Background to the Research

• Recent research has shown that the performance of small firms in Northern Ireland has been helped by the availability of a comprehensive and well-funded programme of selective financial assistance from LEDU. However, research has failed to uncover the precise way in which LEDU financial assistance impacts on business performance.
  

Research Approach

• This paper reports the results of an analysis of the business performance of two broad groups of LEDU assisted clients, ('Growth' and 'Established' clients), who received different levels of assistance in the 1990s. The analysis is based on data drawn from a specially created database of around 1,600 small firms who were in receipt of LEDU financial assistance in the period 1991-1997.
  

Main Findings

• The analysis of the employment and turnover performance of LEDU-assisted firms showed that Growth clients grew faster than Established clients in the period 1991-97.
• The analysis provides evidence that a more intense and directed package of assistance is linked with faster business growth. In light of this, the move in LEDU policy towards a greater concentration of effort with growth potential would appear to have been successful.
• The extent of the link between LEDU assistance and differential growth performance remains a matter of contention. Greater growth may have been due to the selection of better performing small firms as Growth firms in the first place.
• Employment growth consistently outstripped turnover growth in the LEDU-assisted clients over the period 1991-97, with the resultant impact on productivity. This was particularly true for those firms designated by LEDU as Growth firms, who were to be the recipients of a more intense and varied package of assistance. The fastest growing 100 Growth firms in terms of employment recorded a negative annual rate of productivity growth in the period 1991-97.
• Falling productivity has been a consistent feature for the LEDU clients over the period 1991-97 and this might suggest that the financial support provided by LEDU may be used as working capital and, in effect, maintaining profit levels within these firms.
• The multivariate analysis clearly showed that when tested for a direct link between business performance and the scale of grant assistance received from LEDU in the performance of the 100 fastest Growth companies, there is some evidence to suggest a link between employment growth and grant aid provided to very small firms (less than 10 employees) assisted under the LEDU Growth Business Support Programme.

Conclusions

• A detailed financial review of LEDU Growth clients, focusing on profitability (net profit on sales; return on net worth or return on investment) and growth (increase in sales, net worth; gross and net profit) and the nature and scale of financial assistance provided by LEDU, would provide greater insight into the impact of assistance on business performance.
• It would be helpful to construct a control group of similar firms over the same period that had not been assisted by LEDU in order to identify any differences in the growth rate.
• A more detailed assessment of the precise nature of assistance received by LEDU clients and the way it impacts upon business performance is necessary. This research would need to be able to access the details on the amounts and nature of financial assistance from LEDU to individual firms.
• In the broader context of the effectiveness of public policy and small firm growth in the United Kingdom, the findings emphasise that selective intervention - (in this case the Growth Business Support Programme in Northern Ireland), by a well-funded business development agency (in this case LEDU), can have a positive affect on the availability of external finance, market research and product and process innovation in small firms.
• These findings have implications for the emergence of Regional Development Agencies within the English regions and the search for a definitive role in the delivery of public policy towards small firms at a regional level. The problem will remain one of resources, and it remains unclear whether the Small Business Service will provide the necessary structure for major budgetary change at the regional level.