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Organizational Values as the Basis for Business Excellence

vo lume 13 · num ber 3 · fa ll 2 018 · issn 1 8 5 4-423 1
issn 1854-4231
Klemen Kavˇ
c, University of Primorska,
associate editors
Claude Meier, University of Applied
Sciences in Business Administration,
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managing and production editor
Alen Ježovnik, University of Primorska
Press, Slovenia,
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Andrzej Cie´
slik, University of Warsaw,
Liesbeth Dries, University of Wageningen,
The Netherlands,
Henryk Gurgul, agh University of Science
and Technology, Poland,
Timotej Jagriˇ
c, University of Maribor,
Ladislav Kabat, Pan-European Univ ersity,
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University, Japan,
Mirna Leko-Šimi´
c, Josip Juraj Strossmayer
University of Osijek, Croatia,
Zbigniew Pastuszak, Maria
Curie-Skłodowska University, Poland,
Katarzyna Piorkowska, Wroclaw University
of Economics, Poland,
Najla Podrug, University of Zagreb, Croatia,
Cezar Scarlat, University Politehnica of
Bucharest, Romania,
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Marinko Škare, Juraj Dobrila University of
Pula, Croatia,
Janez Šušteršiˇ
c, International School of
Social and Business Studies, Slovenia,
Milan Vodopivec, University of Primorska,
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volume 13 (2018) number 3 issn 1854-4231
197 Financial Performance in the Public Administration
Sector: Comparison Between Hungary and Romania
Matei T˘
am ˘
sil ˘
a, Ilie Mihai T˘
Alin Emanuel Artene, and Claudiu Tiberiu Albulescu
213 Could the Suitability of the Existing Accounting
System be Argued?
Franko Milost and Žiga ˇ
227 Challenges and Opportunities of Finnish Defence
Equipment Projects: Changes over a Decade
Ilkka Ikonen, Lauri Kananoja,
and Juha-Matti Lehtonen
247 The Influence of Parents on Female Entrepreneurs
in Three Career Development Phases
Mateja Vadnjal
265 Organizational Values as the Basis for Business
Ivan Malbaši´
c, Bruno Beluži´
c, and Nikolina Posari´
281 Abstracts in Slovene
Financial Performance in the Public
Administration Sector: Comparison
Between Hungary and Romania
matei t ˘
am ˘
sil ˘
Politehnica University of Timisoara, Romania
ilie mihai t ˘
Politehnica University of Timisoara, Romania
alin emanuel artene
Politehnica University of Timisoara, Romania
claudiu tiberiu albulescu
Politehnica University of Timisoara, Romania
We investigate the long-run relationship between profitability,
liquidity and capitalization for companies acting in the public ad-
ministration and defense sector from Hungary and Romania, us-
ing firm-level data for the period 2006–2015. Our panel cointegra-
tion analysis proves the existence of a long-run relationship be-
tween the analyzed variables. The dols results posit in the favor
of a trade-off between liquidity and profitability for Hungary, but
not for Romania. At the same time, the capitalization ratio neg-
atively impacts the profitability ratio in Romania. These results
are validated by a series of robustness tests, considering different
profitability indicators, and partially validated by the fmols anal-
ysis. Our findings have noteworthy implications for the financial
management of companies acting in the field of public admin-
istration and defense, showing different financial management
strategies for the companies located in the two analyzed coun-
Key words: financial performance, public administration sector,
firm-level data, panel cointegration
The nexus between profitability and liquidity represents a challenge
for the optimization of companies’ financial decisions. Previous lit-
erature shows that firms’ financial management might have differ-
ent approaches to increase the financial performances, or the level
management 13 (3): 197–211 197
Matei T˘
of profitability. A first theory states that more liquid firms are, more
they can fulfill they short-term obligations and increase their sales.
This way firms may obtain higher discounts for early payments that
ensure an increase of the profitability level (Deloof 2003). In addi-
tion, short-term liquidity sources help firms to deal with unexpected
situations and to take advantage of investment opportunities, espe-
cially during economic downturn periods. This is more evident for
financially constrained firms. The second theory states that higher
liquidity means unemployed resources. Therefore, liquidity might
endanger profitability, and a trade-off appears between liquidity and
profitability (Bolek and Wilinski, 2012). Otherwise said, firms that
look for profitability are determined to have a small amount of cur-
rent assets (i.e. cash, inventories and trade receivables). Ukaegbu
(2014) provides a reconciliation between these opposite theories.
The author underlines the necessary distinction between fluctuat-
ing current assets (to be financed by short-term financial sources)
and permanent current assets (to be financed by long-term sources).
In addition, in economic downturn periods, it is important to have
an acceptable liquidity level (Albulescu et al., 2016). As Korajczyk
and Levy (2003) show, recessions put pressure on liquidity and firms
may react differently to the macroeconomic context and new finan-
cial conditions.
The empirical literature shows mixed evidence when assessingthe
profitability – liquidity nexus. Most of firm-level applications con-
sider, beside profitability and liquidity, the role of working capital.
In this line, Smith and Begemann (1997) report for a set of South
African firms that the current liquidity ratio and the quick liquid-
ity ratio have no significant impact on the profitability level. Other
studies (e.g. Raheman and Nasr, 2007; Gill, Bigger, and Mathur 2010)
report a negative impact of the working capital and liquidity on the
profitability level. Opposite findings are advanced by Akinlo (2011)
who tests the existence of a long-run relationship between prof-
itability and liquidity for 66 Nigerian firms and discovers a positive
At the same time, the capitalization level might have in its turn a
mixed effect on profitability. A good capitalization helps companies
to fulfill their long-term obligations. Therefore, on the one hand, this
can be a good sign for investors and creditors, facilitating the firms’
access to finance and fostering thus the profitability. However, on
the other hand, firms may encounter higher costs with dividends
as compared with loans’ interest. In this case, if internal financial
sources imply higher costs than external ones, the level of profitabil-
198 management · volume 13
Financial Performance in the Public Administration Sector
ity might decrease. We further on test these opposite theories by fo-
cusing on the firms acting in public administration and defense sec-
tor from Hungary and Romania. We perform a comparison between
the two countries to see how liquidity and capitalization interact with
the profitability level for firms which are state-dependent for doing
business, and to see which the particularities of this relationship are
in the post-crisis period. For this purpose, we use firm-level data
from 2006 to 2015, resorting to amadeus statistics.
Different from similar works, we check for the existence of a long-
run relationship between profitability on the one hand, and liquid-
ity and capitalization on the other hand (using the Kao’s (1999) test
for panel cointegration). This relationship is afterwards estimated
via the Dynamic Ordinary Least Square (dols) regression developed
by Kao and Chiang (2000) for homogenous panels, and by the Fully
Modified Ordinary Least Square (fmols) regression, designed for
heterogenous panels, advanced by Pedroni (2000). For robustness
purposes, we use alternative metrics for the level of profitability, as
well as for the liquidity level.
The rest of the paper is as follows. The next section presents a
short literature review. The third section addresses the data and the
methodology. The forth section presents the empirical results while
the fifth section addresses the robustness analysis of our empirical
findings. The last section draws the conclusions.
Literature Review
The optimization of firms’ financial decisions represents one of the
central focus of the financial management literature. Two main in-
ternal elements influence the companies’ profitability level. On the
one hand, on the assets side, the way firms operate their business
influence their success. Companies should be prepared to fulfill the
unexpected financial obligations, and to take advantage from invest-
ment opportunities as quick as possible. This can be achieved if a
sufficient level of liquidity is ensured. A high level of liquidity is
particularly important in crisis times, when the access to external
financing sources is restricted, or when interesting investment op-
portunities appear. At the same time, if the operating assets as cash,
inventory or accounts receivable are too high, important resources
remain unused, and might diminished the companies’ profitability
level. This trade-off can be better explained comparing the situation
of financially constrained and unconstrained firms (Perobelli, Famá,
and Sacramento 2016).
On the other hand, the structure of financing sources may influ-
number 3 · fall 2018 199
Matei T˘
ence the level of profitability. The choice between internal and ex-
ternal financing sources is made considering the financing costs. The
financial management usually resorts to internal sources to finance
the business. In this case, a high capitalization level might be equiv-
alent with cheaper financing sources, which help to increase finan-
cial performances. A high capitalization level, associated with a good
solvability, is also a sign of financial soundness and might be useful
to attract new investors in the case of listed companies. However, if
the internal financing sources are more expensive compared with
the external ones, given the level of dividend taxes for example, a
high capitalization level and therefore the use of internal sources in
the detriment of external ones as bank loans, might negatively influ-
ence the profitability level.
The empirical literature usually assesses the interdependence be-
tween liquidity and profitability, which might be considered as two
conflicting goals of working capital management (Smith and Bege-
mann 1997). For example, Perobelli, Famá, and Sacramento (2016)
investigate different theories for the profitability – liquidity relation-
ship, considering 872 shares of publicly-traded Brazilian companies,
between 1994 and 2013. Adhikary and Papachristou (2017) search for
a panel of 114 microfinance firms from South Asia, the determinants
of profitability, for the period 2003 to 2011. They show that a strong
capitalization, liquidity, and an increased industry concentration, are
positively related with the profitability level.
Noteworthy studies focus on the working capital as a proxy for the
liquidity level. In this line, Raheman and Nasr (2007) and Gill, Bigger,
and Mathur (2010) find a negative relationship between the working
capital and the profitability level. Similar findings are reported by
Wasiuzzaman (2015) who uses a sample of 160 manufacturing firms
in Malaysia, and an ordinary least squares (ols) regression tech-
nique. The author’s investigation shows a negative relationship be-
tween working capital (and its components) and profitability. For a
set of 66 Nigerian firms Akinlo (2011) reports on contrary, a positive
long-run relationship between profitability and liquidity. These re-
sults are sustained by Akinlo (2012). For the same set of companies
for the period 1997–2007, the author considers the cash conversion
cycle as a comprehensive measure of working capital management
and suggest that firms’ profitability is reduced by lengthening the
number of days accounts receivable.
The relationship between capitalization and profitability is par-
ticularly important for the banking industry, given the role of regu-
latory capital in banks’ activity. This relationship is equally impor-
200 management · volume 13
Financial Performance in the Public Administration Sector
tant firms, as the capitalization ratio provides information about the
structure of financing sources. At the same time, from the account-
ing point of view, a high capitalization ratio is associated with a small
leverage ratio. Higher the leverage is, more a company depends on
long-term creditors for its long-term capital (Murphy 1968). There-
fore, the impact on profitability depends on the trade-off between
the internal and external financing sources. Given the fact that not
all the companies report the level of their loans and credits, from
an empirical point of view the analysis of the capitalization impact
on profitability level seems to be recommended. In this line, Ghosh
(2008) discovers that by taking more debt relative to own assets,
firms’ profits decrease. For a sample of 21 Pakistani cement com-
panies listed on Karachi Stock Exchange for the period 2007 to 2012,
Iqbal, Mulani, and Kabiraj (2013) show that there is a strong nega-
tive relationship between leverage and profitability of the firm (or a
strong positive relationship between capitalization and profitability).
However, none of the aforementioned papers addresses the case
of companies from the public administration and defense sector, nor
they perform a comparative analysis at international level. To fill in
this gap, we compare the financial management strategies of com-
panies from Hungary and Romania.
Data and Methodology
We use amadeus annual data from 2006 to 2015, considering private
and public companies acting in the field of ‘Public administration
and defense; compulsory social security’ (nace code 84). We analyze
to what extent their capacity to manage short and long-term obliga-
tions affects their profitability, drawing a comparison between Hun-
gary and Romania. We have retained into analysis only those compa-
nies for which we found at least five years of observations (we have
therefore obtained an unbalanced panel). In Hungary, 22 companies
were registered in 2015 in this services field. We have found satis-
factory data for half of them (11 firms). In Romania, 33 companies
are recorded in this industry in 2015, out of which 17 are retained
into analysis. The list of the companies is presented in table 1.
The profitability of these companies is assessed using the return
on equity ratio. In the main analysis, in line with similar papers, we
resort to the return on equity ratio calculated based on net income
number 3 · fall 2018 201
Matei T˘
table 1 List of Companies Included in the Study
Hungary 1. Cordate
2. Ddrfü
3. Körösfront
4. m3 Road
5. Magyar Alkotóm ˝uvészeti Közhasznú
6. Magyar Nemzeti Filmalap Közhasznú
7. mil-exim
8. Norda Észak
9. Pajzs ‘94’
10. Pro Rekreatione Közhasznú
11. Value Added Solutions Consulting
Romania 1. Administratia Domeniului Public si Privat Giurgiu
2. Alfa Point Protect srl
3. ama Consultanta si Servicii
4. Compania Nationala de Administrare a Infrastructurii Rutiere
5. Compania Stingeri si Interventii
6. Davi Comfire
7. Electromagnetica Fire
8. Falck Fire Services
9. Fireproof Team
10. Geo-Sting
11. Gepro
12. Interprev Crist
13. nei Fire Protection
14 Parc Industrial Mija
15. Parc Tehnologic si Industrial Giurgiu Nord
16. Preventfire
17. Regia Autonoma de Servicii Publice Ploiesti
where ni represents the net income and eis the average total equity
for the year.
In our robustness analysis, we use two alternative metrics for prof-
itability, namely return on equity ratio calculated using the level of
profit before tax (roepbf), and the return on assets ratio calculated
using the level of profit before tax (roapbf):
where ebt represents the earnings before income taxes.
ta ,(3)
where ta are the total assets of the company.
In terms of explanatory variables, we consider two alternative
metrics, namely the general liquidity ratio (lr) and the current ratio
202 management · volume 13
Financial Performance in the Public Administration Sector
table 2 Summary Statistics
Country roeni roepbt roapbt lr cr ser
Hungary (1) 21.32289 20.87972 7.972772 2.674272 2.972544 38.36221
(2) 18.31500 18.95700 4.475000 1.339000 1.460000 38.83200
(3) 98.59800 339.7150 44.49400 40.85700 45.78500 87.52600
(4) –76.00800 –193.7550 –7.063000 0.029000 0.029000 0.365000
(5) 31.02288 63.29523 10.90103 6.075432 6.638432 27.79668
(6) 0.404938 1.687614 1.321158 5.163889 5.334920 0.165771
(7) 4.645913 14.76823 4.445159 30.79581 33.06083 1.839647
Romania (1) 35.04374 44.64911 15.81922 1.964355 1.863652 41.84619
(2) 31.12350 37.65400 13.19850 1.355000 1.372500 43.02350
(3) 184.6310 236.6000 84.20600 10.51000 11.09100 93.64500
(4) –81.28400 –81.27900 –16.68000 0.050000 0.071000 1.212000
(5) 34.83133 44.77107 17.49132 1.639162 1.579840 23.15735
(6) 0.547306 0.892182 1.261623 1.874644 2.150136 0.127147
(7) 4.865546 5.126120 5.025017 7.895040 10.70493 2.060948
notes Row headings are as follows: (1) mean, (2) median, (3) maximum, (4) mini-
mum, (5) standard deviation, (6) skewness, (7) kurtosis.
where oa are the operating assets and cl are the current liabilities.
where ca are the current assets or the difference between operating
assets and non-current assets.
Finally, the capitalization is assessed considering the shareholder
equity ratio as follows:
where ca are the current assets, or the difference between operating
assets and non-current assets.
Table 2 presents the descriptive statistics of the sample. We notice
that the profitability of the Romanian companies is higher in com-
parison with those from Hungary, while the liquidity is smaller. We
also notice that the financial indicators’ volatility is higher in Hun-
gary. Finally, data are positively skewed but nor far from the normal
distribution. However, the data shows excess kurtosis for liquidity
ratio, in particular for Hungary, indicating the existence of leptokur-
tic densities.
We start our analysis with a series of cross-sectional dependence
number 3 · fall 2018 203
Matei T˘
table 3 Cross-Sectional Dependence Tests
Country Pesaran cd Norm. Friedman χ2Frees Normal
Test 10% 5% 1%
Romania 0.106 (0.915) 4.571 (0.995) 0.967 0.412 0.567 0.902
notes The null hypothesis is no cross-sectional dependence; for Hungary, the num-
ber of observations contained by the unbalanced panel is insufficient to perform
cross-sectional dependence tests.
table 4 Panel Unit Root Tests
Country roeni roepbt roapbt lr cr ser
Hungary (1) –9.395*** –10.60*** –11.38*** 0.942 0.773 –5.726***
(2) –3.233*** –4.337*** –3.225*** –0.036 –0.027 –1.420*
(3) 27.23*** 32.44*** 24.14*** 8.135 7.996 15.51**
(4) 22.47*** 40.13*** 34.14*** 2.850 2.890 7.326
Romania (1) –10.01*** –11.90*** –1.037 –1.292* –0.808* –1.230
(2) –3.827*** –4.327*** 0.562 0.756 0.882 –0.057
(3) 66.56*** 70.47*** 21.35 26.71 27.21 32.95
(4) 116.2*** 121.0*** 58.23*** 47.55** 47.22** 65.87***
notes Row headings are as follows: (1) Levin, Lin, and Chu t*, (2) Im, Pesaran, and
Shin W-stat, (3) adf – Fisher Chi-square, (4) pp – Fisher Chi-square.
tests to understand the characteristics of our panel, to apply ade-
quate panel unit root tests (table 3). All tests (Friedman 1937; Frees
1995; Pesaran 2004) show that the cross-sectional independence can
be accepted, and we may apply first-generation panel unit root tests.
For Hungary, the panel unit root tests from the first generation
indicate that profitability series are stationary (table 4). However, the
opposite applies for the liquidity ratios, while for the solvency ratio
we document mixed findings. For Romania we obtain similar results.
In this case, classic ordinary least square (ols) regressions might
generate biased results. Even if not all our series are I(1) we can
check the existence of a long-run relationship between profitability
on the one hand, and liquidity and solvency on the other hand.
To test for cointegration, we use Kao’s (1999) test designed for strictly
homogenous panels. This test assumes cross-section specific inter-
cepts and homogeneous coefficients on the first-stage regressors.
Given that our panels include companies from the same sector (com-
panies that have similar performances and business models), we can
rely on Kao (1999) to investigate the existence of a long-run relation-
204 management · volume 13
Financial Performance in the Public Administration Sector
We consider a general three-term regression:
where i=1,...,Nare the cross-sections, t=1,...,Tare the observa-
tions (years in our case), αi,tare the individual constant terms βi,t
and γi,tare slope parameters, and ui,tare error terms.
We therefore have:
zi,t=zi,t1+μi,t, (10)
where ϑi,t,εi,tand μi,tare the stationary disturbance terms and there-
fore, yi,t,xi,tand zi,tare integrated process of order 1 for all i.
The null of no cointegration (ρi=1) is tested performing an adf unit
root test on residuals:
ui,t=ρiuit1+wit. (11)
If the long-run relationship is documented, it can be tested using
a modified version of the ols regression that produce asymptotically
unbiased coefficient estimates. For this purpose, we use the dols,
which involves augmenting the cointegrating regression with lags
and leads for the explanatory variables (the choice of lags and leads
is made using information criteria).
The tested equation became:
ϑ1ikΔlrit +γ1,isolvi,t
π1ikΔseri,t+ui,t. (12)
An alternative specification is the fmols designed for heteroge-
nous panels by Pedroni (2000). The model is:
roenii,t=αi,t+β1,ilri,t+γ1,iseri,t+ui,t. (13)
Empirical Results
Kao’s (1999) cointegration test shows that in all the cases the null hy-
pothesis of no cointegration is rejected (table 2). Therefore, we admit
the existence of a long-run relationship. Two models are tested for
each country, namely Model 1 (considering lr) and Model 2 (consid-
ering cr for liquidity).
number 3 · fall 2018 205
Matei T˘
table 5 Kao’s (1999) Cointegration Test: Main Results
Variable Hungary Romania
Model 1 Model 2 Model 1 Model 2
roeni adf –2.876*** –1.542* –2.776*** –2.785***
notes Notes: h0 – no cointegration. *, **, and ***, mean existence of cointegration
at 10%, 5% and 1%, respectively. Model 1 assumes lr for liquidity, while Model 2 con-
siders cr.
table 6 Pan e l dols: Main Results
Variable Hungary Romania
Model 1 Model 2 Model 1 Model 2
roeni lr –6.611* –0.428
cr –6.834* –1.816
ser –0.604 –0.558 –0.341* –0.265
notes *, **, and *** mean statistic relationship significant at 10%, 5%, 1%, respec-
tively. Pooled mean panel estimator for homogenous panels is used. Schwarz infor-
mation criterion for lag and lead selection is employed. lr – liquidity ratio (general),
cr – current ratio, ser – capitalization ratio.
In what follows, we apply the panel dols estimator and we dis-
cover that, for Hungary there is a trade-off between profitability and
liquidity, and this result is obtain either we use lr or cr for estimat-
ing the liquidity level. At the same time, the solvency ratio has no
significant effect on profitability. More exactly, under Model 1, an in-
crease of liquidity ratio (lr) with 1% generates a decrease in the prof-
itability level of 6.61 %. Opposite findings are obtained for Romania,
where a higher liquidity does not necessary have a negative impact
on profitability. On contrary, the solvency ratio negatively influences
the level of profitability, but this result is obtained only for Model 1.
In this case, an increase in the solvency ratio with 1%, generates a
decrease of 0.34% in the profitability level.
Table 7 presents the results of the fmols estimator. In this case,
none of the coefficients are significant, although the signs remain
the same as in the dols analysis. Given the reduced level of signif-
icance for the obtained coefficients reported in table 6, a series of
robustness checks are applied in the next section.
Robusness Analysis
Two sets of analyses are performed to check the robustness of the
previous findings. First, even if the profitability is assessed through
the same roe, we consider this time the profit before tax and not the
net income in the denominator. Second, we estimate the profitability
206 management · volume 13
Financial Performance in the Public Administration Sector
table 7 Pan e l fmols: Main Results
Variable Hungary Romania
Model 1 Model 2 Model 1 Model 2
roeni lr –0.325 –0.218
cr –0.248 –0.178
ser –0.739 –0.706 –0.217 –0.224
notes *, **, and *** mean statistic relationship significant at 10%, 5%, 1%, respec-
tively. Pooled mean panel estimator for homogenous panels is used. Schwarz infor-
mation criterion for lag and lead selection is employed. lr – liquidity ratio (general),
cr – current ratio, ser – capitalization ratio.
table 8 Kao’s (1999) Cointegration Test: Robustness Results
Variable Hungary Romania
Model 1 Model 2 Model 1 Model 2
roepbt adf –0.988 0.461 –2.460*** –2.451***
roapbt adf 2.266** 1.820** –0.170 –0.201
notes Notes: h0 – no cointegration. *, **, and ***, mean existence of cointegration
at 10%, 5% and 1%, respectively. Model 1 assumes lr for liquidity, while Model 2 con-
siders cr.
with roa, considering the profit before tax (ebit). We start the anal-
ysis with the Kao’s (1999) cointegration test (table 7), which doc-
uments the existence of a long-run relationship between our vari-
ables, for Hungary (when roapbt is the dependent variable) and for
Romania (when roepbt is the dependent variable).
We continue the analysis with the dols estimator, and we test the
regression only for those cases where the cointegrating relationship
was documented (table 9). For Hungary, we obtain similar findings
with those reported in table 6. While the liquidity negatively influ-
ences the level of profitability, the capitalization ratio has no signifi-
cant impact. For Romania, an opposite situation appears, confirming
our main findings. While liquidity does not influence the profitability
level, capitalization has a negative impact for both models. Our find-
ings can be thus considered robust relative to the way we compute
the profitability level. Therefore, these results recommend different
financial management strategies for companies acting in the public
administration and defense sector in Hungary and Romania.
We continue our analysis with the fmols estimator applied for
robustness check. The fmols results confirm the dols findings for
Romania, showing the negative and significant impact of capitaliza-
tion ratio on profitability. This means that Romanian firms which re-
sort to internal financing sources have a smaller level of profitability
number 3 · fall 2018 207
Matei T˘
table 9 Pan e l dols: Robustness Results
Variable Hungary Romania
Model 1 Model 2 Model 1 Model 2
roepbt lr 1.138
cr –0.634
ser –0.697*** –0.593**
roapbt lr –5.114**
cr –5.648**
ser 0.000 0.045
notes *, **, and *** mean statistic relationship significant at 10%, 5%, 1%, respec-
tively. Pooled mean panel estimator for homogenous panels is used. Schwarz infor-
mation criterion for lag and lead selection is employed. lr – liquidity ratio (general),
cr – current ratio, ser – capitalization ratio.
table 10 Panel fmols: Robustness Results
Variable Hungary Romania
Model 1 Model 2 Model 1 Model 2
roepbt lr 0.949
cr 0.751
ser –0.499** –0.490*
roapbt lr –0.272
cr –0.242
ser –0.025 –0.015
notes *, **, and *** mean statistic relationship significant at 10%, 5%, 1%, respec-
tively. Pooled mean panel estimator for homogenous panels is used. Schwarz infor-
mation criterion for lag and lead selection is employed. lr – liquidity ratio (general),
cr – current ratio, ser – capitalization ratio.
compared to more leveraged companies. While the fmols findings
do not confirm the dols findings in our robustness analysis for Hun-
gary, we notice that they confirm the main results reported in table 7.
The fmols analysis shows that the liquidity and capitalization ratios
have no significant influence on the profitability level for Hungary.
All in all, we may conclude that our results are robust to different
metrics used to compute the profitability and liquidity level. How-
ever, the findings reported by the dols and fmols estimators are ro-
bust for Romania only.
This paper tests the role of liquidity and capitalization in enhanc-
ing the profitability level of firms acting in the public administration
and defense sector, performing a comparison between Hungary and
208 management · volume 13
Financial Performance in the Public Administration Sector
Romania, two neighbors, post-communist countries. To this end, we
use firm-level data for the period 2006 to 2015, considering 17 firms
from Romania and 11 from Hungary.
We perform a panel cointegration analysis and we discover several
differences between the analyzed countries. On the one hand, we
notice a trade-off between profitability and liquidity in Hungary, but
not for Romania. On the other hand, we discover that the financing
structure does not influence the profitability in Hungary. However,
an increased capitalization has a negative impact on profitability for
companies acting in the public sector in Romania. These findings are
robust to different specifications for the profitability and liquidity
ratios, and partially robust when we compare the results of the dols
and fmols estimators.
Our results add to previous empirical findings investigating the
profitability – liquidity nexus, and shows that, in general, unem-
ployed resources negatively influence the level of firms’ profitabil-
ity. At the same time, for the financial management of companies
located in Hungary, and acting in the public administration and de-
fense sector, it is important to know that an increased liquidity trig-
gers a smaller profitability level. Therefore, we may assume that the
Hungarian companies did not benefited from new investment oppor-
tunities in the post-crisis period, opportunities which usually help
liquid firms to quickly adapt to new market conditions. For the Ro-
manian companies, the level of liquidity has no significant influence
on profitability (a similar result was reported by Smith and Bege-
mann (1997) for a set of South African firms). However, a higher
capitalization ratio for companies acting in the analyzed sector from
Romania, negatively influences the level of profitability. This result
shows that internal financing sources are more expensive compared
with the external ones and it is opposed to the findings advanced by
Ghosh (2008).
The findings of our paper should, however, be considered with
caution. On the one hand, the level of coefficient significance is re-
duced, and the relationship between profitability and liquidity is not
straightforward. On the other hand, our estimation may suffer for
the omitted variable bias. As we have presented in Introduction, the
relationship between the profitability and liquidity, as well as the
relationship between profitability and capitalization, might be influ-
enced by the leverage level of companies. At the same time, given the
particularities of the analyzed sector, the findings may be influenced
by the business cycle, public investment but also by the level of cor-
ruption characterizing these countries. The profitability of firms act-
number 3 · fall 2018 209
Matei T˘
ing in the public sector and defense sector increase when the access
to public contracts is facilitated. Therefore, the institutional char-
acteristics of these countries might influence the empirical findings
and requires additional investigations.
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for Scientific Research and Innovation, cncs-uefiscdi, project number
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License (
number 3 · fall 2018 211
Could the Suitability of the Existing
Accounting System be Argued?
franko milost
University of Primorska, Slovenia
žiga ˇ
University of Primorska, Slovenia
Accounting is a process of recording and studying financial data
related to company’s operations. Its aims are above all to pro-
vide information about the events in company business life in an
agreed language comprehensible to accounting information users
and to provide information which is vital to business decision-
making. If we consider the above mentioned aims, we can estab-
lish that it is not easy to reach them. Accounting is not an exact
science, which means that approximations or planned amounts
are very often used as its tool. In addition, as the future is un-
certain, we cannot determine the exact value an asset is about to
achieve when converted into a monetary form, neither can we de-
fine the amount which is to be required to discharge a certain li-
ability. And so we can ask ourselves if the existing accounting so-
lutions enable us to create suitable accounting information. Our
paper deals with the problem of the existing accounting system’s
suitability. Four questions are investigated, namely the question
of accounting solutions consistency, reality of financial statements,
capability of creating accounting information which provides an
optimal management of the elements of the business process and
accounting solutions’ objectivity.
Key words: classical accounting approach, consistency
of accounting solutions, objectivity of accounting solutions, reality
of financial statements, business decisions
Accounting is a process of recording and studying financial data re-
lated to company’s operations. Its aims are above all:
to provide information about the events in company business
life in an agreed language comprehensible to accounting infor-
mation users and
to provide information which is vital to business decision-making.
management 13 (3): 213–225 213
Franko Milost and Žiga ˇ
The first aim of accounting relates to the past, the second to the
future. However, reaching the above mentioned aims is not easy. Ac-
counting is not an exact science, which means that approximations
or planned amounts are very often used as its tool. As the future is
uncertain, we cannot determine the exact value an asset is about to
achieve when converted into a monetary form, neither can we define
the amount which is to be required to discharge a certain liability.
Therefore, the practice of accounting has some objective limitations.
However, it can be questioned whether the existing accounting solu-
tions provide the creation of suitable accounting information.
Our paper deals with the problem of the suitability of the ex-
isting accounting system. Four questions are investigated, namely
the question of accounting solutions consistency, reality of financial
statements, capability of creating accounting information which pro-
vides an optimal management of the elements of the business pro-
cess and accounting solutions’ objectivity. Finally, some possible so-
lutions are provided.
Suitability of the Existing Accounting System
The suitability of the existing accounting system, the so called clas-
sical accounting, is assessed in this paper on the basis of four criteria
by establishing:
if the existing accounting system is consistent,
if it provides the creation of accurate financial statements,
if it provides accounting information that enables their users to
manage the elements of the business process optimally,
and if the accounting solutions are unbiased towards business
consistency of accounting solutions
Are the solutions of classical accounting consistent, in other words,
is it possible to use them consistently to disclose accounting events?
Let us take a look at the following example.
The aim of the business process is creating output. However, the
business process is not possible without the necessary elements
which are equipment, materials, services and labour. These ele-
ments are being consumed in a business process. By valuing the
expenses of those elements, the costs are obtained.
The costs are thus the expenses of business process elements ex-
which are to be met simultaneously:
214 management · volume 13
Could the Suitability of the Existing Accounting System be Argued?
when one of the business process elements is considered,
when a particular element is being spent in the business pro-
when a particular element can be expressed in price or when
money is needed to obtain it,
when expenses expressed in price are logically related to creat-
ing output and
when expenses expressed in price do not exceed reasonable
According to the third condition, we can use the term costs only in
cases when the depreciated element is monetized.
The elements of the business process include employees and their
working abilities. Their presence in the business process is associ-
ated with labour costs. However, the value of employees is not shown
among assets, which means that their value as a business process el-
ement equals zero. However, the question is how it is possible to dis-
cuss the costs of an element whose value equals zero. If we multiply
any quantity of this element’s expenses by its price per unit (zero)
we always obtain the same result.
It can be established that classical accounting considers various
elements of the business process in a different way, which means it
is inconsistent. Furthermore, the labour costs occur regardless to the
fact that the depreciated element has no value.
The method of treating the investments in employees, which is
discussed in the following chapter, also points at the inconsistency
of the existing accounting solutions.
reality of financial statements
Do financial statements based on classical accounting approach pro-
vide true and real picture of the company’s business life? Fran-
cis and Schipper (1999) established that financial statements had
significantly lost their credibility. The same was established by
Collins, Maydew, and Weiss (1997), Ely and Waymire (1999), Lev
and Zarowin (1999) and Chang (1999). Some other authors ap-
proached the problem indirectly. For instance, Kanodia, Singh, and
Spero (2005) established that the accounting disclosure of company
investments is often inaccurate, which puts the reality of financial
statements under the question and Himick (2015) exams the ‘condi-
tions of possibility’ for workers to be considered depreciable assets.
On the other hand, McCarthy and Schneider (1996), Francis and
Schipper (1999), Goodwin and Ahmed (2006), Ji and Lu (2014) and
number 3 · fall 2018 215
Franko Milost and Žiga ˇ
Goebel (2015) express the opinion that the value of intangible assets
is shown reliable and relevant. And finally, Lev (2008) expressed
criticism towards the method of valuing and disclosing intangible
assets. Our own response to this question is demonstrated through
an example that shows different methods being used by a certain
company to treat particular investments. We disclose the method of
treating the investments in tangible fixed assets and the method of
treating the investments in employees.
Let us suppose that a company purchases a machine whose pur-
chase value is sixty monetary units and whose useful life is five
years. The company pays the supplier by the due date, but the pay-
ment is not directly associated with the costs as the company depre-
ciates the purchased machine in sixty months – e.g. one monetary
unit per month.
However, the situation is rather different if a company provides
education and training for its employees. In this case, the company
discloses the relevant costs as soon as it receives the invoice from
a training provider. Would it not be more suitable to raise the value
of the employee by the amount of the invoice and to depreciate this
investment during the entire useful life of their acquired knowledge
(e.g. within three years)? It may be assumed that due to their newly-
acquired knowledge, employees will perform their work better.
Obviously, the classical accounting employs different methods to
treat the investments in tangible fixed assets and different methods
to treat the investments in employees. Our question is if there are
any sound professional reasons for justifying the different methods
in treating the investments.
In our opinion, the classical accounting approach obviously exag-
gerates in applying the principle of prudence in accounting, which
leads to a rather high amount of hidden reserves on the balance
sheet. Hidden reserves are especially present among assets. The
presence of hidden reserves is useful for the long-term existence
and development of a company and therefore the company own-
ers are interested in it. Hidden reserves decrease business success
which leads to a lower tax burden for the current period.
To sum up, classical accounting does not disclose investments in
employees as a raised value of employees, on the contrary, those
amounts are disclosed among the costs immediately as they occur.
Classical accounting justifies this approach by the principle of pru-
dence. In other words, classical accounting does not include the in-
vestments in employees into the costs because it considers them as
high-risk. However, are the investments in employees in fact so risky
216 management · volume 13
Could the Suitability of the Existing Accounting System be Argued?
that they need to be treated this way? Our opinion is that the classi-
cal accounting’s supposition regarding the high-risk of investments
in employees has completely no ground and is very disputable from
a professional point of view. In addition, investments in employees
have the highest long-term return of all investments. It is also known
that output with a small share of knowledge in its price are increas-
ingly difficult to market. Knowledge is the only good that will always
be in great demand and it will always be possible to market it at a
reasonable price. Moreover, a company that does not invest enough
in its employees risks a relatively rapid collapse.
An investment is the most common way of the transformation of
assets that does not affect the value of liabilities. However, invest-
ments in employees do not lead to the transformation of resources
as the reduction of one resource (e.g. money) does not result in
the growth of the other resource (investments in employees are not
disclosed among assets). Consequently, investments in employees
knock off the equilibrium of the balance sheet in classical accounting
because a shortage of resources with regard to the value of liabilities
occurs. The knocked off equilibrium of the balance sheet due to the
lack of assets can only be regained by reducing the capital (or by its
smaller increase in comparison to disclosing investments in employ-
ees among assets).
In classical accounting, investments in employees can be com-
pared with spending money irrationally, e.g. for lottery tickets that
will not be in for the draw or similar; in other words, accounting
records do not show that there are any benefits to be expected from
these investments. Reduction of one asset (e.g. money spent on in-
vestments in employees) does not result in the growth of the other
asset or in debt reduction (e.g. loan repayment, payment to the sup-
plier, etc.). Furthermore, if non-disclosure of investments in employ-
ees among assets leads to capital reduction, should its disclosure
lead to capital growth? The question might be absurd but it clearly il-
lustrates the inconsistency of classical accounting regarding the dis-
closure of investments in employees.
It should also be noted that some authors express no doubt re-
garding the adequacy of the existing approach towards the question
of financial statements’ reality. In other words: some authors are
convinced that classical accounting makes it possible for financial
statements to show true, real, objective and not very distorted pic-
ture of previous business life of a company (e.g. Core, Guay, and Van
Buskirk 2003; Penman 2003; Skinner 2008) and they even promote
conservatism of accounting solutions (Salama and Putnam 2015).
number 3 · fall 2018 217
Franko Milost and Žiga ˇ
Also other opinions could be found. Dumay (2009) for e.g. talks
about ‘accountingisation of intellectual capital,’ Chiucchi and Du-
may (2015) use the term ‘intellectual capital lock-in’ and similar. The
main question is how to make intangible assets tangible to improve
the reality of accounting statements. See also Guthrie, and Ricceri
(2006), Dumay (2014) and Massingham and Tam (2015).
providing accounting information that enable their
users to manage all the elements of a business process
Does classical accounting provide information that enable their
users to manage all the elements of a business process optimally?
Let us demonstrate our response to this question through the fol-
lowing example regarding employees.
It can be established that classical accounting does not provide
the information on the value of employees and investments in them.
This information affects:
human resource management,
importance of human resource management and
planning the future value added.
Let us focus on those questions in details.
Human Resource Management
Not knowing the information about the value of employees and in-
vestments in them negatively affects human resource management:
it is easier for the management to make staffing decisions on the ba-
sis of costs and value factors. The estimates of employees are only
exceptionally based on quantitative methods. Therefore, not all the
information needed for efficient recruitment, employment, utiliza-
tion, evaluation and reward of employees are at the management’s
disposal. It is also more difficult for the management to establish the
success of human resource management.
In short, information on the value of employees and investments
in them are very important for the management of employees. How-
ever, the experts in this area obviously do not share the same opin-
ion. There is no mentioning of the value or valuing of employees
in numerous records on the human resource management, even
though their value has a key role in managing employees. How can
we even manage someone (or something) without knowing their
value? On what basis can we decide how much to offer to an expert
that wants to leave the company in order to keep him?
218 management · volume 13
Could the Suitability of the Existing Accounting System be Argued?
Importance of Human Resource Management
Not knowing the information on the value of employees and invest-
ments in them, negatively affects the management of employees.
The role of human resource management is small in today’s com-
panies. Its operation is usually considered as unproductive and ex-
pensive, therefore, the companies aim to minimize it. In some cases,
human resource management is regarded as a luxury that only the
most successful companies can afford. This attitude towards the hu-
man resource function is due to the fact that it is very difficult to
assess its impact on business performance.
Since human resource management is considered to be unproduc-
tive, its budget gets reduced first when a company performance de-
creases. Under such circumstances, the value of investments in em-
ployees gets reduced as well, which has a negative influence on a
company performance in the long run. The amount of the damage
caused by doing this remains hidden.
Planning the Future of Value Added
Not knowing the information on the value of employees and invest-
ments in them makes it difficult for the management to plan the
amount of value added in a company. Namely, the term employees
is closely related to the term of value added.
Value added is defined as the increase of the market value of out-
put caused by the increase of their quality. It is assessed by calcu-
lating the difference between the market value of output and the
purchase value of consumed elements. Value added is considered as
wealth – it is a unit of measurement for the achievements realized
by the investors, management and employees.
The amount of value added in a company otherwise depends on
technical and technological equipment, however, it depends even
largely on the value of employees and investments in them.
We are aware of the fact that evaluation of employees is a very
complex issue and that searching for an acceptable professional so-
lution would require great efforts. According to Steen, Welch, and
McCormack (2011, 300):
Numerous authors establish that evaluation of employees in-
cludes a greater degree of subjectivity than evaluation of tan-
gible assets; this is also true for reporting on employees.
Although the solution of this important professional issue requires
great efforts we should not be discouraged from trying to solve this
issue. Furthermore, numerous authors establish that the informa-
number 3 · fall 2018 219
Franko Milost and Žiga ˇ
tion on employees is very important for the users (Barth, Beaver, and
Landsman 2001; Schiemann and Gunther 2007; Wyatt 2008; Gamer-
schlag and Moller 2011; Mention 2011; Vafei, Taylor, and Ahmed
2011; Abhayawansa and Guthrie 2012; Uyar and Kilic 2012; Gamer-
schlag 2013).
bias of accounting solutions
Are the solutions of classical accounting unbiased, in other words,
do they provide an equal treatment of individual economic agents
according to their operating characteristics? Hereby, we define op-
erating characteristics as:
composition of assets and
possibilities of debt financing.
Composition of Assets
The question regarding the influence of the composition of assets
of a company on their value disclosed on financial statements is re-
lated to the previously discussed question of the reality of financial
statements. Let us observe this on an example of intangible assets.
An intangible asset can be disclosed among assets only if it is sepa-
rately identifiable (it can be separated from the company, sold, trans-
ferred, rented, exchanged and similar) or if it arises from contrac-
tual and other legal rights. At the same time, there must also be a
probability of future economic benefits related to it and a possibil-
ity to accurately measure its purchase value (Mirza, Holt, and Orrell
2006). For better understanding of the existing accounting system in
relation to the discussed question, we demonstrate a simplification
through an example.
A company has two basic options to obtain an intangible asset. The
first option is to purchase it, which means, for example, that a com-
pany purchases knowledge that is protected by a patent. This way,
the purchase value of the intangible asset is disclosed among the
assets. The second option is that a company creates the knowledge
by itself, e.g. in its own laboratory or similar. In this case, disclosing
these items among the assets is associated with numerous limita-
For example, the research costs that occur inside a company do
not have the characteristics of intangible assets. This also applies
to internally generated brands, goodwill and similar items. However,
the development costs that occur inside a company can be disclosed
among intangible assets if several conditions are cumulatively ful-
220 management · volume 13
Could the Suitability of the Existing Accounting System be Argued?
filled. In short, the disclosure of intangible assets that occur inside a
company is regulated in a very conservative way.
We are not familiar with the results of the research on this topic
but we are convinced that most part of the necessary intangible
assets are created by the company itself. It is hard to imagine a
global company, operating in the area of pharmacy, microelectron-
ics or similar, buying essential knowledge to be able to perform its
activities. This means that the share of intangible assets acquired
by a company through purchasing is materially less important. The
result of the before mentioned conservative regulation is that most
part of these assets in companies is not disclosed among assets.
It can be established that the composition of assets significantly
influences their value disclosed on financial statements. If an impor-
tant share of company’s assets is intangible, it is very likely for their
value not to be disclosed on the balance sheet or to be disclosed only
to a lesser extent.
The experts in this field do not provide a unanimous answer to the
question regarding the influence of the composition of a company’s
assets on their value disclosed on financial statements. Lev (2008,
210) cites a number of studies which prove that the influence is sig-
nificant and that the book values of technology companies (compa-
nies with a large share of intangible assets among assets) are much
undervalued. This option is recognized also by Skinner (2008, 7).
On the other hand, Penman (2007) believes that classical account-
ingprovidethedisclosureofthetotal value of intangible assets on
the balance sheet.
Possibilities of Debt Financing
Do classical accounting’s solutions provide equal possibilities of
debts financing for all companies? Let us observe this on the fol-
lowing example.
Company A and Company B dispose of the same asset value but
significantly differ by the composition of assets. The assets of Com-
pany A are mainly tangible while the assets of Company B are mainly
intangible. Both companies have the same value of debts. Do they
have similar possibilities to obtain debt financing sources, in other
words, can they borrow in a comparable way?
Capital is a positive difference between assets and debts. Consid-
ering the fact that both companies have the same value of debts,
the value of their capital depends only on the value of their assets
(disclosed on the balance sheet). In this respect, there is an impor-
tant difference between the companies. The assets of Company A
number 3 · fall 2018 221
Franko Milost and Žiga ˇ
are mainly tangible, which means that almost total value of their as-
sets is disclosed in the balance sheet. On the contrary, the assets
of Company B are mainly intangible, therefore, only a small share
of them is disclosed in the balance sheet. The threshold of techno-
logical feasibility that enables the capitalization of the research and
development costs is set to a very high level. This also means that
that the value (disclosed on the financial statement) of the capital of
Company A is much higher than the one of Company B.
Capital is a means of protection for creditors, therefore, it is obvi-
ous that Company A has better possibilities of debt financing than
Company B. In short, the classical accounting solutions do not pro-
vide equal possibilities of debt financing for all companies. The ad-
vantage is obviously on the side of the companies that have a large
share of tangible assets and a small share of intangible assets among
their assets. On the other hand, micro and small innovative compa-
nies are disadvantaged as they have almost no tangible assets; there-
fore, their possibilities of debt financing are low.
However, some authors do not share the same opinion. Skinner
(2008, 15), for example, mentions several cases of successful techno-
logical companies with a larger share of intangible assets, which can
be in his opinion considered as a proof that money (lending) market
works well. Furthermore, in Skinner’s opinion, the cases of compa-
nies like Microsoft, Intel, Cisco, Dell and Google clearly show that all
companies are treated equally in the money market.
Are the solutions of classical accounting suitable, in other words,
do they reflect economic reality? Do they provide the necessary ac-
counting information for users?
In our opinion, classical accounting is in a serious crisis. It is not
just the crisis of the process of implementation; the true crisis of ac-
counting arises from its basic assumptions. Accounting has become
a strictly rational and increasingly technical activity with very lit-
tle space for new ideas. In comparison to the 50’s and the 60’s of
the previous century, the decades that follow seem to be in a deep
stagnation. The origins of almost all the ideas realized in the last few
decades can be traced back to very old records. This situation is most
likely due to a general belief that the accounting profession has al-
ready reached its peak and that all we need is just technical upgrad-
ing of the established ideas. Cost hierarchy, triple-entry bookkeep-
ing and similar ideas are simply neglected by most accountants. The
same is true for human resource accounting.
222 management · volume 13
Could the Suitability of the Existing Accounting System be Argued?
Abhayawansa, S., and J. Guthrie. 2012 ‘Intellectual Capital Information
and Stock Recommendations: Impression Management.’ Journal of
Intellectual Capital 13 (3): 398–415.
Barth, M. E., W. H. Beaver, and W. R. Landsman. 2001 ‘The Relevance of
the Value Relevance Literature for Financial Accounting Standard
Setting Another View.’ Journal of Accounting and Economics 31 (1–
3): 77–104.
Chang, J. 1999. ‘The Decline in Value Relevance of Earnings and Book
Values.’ Working paper, University of Pennsylvania, Philadelphia,
Chiucchi, M. S., and J. Dumay. 2015. ‘Unlocking Intellectual Capital.’
Journal of Intellectual Capital 16 (2): 305–30.
Collins, D., E. Maydew, and I. Weiss. 1997. ‘Changes in the Value-
Relevance of Earnings and Book Values Over the Past Forty Years.’
Journal of Accounting and Economics 27 (4): 39–67.
Core, J. E.,W. R. Guay, and A. Van Buskirk. 2003. ‘Market Valuations in
the New Economy: An Investigation on What Has Changed.Journal
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License (
number 3 · fall 2018 225
Challenges and Opportunities
of Finnish Defence Equipment
Projects: Changes over a Decade
ilkka ikonen
National Defence University, Finland
lauri kananoja
National Defence University, Finland
juha-matti lehtonen
National Defence University, Finland
The objective of this study is to examine success factors of de-
fence equipment projects in the Finnish Defence Forces. The out-
line of established success factors for projects and performance
measurement is based on the literature review. The strength of
this study is that it incorporates a longitudinal design of success
factor changes from 2006 to 2018. The main research question
is ‘How challenges and opportunities of Finnish defence equip-
ment projects have changed from 2006 to 2018?’ The results of
the empirical data offer a unique opportunity to explore changes
over a decade in the Finnish defence equipment projects. The
challenges and opportunities of defence equipment projects are
determined by theory, swot analysis and the findings of the re-
search process. In conclusion, the critical success factors have re-
mained unchanged, despite the environmental and organizational
changes in the Finnish Defence Forces.
Key words: critical success factors, project management, defence
industry, project success
The global economic situation means that nearly all European coun-
tries are faced with the need to limit public spending. Limited funds
must be focused on where they will deliver most benefit. Every coun-
try is still trying their best to keep the country secure and providing
Armed Forces with the equipment and capabilities they need to op-
erate in a rapidly changing security environment. Without the right
management 13 (3): 227–245 227
Ilkka Ikonen, Lauri Kananoja, and Juha-Matti Lehtonen
equipment Armed Forces cannot fulfil their duties and national in-
terest might be at risk. In this changing security environment, the
European Union has taken the first step towards funding defence
research and joint capability development by releasing the Euro-
pean Defence Action Plan (edap) in 2016. One of the main objec-
tives is to be able to pool national resources with a view to financ-
ing joint capability development projects under the umbrella of Per-
manent Structured Cooperation (pesco) secretariat by the European
Defence Agency (eda)andtheeeas (European External Action Ser-
vice), including the European Union Military Staff commission. It
is estimated that the eu could be financing C1.5 billion per year
(eeas 2018a). In the year 2018 eu agreed to the launching of sev-
enteen defence projects (eeas 2018b). In 2017 France and Germany
decided on the jointly development of a new fighter aircraft in order
to replace their existing fleets of rival warplanes. This new fighter
should be the European alternative for us f-35. These new fighters
are made by Airbus and Dassault and they should be operational in
2035–2040. Finland has launched a defence project that will replace
the f/a-18 Hornet multirole combat aircraft in the next decade. Like-
wise, the Finnish Navy has started a project named ‘Fleet 2020’ that
will include four new battle ships. The estimated cost of these two
defence projects is 7–11 billion euros (Puolustusvaliokunta 2017, 10).
Consequently, defence equipment projects can worth billions of
euros and new fighter aircrafts can cost hundreds of billions; there-
fore, successful management and understanding of the rationale
behind a project’s fail or success are the key elements for deliv-
ering efficient and cost-effective projects. The defence equipment
projects’ success is crucial in an era of decreasing budgets, where
nations and governments carefully decide on the allocation of finan-
cial resources. Effective procurement and support regarding defence
equipment is not a ‘nice to have’ but an essential part of national de-
Since the 1960s, researchers have been trying to identify which
factors lead to project failure or success (Cooke-Davies 2002, 185).
Most of the literature has focused on the private sector, whereas
studies on the public sector have been limited. In addition to that,
the overwhelming majority of the project literature take the industry
delivery project viewpoint instead that of government procurement
project. Regarding the field of defence equipment projects, studies
are even more limited. Identifying and examining a project’s success
factors is important for the evaluation and effectiveness of different
projects in both the private and public sector (Neilimo and Uusi-
228 management · volume 13
Challenges and Opportunities of Finnish Defence Equipment Projects
Rauva 2005). This development starting from the 1980s is known as
a New Public Management (Hood 1995, 93).
Since the 1980s, the public sector has used various measurements
of performance regarding organisations and projects. The reason be-
hind this has been the need for reduction in project expenses and
increase in quantity and quality of services (Arnaboldi, Azzone, and
Savoldelli 2004, 213).
Identifying a project’s critical success factors is vital for the under-
standing of why defence equipment projects may fail or succeed.
This paper focuses on the critical success factors of the Finnish De-
fence Forces’ equipment projects from 2006 to 2018. There have
been various changes since 2006, including a reduction in budget,
setting up a centralized purchasing unit instead of each service pur-
chasing their own equipment and changes in materiel policies, in-
cluding a transition to mots (Military off-the-Shelf). One objective is
to find out whether time and changes also altered success factors or
whether they been unchanged. The critical success factors are also
important for the management of project-related performance. Ef-
fective management depends on the comprehension of these funda-
mental factors that can be responsible for the success or failure of a
project. Managerial implications/management recommendations of
changes imply either a stable or evolving agenda. The objective of
this research is to provide management recommendations for future
defence material acquisition projects in the Finnish Defence Forces.
The main research question is ‘How challenges and opportunities of
the Finnish defence equipment projects have changed from 2006 to
2018?’ The secondary research questions are (1) How are the critical
success factors of the Finnish Defence Forces’ equipment projects
developed from 2006 to 2018? (2) How factors of success and failure
in defence equipment projects have developed from 2006 to 2018?
Literature Review
success factors and critical success factors
Early research on the success criteria suggests that the main success
factors are based on the so-called ‘iron triangle or golden triangle
of time, cost and quality’ (Atkinson 1999, 338; Westerveld 2003, 412;
Howsawi, Eager, and Bagia 2011, 620; Cserháti and Szabó 2014, 613).
However, more recently, researchers have suggested that a project’s
success is far more complex. There are more potential factors that
number 3 · fall 2018 229
Ilkka Ikonen, Lauri Kananoja, and Juha-Matti Lehtonen
figure 1 Presentation of Critical Success Factors, Success Factors and Success
Criteria (adapted from Ikonen 2017, 133)
can be identified. Project management research indicates that it is
impossible to have a universal checklist of success factors that ap-
plies to all projects. Success factors will be variable in every project
(Westerveld 2003, 412; Wateridge 1998, 60; Mir and Pinnington 2014,
203; Cserháti and Szabó 2014, 622). Each project has several vari-
ables and each project is unique by nature. Nevertheless, creating
a framework for project success help project managers to lead their
specific projects to success
There is often some confusion in relation to the terms: success
criteria, success factors and critical success factors. Success crite-
ria are used to measure the success, whilst success factors are the
set of circumstances or facts that contribute to a project’s outcome.
Success criteria should be defined at planning phase and beginning
of the project (Baccarini 1999, 26). Success factors are the influen-
tial forces responsible for failure or success. Critical success factors
are part of the success factors (Belassi and Tukel 1996, 146). Critical
success factors can be defined as ‘things that must be done right
if a company wants to be successful’ (Ingram et al. 2000, 107) or
another definition is ‘those inputs to the management system that
leads directly or indirectly to the success of the project or business’
(Cooke-Davies 2002, 185). Critical success factors include various ar-
eas where good performance and skilled management are necessary
to ensure the achievement of a project’s goals (Fortune and White
2006, 1; Amade et al. 2015, 13).
There is a long tradition of measuring and observing financial suc-
cess factors such as profitability and cost. Since the late 1990s re-
searchers have published studies on critical factors and have iden-
tified several non-financial aspects (Kaplan and Norton 1996, 6–7;
Neely et al. 2000, 206; Toivanen 2001, 5). Traditionally most of crit-
ical factors have been tangible and physical, like volumes, whereas
non-financial factors like employee satisfaction, a skilled manager
and good project atmosphere can be described as intangible and
non-physical (Lönnqvist 2004). The literature on project manage-
ment and success, such as success factors and critical success factors
is extensive. Fortune and White (2004) identified 63 publications on
230 management · volume 13
Challenges and Opportunities of Finnish Defence Equipment Projects
table 1 Critical Success Factors in Literature
Pinto and Slevin
For tune a n d Whit e
Gunathilaka, Tuuli,
and Dainty (2013)
Top management
Support from se-
nior management
Management lead-
ership and support
Top management
Communication Good communica-
Culture Effective commu-
Personnel recruit-
Clear realistic ob-
IT Clearly defined
goals and objec-
Monitoring and
plan kept up to
Strategy and pur-
Project monitor
and feedback
Client consultation User involvement Measurement Clients consulta-
tion and involve-
Technical tasks Well allocated re-
Resources Allocation of suffi-
cient resources
Characteristics of
the project leader
Competent project
Motivational aids Projects manager
Trouble-shooting Skilled/suitable
qualified team
Organisational in-
Effective project
team formation
Client acceptance Effective change
Processes and ac-
Financial stability
& adequate funding
Power and politics Sound basis for
Training and edu-
Motivation and in-
Good leadership HRM Established budget
and monitoring
Urgency Realistic schedule Strategy and pur-
The level of tech-
critical success factors and outlined 27 different critical success fac-
tors in their article. Other scholars found 11 different critical success
factors (Kuan 2005), whereas Pinto and Slevin (1989) identified 12
and Gunathilaka, Tuuli, and Dainty (2013) 21 critical success factors.
Critical success factors, project success and success criteria were un-
der intensive research from mid90s to late 2000s. The most recent
literature hasn’t created new theoretical implications (Cserháti and
Szabó 2014; Amade at al. 2015; Osei-Kyei and Chan 2015; Patanakul
et al. 2016; Aguilani et al. 2017)
In table 1 top management support is a mutual top-ranked criti-
cal success factor across all authors. Communication and a compe-
tent project manager also rank highly in all but Kuan (2005). Kuan’s
list appears to be more universal compared to other more detailed
number 3 · fall 2018 231
Ilkka Ikonen, Lauri Kananoja, and Juha-Matti Lehtonen
lists of critical success factor. There are variations in the definition
of the factors. In particular the importance of the project manager
is defined by factors such as characteristics (Pinto and Slevin 1989)
and competence (Fortune and White 2004; Gunathilaka, Tuuli, and
Dainty 2013). Hence it is not easy to compare those factors directly
and that makes general theory building more challenging.
success factors and critical success factors
in defence projects
A study of defence projects in Israel (Tishler et al. 1996; Lipovetsky
et al. 1997) identified several factors that lead to success. Tishler et
al. (1996) analysed 110 defence projects completed in Israel start-
ing from the mid-1970s to the mid-1990s. This research identified
eight critical success factors regarding defence material projects, of
these urgency of need and technological feasibility were found to be
unique to defence project environment.
Kwak and Smith (2009) published an article about the risk man-
agement of major defence projects in the United States. According
to this study, all parties involved in the project should have a risk
management strategy and expertise in risk management processes
and practices, because complex projects encompass technical, legal
and political risks.
The main reason for a defence material project delay, overcoming
a project’s budget and suspending a project is the failure to recog-
nize the risks. The risks are not acknowledged because a compre-
hensive risk management plan has not been made, but typically the
risks are transferred solely to the supplier. The study acknowledges
that eliminating the risks associated with risk management would
require a thorough transformation at a ministerial level. However,
the study suggests that a way to improve a projects’ success would
be the training of the project personnel and the formation of a good
working environment.
Mazur et al. (2014) researched the Australian defence sector and
looked at how project managers ‘capacity to interact with stakehold-
ers affects the success of major projects and how a project manager’s
qualities contribute to the successful management of internal and
external stakeholders. The emotional intelligence and cognitive flex-
ibility of project managers, i.e. the ability to change their activities in
different environments and situations, were important elements of
the development, quality and effectiveness of stakeholder relations,
which made the project more successful. On the other hand, sys-
tematic thinking, i.e. simultaneous consideration of the interests of
232 management · volume 13
Challenges and Opportunities of Finnish Defence Equipment Projects
table 2 Critical Success Factors in Defence Projects
Tishler et al. (1996) Frinsdorf, Zuo, and Xia
Rodriguez-Segura et al.
Senior management’s
Project team adequacy
and preparation
Adequacy of the user
Leadership of the project
Human resources
Management policy
Senior management
Capability of the
Project scope is
well-defined and
Project management
Project policies
Process policy
Customer-end user
External environment
individuals, groups, project organizations and stakeholders, did not
show any connection to the success of stakeholder relationships or
Frinsdorf, Zuo, and Xia (2014) published an article about the effec-
tiveness of defence sector projects. According to this study an effec-
tive project is the one where external pressures can be minimized
by identifying major delays or obstacles in relation to the project.
In order to achieve the project’s effectiveness, the defence industry
cannot only focus on managing the internal factors of the projects
(e.g. clear goal, quality, action cohesion). The external factors of the
project (e.g. organizational project portfolio, stakeholder manage-
ment, project co-operation, organizational culture) should also be
considered, so that the project will not be a mere integral part of the
organization. In the defence sector, structural factors, such as bu-
reaucracy and security constraints are hampering the success of the
Rodriguez-Segura et al. (2016) published a study on aerospace and
defence sector projects that examined 29 major defence material
projects. The required level of investment varied from two million
to hundreds of millions of dollars. The results of this study indi-
cated that the influence of the customer and the end-user was more
weighted on the supplier’s future than the supplier’s commercial or
project management success.
Most of the authors of defence project success factors take the
viewpoint of the defence industry and define the success factors
from the industry delivery project point of view. Only Kwak and
Smith (2009) explicitly take the viewpoint of the procurement project
success factors in his study of Department of Defence documents.
Also, Tishler et al. (1996) interviewed representatives from both pro-
curement and industry’s delivery project, however, without drawing
number 3 · fall 2018 233
Ilkka Ikonen, Lauri Kananoja, and Juha-Matti Lehtonen
any conclusions regarding the possible differences in success factors
between the viewpoints.
The results of this paper are based on a longitudinal study design,
where similar case studies were conducted with a 12-year inter-
val in between by using the same research protocol. This study in-
volved major defence equipment projects where the follow-up study
was chosen to correspond to the initial study in terms of content,
size and significance in the Finnish Defence Forces. The initial case
study conducted in 2006 examined three major defence equipment
projects using material from questionnaires, interviews and offi-
cial project documents. The framework for questionnaires and in-
terviews which was created in stage 1 (figure 1) was based on an
extensive systematic literature review of project success and suc-
cess factors. In the end 38 articles were identified from the literature
review. The follow-up case study conducted in 2018 examined five
major defence equipment projects by repeating the methodology.
The questionnaires and interviews were directed to managers and
owners of the studied projects; twelve project managers or owners
gave their insights in the initial study and eleven project managers
or owners in the follow-up study. A total of eight case projects was
counted for this research. In case studies, there is not an ideal num-
ber of cases, but a number between 4 and 10 cases is enough to
guarantee the quality of the research (Yin 1984; Eisenhardt 1989).
A valid case study method demands a triangulation of the data, as
Eisenhardt (1989), Tellis (1997) and Rothbauer (2008) suggest. But
in some cases, the data is collected from two or even four different
sources (Eisenhardt 1989). In this research the data sources are the
initial case study, questionnaires and official documents. During the
data-triangulation process, the researchers studied several sources
of information to find common elements regarding the subject un-
der research. Data triangulation in this research also involved the
verification and analysis of these sources.
The study in 2006 identified various potential factors of success
or failure of defence equipment projects as well as elucidating fac-
tors through a swot framework. The most critical factors were bun-
dled into four categories and found to be influential for the project’s
success. The four success factor categories were project team, qual-
ity and performance, leadership and resources (Ikonen 2017). The
follow-up study repeated the accordingly; various potential factors
of success or failure for defence equipment projects were identified
234 management · volume 13
Challenges and Opportunities of Finnish Defence Equipment Projects
Significant success factors
and critical success factors
Case study from 2006
Document analysis
Case study from 2008
Document analysis
Changes of chall. and
opport. from 2006 to 2008
Stage 1
Understanding success factors
and critical success factors from
literature. Select the framework.
Stage 2
Case selection.
Data collection.
Stage 3
Case selection.
Data collection.
Stage 4
Analyse findings and make sense
of the data.
Stage 5
Proposals to improve*
figure 2 The Research Design (*defence material project management practices)
and the most influential factors were bundled into categories. The
findings of the follow-up study were compared to the findings of the
initial study to illustrate whether the findings add up or differ from
one another. All critical success factors were created during the anal-
ysis of the first six cases. By this time all the factors were emerged
from the data. In the last two cases new data only repeated and en-
riched the current factors. This is an indication that theoretical sat-
uration was achieved within the eight cases (Eisenhardt 1989). The
research design of the study is presented in figure 2.
The analysis of the questionnaire and interview data revealed emerg-
ing categories of project success factors. These were divided into
internal and external factors according to Frinsdorf, Zuo, and Xia
(2014). In addition to that they were divided into positive and neg-
ative factors. Then these success factors could be placed in a swot
matrix similarly to the initial case study. Strengths and weaknesses
represent the most influential internal factors in the defence equip-
ment projects’ success, whereas opportunities and threats represent
a project’s external factors. The success factors of each element of
number 3 · fall 2018 235
Ilkka Ikonen, Lauri Kananoja, and Juha-Matti Lehtonen
table 3 Comparison of the swot Matrixes of Defence Equipment Projects Success
Factors between the Follow-up Study and the Initial Study
Item Strenghts Weaknesses Opportunities Threats
Same Commitment
of personnel
budget Lack of
Political guid-
ance Cuts of
budget Chang-
ing personnel
Changing re-
of person-
nel Organized
project group
of key person-
nel Support of
Defined objec-
tives Industrial
supremacy Re-
quirements not
Final product
Quality control
Failure of the
Project experi-
ence Sufficient
number of per-
Poorly selected
personnel Sup-
port organiza-
planning Use
of referenced
supplier Full-
time key per-
sonnel Possi-
bility to modify
Delays in de-
livery Inade-
quate contracts
Cultural differ-
ences Effects of
bargained price
Limited key
Project group
Product "under
Email manage-
ment Project
manager as ne-
Fast and solid
decisions Im-
proved working
Team member
the swot matrix are listed in table 3. The first row illustrates factors
that were found exactly the same in both studies. The second-row
lists factors that that were found to be similar to the meaning in both
studies. The third row illustrates factors that were found only in the
follow-up study. Finally, the fourth-row lists factors that appeared
only in the initial study.
According to the participants, the greatest strength of a project
lies in its personnel. The personnel of the successful project is to be
committed, professional (i.e. capable of taking the project forward),
qualified and well-organized and the number of personnel should
add up to the project’s size and requirements. Management support
236 management · volume 13
Challenges and Opportunities of Finnish Defence Equipment Projects
and defined responsibilities are needed to enhance the level of per-
formance of the project group. The commitment of the personnel
was considered as a shared strength in defence equipment projects.
The initial study did not find previous commercial know-how, project
experience or sufficient number of personnel as the main strengths
of a project. Furthermore, the follow-up study did not find limited
key personnel or project group cohesion to be vital strengths as such.
Both case studies showed that the defence equipment projects’
major weaknesses arise from the two tangible dimensions of The
Iron Triangle; time and cost. Budget’s overruling effect over techni-
cal and commercial matters was mentioned several times and un-
defined responsibilities as well as poorly constructed requirements
were found to prevent the project success.Poorly or wrongly selected
personnel and the role of organizational support were not experi-
enced as important weaknesses in the initial study. Then again pur-
chasing a product in a development phase (development project),
email management and that the project manager becomes a negotia-
tor were not considered as main weaknesses in the follow-up study.
The opportunities identified in both studies were that the final
product meets the requirements and that the project recognizes the
risks e.g. through the implementation of quality control and mutual
co-operation with different project participants. The 2018 data also
highlighted the long-term planning as an opportunity to coordinate
scarce resources and underlined the importance of selecting a pre-
viously referenced supplier in order to avoid unexpected challenges.
Furthermore, the possibility of key personnel to contribute to the
project full-time without having to perform other duties aside was
also mentioned as an important element of success. Fast and solid
decision-making and improved working technics were not given em-
phasis in the most recent study
The supplier failing to deliver the requested final product was con-
sidered as the main threat for the project success. Other threats re-
vealed in the data were the influence of political guidance restricting
the project, especially during the bidding phase, and delivering un-
expected cuts and changes in the budget. Changing personnel and
requirements during the project were also mentioned as threats. De-
lays in the delivery of the end product, inadequate contracts leading
to inflexibilities, previously unseen costs cultural differences with
the supplier, especially if the supplier is foreign, and possible neg-
ative side effects that bargaining may deliver were identified in the
2018 study, while failing collaboration among team members did not
emerge as substantial.
number 3 · fall 2018 237
Ilkka Ikonen, Lauri Kananoja, and Juha-Matti Lehtonen
table 4 Comparison of the Factors of Success and Failure in Defence Equipment
Projects between the Follow-up Study and the Initial Study
Item Successful equipment project Failed equipment project
Same Realistic time schedule System-
atic documentation plan Interest-
ing project Co-operation among
Changing and constraining bud-
get Inconsistent political guid-
ance Personnel turnover Non-
documented verbal agreements
Similar Clearly defined objectives Open
interaction between stakeholders
Flexible budget Committed per-
sonnel Measurable requirements
Support from the organization
Personal responsibilities Constant
Unrealistic project plan Changing
objectives during project Incom-
petent personnel Failed specifica-
tion of requirements
Competent and financially stable
supplier Decision-making in the
project level
Insufficient number of personnel
Unskilled supplier
Good project management Too many experts in a project
group Inflexible project manage-
ment Bureaucracy
The analysis of the data revealed a set of factors that promote a
successful or failed equipment project. The factors that are consid-
ered to enable project success or causing project to fail are listed
in table 4. The first row illustrates factors that were found exactly
the same in both studies. The second-row lists factors that that were
found to be similar to the meaning in both studies. The third row il-
lustrates factors that were found only in the follow-up study. Finally,
the fourth-row lists factors that appeared only in the initial study.
The data summarized in table 4 revealed that a realistic time
schedule, systematic documentation plan, co-operation skills of per-
sonnel and experience among the personnel recurred unambigu-
ously. Clearly defined project objectives, realistic, feasible and well-
standardized project plan, open and imminent interaction between
different stakeholders of the project, secure and flexible budgeting
and committed personnel were found to be similar in both studies
when considering project success. Furthermore, a successful equip-
ment project should have carefully written and measurable require-
ments together with a qualified personnel with personal responsibil-
ities. What was interesting was that the data of the follow-up study
pointed out the need for a competent, financially stable and refer-
enced supplier, whereas the initial study did not emphasize on the
role of the supplier as such. Good project management was found
to be a direct success factor in the initial study but considered as
238 management · volume 13
Challenges and Opportunities of Finnish Defence Equipment Projects
Project team* Resources* Quality and
performance* Stakeholders Commercial
Budget & time
Planning &
Project plan
Authorities &
Contracts &
success factors
figure 3 Critical Success Factors in Defence Equipment Projects
(*categories found in both case studies)
an integrated, embedded part of other factors in the follow-up study.
Changes and constraints in budget, inconsistent political guidance,
tight or unrealistic time schedule, personnel turnover and making
an agreement were only verbally repeated in the data. Unrealistic
project planning, changing the objectives during the project, incom-
petent personnel and failed specification of requirements were per-
ceived as failing factors. The study in 2018 pointed out as a threat
when the number of personnel does not add up to the size and re-
quirements of a project. The role of the supplier was brought up
again by indicating that a failed equipment project has an unskilled
supplier – a factor that was not emphasized in the initial study. What
was then again missing in the follow-up study compared to the initial
study was that a failed equipment project involves too many experts
in a project group and that makes cooperation among experts more
challenging, together with inflexible project management and too
much overall bureaucracy.
Of those success factors found in tables 3 and 4 a total of 13 were
assessed to be critical success factors i.e. appeared most often. This
is one more compared to the study in 2006. Once the critical suc-
cess factors were found, they were grouped into categories in or-
der to build a critical success factor framework. A total of five cate-
gories were found in the follow-up study which results in one extra
category compared to initial study. Project team, resources as well
as quality and performance categories appeared identically in both
studies. Stakeholders and commercial know-how were identified as
new critical success factors categories, whereas leadership, as an in-
dependent category, disappeared (figure 3).
number 3 · fall 2018 239
Ilkka Ikonen, Lauri Kananoja, and Juha-Matti Lehtonen
In the initial study (see Ikonen 2017) the people of the project,
an open environment and good atmosphere were grouped as crit-
ical success factors under the project team category. However, in
the follow-up study the project team category involved competence,
commitment and sufficiency of personnel as critical success fac-
tors. Resources repeated similarly, though planning and coordina-
tion were emphasized over an efficient use of resources. Quality and
performance were repeated identically. A category of stakeholders
involves critical success factors of support from the management
and conversational co-operation with not only management but also
authorities and suppliers. Furthermore, a category of commercial
know-how is divided into supplier selection, contracting and pric-
ing issues. The leadership categorys critical success factors such as
a good project manager, clear objectives and support from superiors
were embedded into other success factors.
The case studies conducted similarly in 2006 and 2018 revealed that
the biggest challenge of defence equipment projects has been the
inadequate resources especially in terms of time and budget. As the
resources are expected to gradually decrease, it is obvious that a
project’s ability to use the given scarce resources will be highlighted
in the future. Another challenge present in the study is inconsistent
political guidance that may restrict a projects’ ability to achieve its
objectives. The study highlights the necessity of qualified, sufficient,
committed and carefully chosen personnel. In the Finnish Defence
Forces’ equipment projects there is a growing need for commercial
know-how and conversational stakeholder co-operation among au-
thorities, management and suppliers.
Regarding the results of the 2006 and 2018 studies, the most im-
portant changes are the increased significance of adequate resources
and the delivery capability of the supplier while the importance
of project management is not mentioned as such. This may indi-
cate the increased project management competencies through e.g.
project education and training. The Finnish Defence Forces have
started to educate personnel for project management more inten-
sively. It is recommended that the education of project management
and commercial dimension will be increased further since we regard
it as the best way to answer to the challenge of decreasing budgets
and increasing costs of defence equipment projects. Nevertheless,
the majority of the critical success factors have remained unchanged
between 2006 and 2018 despite the organizational and procedural
240 management · volume 13
Challenges and Opportunities of Finnish Defence Equipment Projects
changes during that period. These critical success factors are more
durable and are not situational or project specific
The environment has changed rapidly due to the growing need
of both financial and process-related efficiency. The Finnish De-
fence Forces organization has been revised in the early 2010s and
there has been a transition within materiel politics from developing
projects to purchasing already tested, validated products (mots), and
setting up a centralized purchasing unit. We argue that the changes
in success factors found in the longitudinal design could relate to
environmental and organizational changes. On the other hand, it is
possible that there are reliability issues e.g. in classifying the ques-
tionnaire data. However, the reliability is strengthened by congru-
ence since the research methods used in both case studies were sim-
ilar to each other. The reliability may on the other hand be weakened
to some degree due to subjectivity and continuity issues. For exam-
ple, the follow-up study did not find project manager as a critical
success factor as such, but it cannot be argued that the impact of
project manager has been decreased.
Many project success factors like top management support (Pinto
and Slevin 1989; Fortune and White 2006; Kuan 2005; Gunathilaka,
Tuuli, and Dainty 2013; Tishler et al. 1996; Frinsdorf, Zuo, and Xia
2014; Rodriguez-Segura et al. 2016; Aguilani et al. 2017), clear and
realistic objectives (Fortune and White 2006; Gunathilaka, Tuuli, and
Dainty 2013; Frinsdorf, Zuo, and Xia 2014; Rodriguez-Segura et al.
2016), allocation of resources (Fortune and White 2006; Kuan 2005;
Gunathilaka, Tuuli, and Dainty 2013; Frinsdorf, Zuo, and Xia 2014)
and competence of the project manager (Pinto and Slevin 1989; Tish-
ler et al. 1996; Fortune and White 2006; Gunathilaka, Tuuli, and
Dainty 2013; Mir and Pinnington 2014) and the project team (Fortune
and White 2006; Gunathilaka, Tuuli, and Dainty 2013; Cserháti and
Szabó 2014; Rodriguez-Segura et al. 2016; Aguilani et al. 2017) are
reported in our study, however the viewpoint of procurement alters
these perceptions. For example, failure to meet the final user expec-
tations and customer project team preparation (Rodriguez-Segura
et al. 2016) do not appear as defence equipment success factors
since the final user and customer is the project organization itself.
Nor does client consultation, trouble-shooting and client acceptance
(Pinto and Slevin 1989), effective management change (Fortune and
White 2006; Aguilani et al. 2017), motivational aids or culture (Kuan
2005; Aguilani et al. 2017) appear as such. The clearest distinction
number 3 · fall 2018 241
Ilkka Ikonen, Lauri Kananoja, and Juha-Matti Lehtonen
between defence equipment projects and industry delivery projects
this paper illustrates is that the defence equipment projects are of
procurement nature whereas industry delivery projects operate as
production or manufacturing projects. In other words, the defence
equipment projects viewpoint differs from that of companies. Ac-
cordingly, the viewpoint success factors perceived in the defence
equipment context differ.
It is to noted, though, that it may be difficult to compare differ-
ent lists of success factors and critical success factors between one
another, since there is no solid universal definition of concepts. The
lack of definitions may cause terminology issues and for that reason
one word may be interpreted differently by authors and researchers.
As the literature review reveals, most of the success factor studies
focus on industry delivery projects, whereas procurement projects
like defence equipment projects are rarely distinctively explored.
Studies of possible differences between the procurement and indus-
try delivery projects’ success and critical success factors are rare and
this study offers an opportunity for further research
As indicated in the literature review, it is impossible to illustrate
such success factors that fit into every project at any given time. It
may be that projects with virtually identical settings experience dif-
ferent success factors from one another. At the opposite extreme it
could be stated that a proper definition of success cannot be given.
The question under discussion is why to explore success, success
factors or criteria in the first place? Even if we have not found the
philosopher’s stone, our results contribute to the discussion of per-
ceived success in defence equipment projects and to distinguish the
defence equipment projects from projects in the private sector and
within industries.
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number 3 · fall 2018 245
The Influence of Parents on Female
Entrepreneurs in Three Career
Development Phases
mateja vadnjal
Agnes, d.o.o., Slovenia
We examine female entrepreneurs in three different life stages
and the influence parents have on them through human and so-
cial capital. The results from the web survey sent to 10.000 women
entreprenerus in Slovenia, with the 3.4% response rate, were ana-
lyzed using Chi square statistics and anova. Female entrepreneurs
of different age gropus have parents with different occupational
and educational background, they differently evaluate their par-
ents as role models and also their instrumental support, while
emotional and moral support of parens is fairly important to all
woman entrepreneurs. In the future consideration of support and
encouragement of female entrepreneurship, parents, especially
mothers, should be seen as possible catalysts for their daughters
to decide on what they have been dreaming off, but traditionally
might have not been brave enough to make their dreams come
Key words: entrepreneurship, female entrepreneurs, parents
influence, life stages
In this paper, we examine the difference of the influence parents
have on female entrepreneurs in three different life stages through
human capital in the form of previous experience in the family
business and social capital in the form of emotional and instru-
mental capital. There is a limited emphasis on childhood education
and family background in the research of new business foundation
(Jayawarna, Jones, and Macpherson 2014). Heinz (2002) argues that
an individual’s future outcomes arise from personal, family and work
histories, not so from education. Since most personal qualities are
established at early stages in life, ‘entrepreneurs are a product of
their upbringing,’ and being born in a family with the ‘right kind
of parents’ is important to the pursuit of successful entrepreneurial
careers (Douglas and Shepherd 2000, 233). Jayawarna, Rouse, and
management 13 (3): 247–263 247
Mateja Vadnjal
Macpherson (2014) developed Bourdieu’s (1986) view that there is a
variety of capitals available to help individuals successfully navigate
the complexity of society and improve their life chances, through the
resource-based life course model of entrepreneur transition (p. 292).
They argue that the opportunities to start a business are significantly
influenced by the traditional resources of education, family status
and wealth. The resent study of students’ career intentions across
the globe shows the importance of perceived parents’ perform-
ance in entrepreneurship as an important factor for young people
while choosing entrepreneurship as their career path (Criaco et al.
Koellinger, Minniti, and Schade (2013) believe that the reason
for a smaller number of women entrepreneurs is in their attitude
towards entrepreneurship, which is reflected in a lower degree of
self-confidence in entrepreneurial abilities, risk predisposition and
in various social networks. Those are also reasons to believe that
women will less likely switch from ‘wanting’ to ‘doing’ into entre-
preneurship (Verheul et al. 2011). Caliendo, Fossen, and Kritikos
(2014) also found the greatest difference between women and men
is in their relation to risk taking. In accordance with the theory of
planned behavior (Ajzen 1991), the entrepreneurial intention and
behavior of a woman will depend on her attitude to negative or
positive attitude towards entrepreneurship. Subjective norms rep-
resent a sociological factor, which in the case of female entrepre-
neurship is about perceiving the pressure of the society to a cer-
tain behavior, namely being entrepreneur. Cultural and social norms
shape the attitude of women towards entrepreneurship as their ca-
reer choices. Instead of discussing the differences between men and
women, many researchers suggest the promotion of women entre-
preneurship and their involvement in entrepreneurship, research of
entrepreneurial experiences, values and choices of women through
qualitative methods (Ahl 2002; Kyrö and Hyrsky 2008). This knowl-
edge could also help to change the negative impact of employment
ratio between women and men on life expectancy at birth (Novak,
Cepar and Trunk 2015), giving women the chance to earn better liv-
ing and step out of the low paid labour. Caliendo and Kritikos (2011)
suggest that more research should focus on studying cognitive qual-
ities and tendencies that may change with time due to different en-
trepreneurial experiences.
Following the researchers notes that the effects of cultural and
social factors on entrepreneurial development remain understud-
ied (Thornton, Ribeiro-Soriano, and Urbano 2011) and that the im-
248 management · volume 13
The Influence of Parents on Female Entrepreneurs
pact of family on entrepreneurial orientation has not been fully un-
derstood yet (Cruz and Nordqvist 2011), we examine the different
aspects of social capital and family capital respectively within the
three groups of female entrepreneurs. Forms and types of social and
human capital differ through the different stages of life of women’s
businesses (Roomi 2009). Jayawarna, Rouse, and Macpherson (2014)
argue that there are likely to be common life course pathways to
business creation. On that basis we assume that the needs of women
entrepreneurs could be much better understood by examining dif-
ferences in social and human capital and their influence on aspi-
rations and motivations through the life stages. We apply the three
life stages of women, connecting the life and career responsibilities,
developed by O’Neill and Bilimoria (2005).
Literature Review and Hypotheses Development
The family embeddedness in the entrepreneurial process is seen
through the norms, values, relations to entrepreneurship, family sit-
uation, possibilities of obtaining different types of assets as illus-
trated by Aldrich and Cliff (2003). Aldrich and Kim (2007) consider
that parents influence the entrepreneurial decisions of their chil-
dren by raising and being a role model in the childhood and by
adapting certain values in adolescence, while the influence of par-
ents on entrepreneurship in adulthood is insignificant. Having an
entrepreneur as a parent means support and help, but can also be a
barrier to the realization of an entrepreneurial idea (Aldrich and
Cliff 2003). Children born to entrepreneurs, with parents higher
(Jayawarna, Rouse, and Macpherson 2014). Having a parent involved
in running a small enterprise during childhood is a powerful predic-
tor of start-up (Schoon and Duckworth 2012; Jayawarna, Rouse, and
Macpherson 2014).
One of important factors of entrepreneurial success and also the
motivation for entrepreneurial start-up is human capital in the
form of past experience, gained in the business owned by a fam-
ily member (Zellwegger, Sieger, and Halter 2011; Fairlie and Robb
2007). Family businesses provide an important opportunity for fam-
ily members to acquire human capital related to operating a busi-
ness. However it has an independent effect on small business out-
come. The strong effect of previous work experience in a family
member’s business on small business outcomes suggests that family
businesses provide an important opportunity for family members to
acquire human capital related to operating a business (Fairlie and
number 3 · fall 2018 249
Mateja Vadnjal
Robb 2007). Accordingly to the above, we propose the first hypothe-
h1 Female entrepreneurs in different life stages have different hu-
man capital in the form of previous employment in family busi-
It is believed that social capital in the form or cultural capital,
norms, life style, habits, beliefs and entrepreneurial spirit is even
more important than working experience in the family business
(Fairlie and Robb 2007; Gupta et al. 2009; Shane 2012). Parents in
business pass valuable experiences, confidence and other elements
of managerial human capital to their offspring, thus increasing the
likelihood that they will pursue entrepreneurial careers (Zellwegger,
Sieger, and Halter 2011). Jayawarna, Jones, and Macpherson (2014a)
suggest that the capacity of parents to foster the potential of their
children through gifting resources, direct educational support and
indirect transmissions of the human capital is important for the de-
velopment of childhood human capital, which forms the capability
to pursue entrepreneurial careers.
Parents, especially the mother, act as gatekeepers for their chil-
dren’s education (West et al., 1998). Flouri and Buchanan (2002) sug-
gest that maternal employment is a significant risk for poor intel-
lectual development and educational attainment of children. On the
other hand, higher educated mothers support the entrepreneurial
status of their daughters as shown in the study of female entreprene-
urs in Slovenia (Vadnjal 2008). Fairlie and Robb (2007) found that
those business owners with parents who owned businesses were sig-
nificantly more likely to enter business themselves. It is supposed
that self-employed parents can provide more financial and social
support to their children to start their own business, but Dunn and
Holtz-Eakin (2000) study is suggesting the strongest parental in-
fluence is human capital rather than finance and this intergener-
ation link is even stronger along gender lines. According to Dunn
and Holtz-Eakin (2000) second generation entrepreneurs are two to
three times more likely to work in the same occupation as their fa-
thers. Schoon and Duckworth (2012) also found a positive relation-
ship with a father’s occupational class. Similarly, Jayawarna, Rouse,
and Macpherson (2014) found that business entry is directly asso-
ciated with a father’s occupation and reduced by every step down
the occupational ladder. Having a father in manual work particu-
larly reduces the chance of start-up. Having parents with higher
professional managerial occupations is positively associated with
250 management · volume 13
The Influence of Parents on Female Entrepreneurs
business founding. The lower is parents’ occupational status the
lower is the chance of starting a business. Children of self-employed
parents, however, are more likely to enter entrepreneurship, than
children, which have parents from any other occupational group.
Sharma (2014) on the other hand, claims that father’s occupation
of the respondents in their study was seen to have no influence on
the career intention of students, which is in conflict with several of
the earlier studies (Lindquist, Sol, and van Praag 2012; Carr and Se-
queira 2007) and in line with the study in Turkey (Cetindamar et
al. 2012). There is a significant relationship with household income
in childhood and startup (Schoon and Duckworth 2012; Jayawarna,
Rouse, and Macpherson 2014). Another measure of the childhood
socio-economic status found to be significant by Schoon and Duck-
worth (2012) was parent’s education. On that basis we propose the
next two hypotheses.
h2 Female entrepreneurs in different life stages have parents with
different employment status at the time of their entrepreneurial
h3 Female entrepreneurs in different life stages have parents with
different level of education.
Female entrepreneurs consider business networks less favorable
than their personal networks, in which family, friends and rela-
tives are included (Bogren et al. 2013). Strong ties with family and
friends form important social capital at the beginning of the en-
trepreneurship helping women entrepreneurs with start-up capital
and emotional support (Uzzi 1997; Vadnjal and Vadnjal 2007). En-
trepreneurial role models are important as inspiration and motiva-
tion factors, they raise self-confidence, provide support and teach
by example (Bosma et al. 2012). Parents’ opinion can have signifi-
cant influence on final decision about entrepreneurship path (Carr
and Squeira 2007). According to Ajzen (2002) the final decision can
be influenced by both, previous experience and the opinion of the
close ties, and it may be that due to the parents’ bad experience
with entrepreneurship, the potential entrepreneur takes a different
path. Parents also act as role models for entrepreneurs (Bosma et
al. 2012; Fairlie and Robb 2007) through every day communication
when the tacit knowledge, which cannot be obtained through ed-
ucation, but can replace the lack of working experience, is given
on to off-springs (Davidsson and Honig 2003). Working habits, life
patterns like hard work, the need for independence, discipline are
learned from parents (Dunn and Holtz-Eakin 2000). Mungai and
number 3 · fall 2018 251
Mateja Vadnjal
Velamuri (2011) found the effect of this role-modelling most signif-
icant in early adulthood (ages 18 to 21) and conditional on parental
success. Accordingly, we propose the next hypothesis.
h4 Parents as role models have different impact on female en-
trepreneurs in different life stages.
Social reinforcement and instrumental social capital are impor-
tant factors in the process of new ventrue creation (Samuelsson
and Davidsson 2009). Encouragement from the social environment
is considered as an emotional support and approval, which is asso-
ciated with a cognitive dimension of social capital (Liao and Welsch
2003; Samuelsson and Davidsson 2009). Social support and secu-
rity, which is passed through cognitive capital, is an important factor
in encouraging the entrepreneur who wants to break certain social
norms in the process of risk, which is necessary for the development
of a new venture (Liao and Welsch 2003). Access to instrumental so-
cial capital should facilitate the venture creation process via access
to more accurate and relevant information; contacts with prospective
customers and resource providers, and therefore also better access
to the various types of resources needed in the process (Samuels-
son and Davidsson 2009). Bogren et al. (2013) found, that support
from parents is important both in the form of instrumental support
as well as moral support for all female entrepreneurs. Those who are
more willing to grow their business find the support from close ties
even more important. Being from a supportive family background
and having a solid start in education, but not necessarily being a
high academic achiever, is a strong initial pathway to entrepreneur-
ship (Jayawarna, Jones, and Macpherson 2014). We observe two di-
mensions of social capital, namely, emotional support and incentive
and instrumental social capital and formulate the next hypothesis.
h5 The female entrepreneurs in different life stages consider the im-
portance of their parents’ support for their venture creation dif-
Research Methodology
The data for this study was collected from female entrepreneurs in
Slovenia. The on line questionnaire was sent to 10.000 addresses
of businesses in at least 50% ownership of women. The addresses
were provided by Bisnode Slovenia where they developed algorithm
to identify the businesses owned by women. Out of 45.000 identi-
fied companies there were 10.000 with valid e addresses to which
252 management · volume 13
The Influence of Parents on Female Entrepreneurs
table 1 The Occupation of Parents (in %)
Occupation Age of entrepreneur Total
<35 years 35–45 years >45 years
fm fm fm fm
Unemployed or unskilled 2.4 9.8 1.9 6.5 0.7 18.9 1.5 12.7
Farmers or skilled workers 30.5 30.5 28.3 36.1 36.7 37.8 32.5 35.5
Employee 2.4 6.1 7.5 11.1 6.1 9.5 5.7 9.2
Retired 2.4 3.7 6.6 5.6 6.1 8.1 5.4 6.2
Craftsman or self-
18.3 8.5 17. 6.5 10.2 3.4 14.3 5.6
Professionals with their
own practice
4.9 6.1 4.7 2.8 4.1 1.4 4.5 3.0
Highly paid professionals
employed on top iositions
13.4 25.6 15.1 21.3 17. 12.8 15.5 18.6
Top managers or en-
24.4 7.3 10.4 2.8 9.5 1.4 13.4 3.3
Other 1.2 2.4 8.5 7.4 9.5 6.8 7.2 5.9
Total (%) 100 100 100 100 100 100 100 100
Total (N) 82 82 106 108 147 148 335 338
the questionnaires were sent. The response rate to the question-
naire which obtained questions about human capital and social cap-
ital and took 25 minutes to complete was 3.4 %, which is in line with
the suggestions (Zikmund 2010; Callegaro, Manfreda, and Vehovar
2015). The data for this study was analyzed with Chi-square test and
anova test according to the type of questions.
Results and Discussion
Among all the entrepreneurs, 22% have been employed in the busi-
ness owned by their parents or close relatives before establishing
their own business. Only 17% of older female entrepreneurs had
such an experience, whereas in the youngest group there was 26.8
% of entrepreneurs that worked for a family member. The differ-
ence among the three groups is not statistically significant, so we
can’t confirm the hypothesis h1. One might conclude that a low per-
centage of previous working experience in family business is due
to the short entrepreneurial history in Slovenian economy, however,
the study in the United States shows that there is more than a half
of entrepreneurs who had a self-employed family member, but less
than 50% of that group actually worked for that family member (Fair-
lie and Robb 2007).
As shown in the table 1, the biggest difference between female
number 3 · fall 2018 253
Mateja Vadnjal
entrepreneurs of different ages is in the entrepreneurial status of
fathers. Among the elderly women entrepreneurs most fathers were
farmers and skilled workers (36.7 %), followed by experts in demand-
ing and well-paid jobs (17 %). Only 2.4 % of fathers of the youngest
entrepreneurs were employees. The Chi-square is slightly above the
significant statistical difference (p= 0.06; df = 16; χ2= 25.627). More
than one-third of mothers of all female entrepreneurs were farm-
ers or skilled workers (35.5%) followed by experts in a demanding
and well-paid job (18.6%), while only 3% of female entrepreneurs
had mothers who were professionals with their own practice. The
entrepreneurs in the eldest group are to a greater extend daughters
of unemployed or unskilled workers (18.95%), while the proportion
of those among the youngest group is 9.8% and even smaller in the
middle group, only 6.5%. Among the youngest, there is a larger share
of daughters of directors and entrepreneurs (7.3%), with only 2.8% in
the age group from 35 to 45 years and even less (1.4%) in the group
of 45 years and over. Among the younger entrepreneurs, there are
more daughters of experts in a very demanding and well-paid job,
25.6% among the youngest group and 20% in the group from 35 to
45 of age, and only 12.8% in the older group. On the basis of Chi-
squared test, it can be argued that there are statistically significant
differences in the employment status of mothers of different age
groups (p= 0.009; df = 16; χ2= 32.353). We can conclude that younger
entrepreneurs follow entrepreneurial path of parents, especially of
mothers. The parents of the older women did not even have the same
chance to develop entrepreneurial skills due to the socio-economic
system in the country. Thus, the larger share of entrepreneurial par-
ents of younger female entrepreneurs is expected. A smaller pro-
portion of mother entrepreneurs compared to fathers is likely to be
due to less developed female entrepreneurship in Slovenia in the
past. The results are consistent with the findings of previous stud-
ies (Fairlie and Robb 2007; Carr and Sequiera 2007; Lindquist, Sol,
and van Praag 2012), which emphasize the impact of family busi-
ness on the entrepreneurial activity of young people. Sharma (2014)
found that children of small entrepreneurs in India and Pakistan do
not want to become entrepreneurs, and argue that young people are
influenced more by external factors, especially the business envi-
ronment, than by family. Given the relatively large proportion of fe-
male entrepreneurs of all age groups whose parents were farmers
or skilled workers, the motive of Slovenian women entrepreneurs
may also be highly related to the desire for a better income from
working conditions from parents and to the family income, which is
254 management · volume 13
The Influence of Parents on Female Entrepreneurs
table 2 The Education of Parents (in %)
Occupation Age of entrepreneur Total
<35 years 35–45 years >45 years
fm fm fm fm
Vocational 24.4 29.3 32.7 28.7 32.7 54.10 35.5 39.9
Secondary 41.5 32.9 36.4 35.2 36.4 28.40 35.5 31.7
More than secondary 34.1 37.8 30.8 36.1 30.8 17.60 29.0 28.4
Total (%) 100 100 100 100 100 100 100 100
Total (N) 82 82 107 108 107 148 335 338
close to findings of Cetindamar et al. (2012). A fairly large proportion
of mothers who were experts in a well-paid workplace indicate the
great influence of mothers on daughters with the desire for auton-
omy and self-realization.
In the table 2 we see that more than one third of fathers of women
entrepreneurs had completed secondary school. The share of bet-
ter educated fathers is clearly higher among the youngest female
entrepreneurs. While the shares of fathers of female entrepreneurs
between the age 35 and 45 are evenly distributed among vocational,
secondary and higher secondary education, fathers with vocational
education are predominant (43.8%) in the age group older than 45.
AccordingtoChi-squarethereisastatistically significant difference
in the formal education of fathers among female entrepreneurs of
different age groups (p= 0.055; df =4;χ2= 9.289). The structure of
maternal education is quite similar to the education of fathers. The
largest proportion of mothers of all female entrepreneurs has vo-
cational education or less (39.9%). The mothers of older female en-
trepreneurs are predominantly less educated (54.1% with less than
secondary school). More than one third of women entrepreneurs un-
der the age of 45 have mothers with college or university degree.
According to Chi-square test, there is a statistically significant dif-
ference in the formal education of mothers of female entrepreneurs
in different age groups (p= 0.000; df =4;χ2= 25.032).
When asked whether her mother was an entrepreneur, 14.8% of
the youngest female entrepreneurs and only 1.9% of the oldest fe-
male entrepreneurs responded positively. There are statistically sig-
nificant differences between the entrepreneurial status of mothers
of female entrepreneurs in different age groups according to Chi-
square test (p= 0.006; df =6;χ2= 18.079). There is a much greater
likelihood for the daughter to decide on entrepreneurship follow-
ing the mother’s example, and the son following his father (Dunn
number 3 · fall 2018 255
Mateja Vadnjal
and Holtz-Eakin 2000; Lindquist, Sol, and van Praag 2012). The in-
creasing share of female entrepreneurs whose mothers have been
entrepreneurs may indicate this in Slovenia. However, this trend
cannot be confirmed yet because of the short history of entrepre-
neurship, as older entrepreneurs’ parents mostly did not have en-
trepreneurial experience.
One third of the respondents had a father who was an entrepre-
neur. Fathers of the respondents in the youngest age group have
been entrepreneurs for more than ten years in 41.5% of cases, while
the share of long-term entrepreneurial fathers falls to 28.7% in the
age group from 35 to 45 years to only 12.8% in the age group 45 and
over. The vast majority of the oldest female entrepreneurs (79.7%)
answered that their fathers were not entrepreneurs. According to
Chi-square test, there are statistically significant differences in the
entrepreneurial status of fathers of female entrepreneurs of differ-
ent age groups (p= 0.000; df =8;χ2= 30.601). Less than half of
all respondents whose fathers were entrepreneurs answered that
they were working in his company before establishing their own. It
seems that fathers have greater impact on younger entrepreneurs.
However, we can also find explanation for the above results in only
recent development of entrepreneurship in Slovenia while the sur-
vey among German entrepreneurs shows the difference in the in-
fluence of the father’s entrepreneur on children, where the sons of
entrepreneurs are more influenced by their fathers while women en-
trepreneurs are more influenced by their mothers (Georgellis and
Wall 2005).
Parents served as entrepreneurial role models for entrepreneurs
in their entrepreneurial beginnings. The majority of entrepreneurs
older than 45 years (97.3%) claimed that they were influenced by
parents while entering to entrepreneurship, even if parents were
not entrepreneurs. Younger entrepreneurs were influenced by other
persons in more cases. According to Chi-square test there is a sta-
tistically significant difference in the influence of parents on the en-
trepreneurial decision among female entrepreneurs of different age
groups (p= 0.000, df =2;χ2= 21.846).
The agreements with statements regarding the influence of par-
ents as their role models were rated on the five point Likert scale.
anova test shows the statements which measured the influence and
motivation (p= 0.042; F= 3.272), learning by example (p= 0.001; F
= 7.587) and support (p= 0002; F= 6.668) were statistically differ-
ent among the three age groups of female entrepreneurs, all scores
being the highest among the youngest entrepreneurs. As much as
256 management · volume 13
The Influence of Parents on Female Entrepreneurs
94.4% of all respondents chose one of the parents as the most im-
portant role model after the start-up phase, while the Dutch en-
trepreneurs mentioned parents as role models only in 22% of cases
(Bosma et al. 2012). Younger Slovenian female entrepreneurs indi-
cating persons outside the strong ties network as role models sug-
gests that the results might be different in the coming years. The
youngest entrepreneurs evaluated the support provided by their
parentsas‘strong.anova shows statistically significant difference
in the parental support rating (p= 0.004; F= 5.528) between the
youngest and the oldest female entrepreneurs. We assume that the
older group was raised in the times when entrepreneurship was not
appreciated, and regular employment meant security for the family,
as well as financial security for a woman, so the decision for entre-
preneurship for their daughters meant unpredictable path.
We asked entrepreneurs about evaluation of the opinion of their
strong ties network on their entrepreneurial beginnings and the av-
erage estimation for their parent’s opinion was between the ‘nei-
ther negative nor positive’ and ‘positive’ (3.65) with no significant
difference between the three groups. The youngest female en-
trepreneurs rated this influence to their actions the highest (3.76
on the 7-point Likert scale), the entrepreneurs over 45 years the
lowest (2.89). anova and post hoc test (p= 0.028; F= 3.628) show a
statistically significant difference between the responses of female
entrepreneurs of different age groups. The parents’ view of entre-
preneurship has obviously changed in the positive direction dur-
ing the entrepreneurial action of their daughters. The estimates of
entrepreneurs about the opinion of their parents on entrepreneur-
ship are now higher than at the beginning of their entrepreneurial
path. The average rating of all on the five-point Likert scale reached
4.23 The opinion of parents today is much more uniform for all fe-
male entrepreneurs and there are no statistically significant dif-
ferences between the three groups (p= 0.61; F= 1.348). For the
youngest group the parents’ opinion seems to be more important
today than at the start-up stage. They evaluated the influence of
their parents’ opinion to be 4.12 on the seven-point Likert scale as
opposed to the average evaluation of all respondents at 3.27. Based
on anova and post hoc test the influence of parents’ opinion is sig-
nificantly different between the three age groups (p= 0.000; F=
6.997). Only the youngest group answered that they ‘sometimes’
seek entrepreneurial advice from parents, the other two groups
seem to do that much less, and anova and post hoc test show the
statistically significant difference among the three groups regarding
number 3 · fall 2018 257
Mateja Vadnjal
table 3 Parents’ Support in the Last 12 Months (in %)
Type of support Age group Total χ2df P
(1) (2) (3)
Getting new business con-
22.4 4.8 0.70 7.1 36.980 2 0
Obtaining information at
offices and institutions
13.2 4.8 0.70 5.0 16.320 2 0
Business training 9.2 2.9 0 3.1 14.203 2 0.001
Acquisition of financial
17.9 2.9 1.4 5.8 27.690 2 0
Acquisition of business
10.7 3.8 0 3.7 15.652 2 0
Acquisition of buisness
9.1 3.9 0 3.4 12.679 2 0.002
Finding personel 3.9 3.8 0 2.2 5.656 2 0.059
Moral and emotional sup-
64.1 40.6 17.2 35.9 49.920 2 0
Unpaid work 17.1 14.7 2.80 9.9 15.345 2 0
notes Column headings are as follows: (1) up to 35 years, (2) 36 to 45 years, (3) 45
years and more.
this question (p= 0.000; F= 45.168) as well as the question about
the importance of business information provided by their parents
(p= 0.000; F= 35.653). As older entrepreneurs do not have par-
ents who would still be involved in business their answers could
be expected.
While asked about the types of support from their parents in the
last 12 months, all the respondents received mostly emotional and
moral support and some support in the form of unpaid work. Chi-
square test shows the statistically significant difference between the
female entrepreneurs of different age groups in their parents’ help
in other forms of business activities as seen in table 3. Both the
instrumental as well as emotional and moral support of the par-
ents stand out among the youngest female entrepreneurs, although
they believe that the parents did not influence their entrepreneurial
decisions. The results show that the influence of parents on en-
trepreneurs decreases over the years, as well as the importance of
their help. The importance of moral and emotional support is rel-
atively high also in the older group. The importance of parents as
role models and mentors, which in fact play an important role as
entrepreneurial accelerators in the early stages of their children’s
entrepreneurship, is also pointed out by Bosma et al. (2012), who
consider that this role has been overlooked so far and should be con-
258 management · volume 13
The Influence of Parents on Female Entrepreneurs
sidered as a good alternative to some expensive government-funded
programs for entrepreneurs.
The hypothesis stating that female entrepreneurs in different life
stages have different human capital in the form of previous employ-
ment in family business was not supported. Younger entrepreneurs
were working for a family member more often, but we could not
confirm the statistically significant difference. The results are in
line with a recent survey of intergenerational transmission of en-
trepreneurship which shows the importance of social comparison
and a perceived parental performance in entrepreneurship (Criaco
et al. 2017) suggesting that not all offsprings would like to follow
their parents into entrepreneurship even if this can still be their
career choice. The second hypothesis suggesting that female en-
trepreneurs in different life stages have parents with different em-
ployments status at the time of their entrepreneurial start-up, was
accepted. We can conclude that younger female entrepreneurs fol-
low entrepreneurial path of parents, especially of mothers. The par-
ents of the older women did not have the same chance to develop
entrepreneurial skills due to the socio-economic system in the coun-
try. A smaller proportion of mother entrepreneurs compared to fa-
thers is likely to be due to less present female entrepreneurship in
Slovenia. We believe that this will gradually change. The results sug-
gest that also motivational factors of women entrepreneurs differ.
One might believe that the eldest group wanted to make better liv-
ing as their mothers did, while the youngest group in already fol-
lowing their mothers as role models with better jobs. The third hy-
pothesis proposing that female entrepreneurs in different life stages
have parents with different levels of education is confirmed. We
believe that more educated mothers support their daughters’ en-
trepreneurial aspirations therefore we expect growing number of
female businesses by developing the public awareness of its im-
portance and entrepreneurial programs on all levels of schooling.
The hypothesis h4 suggesting that parents as role models have dif-
ferent impact on female entrepreneurs in different life stages and
the hypothesis h5 naming that female entrepreneurs in different life
stages consider the importance of their parents’ support for their
venture creation differently are also accepted. The confirmation of
both hypotheses prove again that parents and their influence as role
models play crucial role in the initial and further thinking of an in-
dividual about her entrepreneurial path. In the future consideration
number 3 · fall 2018 259
Mateja Vadnjal
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and mostly mother should be seen as possible catalysts for their
daughters to decide what they have been dreaming off but tradition-
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