prevails over the annual one. A quarter, in a small-sized company, is a period of a longer perspective, than a year in a large-sized company. Therefore, for example, perception of a small-sized company’s production is divided into three parts. Specificity of a small-sized manufacturing enterprise requires distinction of three concepts: manufacture of ready-made production, the amount of the sales income, and the cash inflows obtained from the sales. Between those concepts, each of which represents a category of economic production, there is a time interval which is significant for a small-sized business entity. ...