The Differential Effects of Government Support, Inter-firm Collaboration and Firm Resources on SMEs' Performance in a Developing Economy.

Notwithstanding that there has been increasing attention on factors that enhance SME performance in developing economies, there is a dearth of studies explicitly investigating the roles of government support systems and inter-firm collaboration. Drawing on the Resource-Based View (RBV) of the firm and Institutional theories, this study models and examines how government support, inter-firm collaboration and managerial ties affect SME performance and further explores how firm specific resources mediate the relationships. A quantitative research design was employed. Data were collected using a structured questionnaire from 438 SMEs operating in Zambia, a developing Sub-Saharan African country. Hierarchical linear regression in SPSS PROCESS macro was used to test the hypotheses. Findings indicate that managerial ties have both a direct and indirect effect, through firm resources, on financial performance. Also, the relationship between inter-firm collaboration and financial performance is fully mediated by firm resources. Surprisingly, results reveal that government support does not have a significant effect on SME financial performance. We conducted our study using a cross-sectional research design in SMEs in a developing economy context. While we unleash from a context that is largely under-researched, extrapolating our findings to other countries should be done with care. The study has important implications for SME managers and policy makers. It demonstrates that inter-firm collaborations and managerial ties enhance a firm’s financial performance. It also highlights the view that SMEs need to have firm specific resources to transform external resources, accessed from inter-firm relationships, into superior performance. SME policy makers are advised to focus more on policies and support mechanisms that promote inter-firm relationships at firm and managerial levels. This study is one of the few studies to empirically show that the differential effects of inter-firm collaboration and managerial ties on SME performance are channeled through firm resources, in an under-researched developing Sub-Saharan African economy context. The study is also one of the few studies to reveal that government support is not significantly related to SME performance. Therefore, it provides valuable insights which could be applied to other developing countries with characteristics similar to Zambia.