Small- and Medium-Sized Businesses’ Growth Expectations and Financial Performance in Latvia: Does Ethnicity Matter?

Abstract

By applying regulatory focus theory, this paper investigates the impact of both 'initial confidence' and of 'exactness of growth expectations' on the financial performance of small and medium-sized firms in Latvia. Drawing on a data set based on repeated survey design, we explore the complexity of this relationship empirically. Our overall findings suggest that when controlling for other relevant factors, such as actual growth, entrepreneurs having higher growth expectations perform significantly better in terms of profitability. In addition, education has a strong modifying effect: the impact of high growth expectations on subsequent profit performance is stronger for entrepreneurs with a lower level of education. Moreover, these effects are amplified by ethnicity: they are much stronger for ethnic Russian entrepreneurs compared with ethnic Latvian entrepreneurs.