Abstract
This paper provides new evidence for the relationship between the nature of banking relationships, managerial ownership and operational performance in supporting reciprocal effects between these variables in the context of small and medium enterprises (SMEs). A simultaneous equations model was applied to a sample of 4,163 Portuguese SMEs and to cross-section data. Evidence was found that these attributes provide simultaneous relations among themselves. In particular, on the one hand, our results support a negative effect of the number of banks with which the company works and managerial ownership on operational performance. On the other hand, the number of banks with which the company maintains a relationship is positively conditioned by operational performance and negatively by managerial ownership. In turn, managerial ownership is negatively conditioned by operational performance and the nature of the banking relationship.
Highlights
In recent years small and medium enterprises (SMEs) have been the object of attention on the part of numerous works by virtue of their importance in terms of economic activity, job creation, innovation and ability to generate wealth in most economies (Behr et al, 2013)
In economies where bank financing is especially important in funding enterprises in general and SMEs understanding how the nature of the banking relationship may affect access to credit as well as its cost to SMEs, and their performance, as well as the reciprocal effects, without ignoring the role that managerial ownership may establish with those dimensions, is of particular importance for both business and for the conduct of economic and fiscal policy in those economies
The results clearly show the existence of simultaneity between operational performance, the nature of the banking relationship and managerial ownership expressed by the significance obtained for each variable in the estimation of the remaining variables (α = 5%)
Summary
In recent years small and medium enterprises (SMEs) have been the object of attention on the part of numerous works by virtue of their importance in terms of economic activity, job creation, innovation and ability to generate wealth in most economies (Behr et al, 2013). In economies where bank financing is especially important in funding enterprises in general and SMEs understanding how the nature of the banking relationship may affect access to credit as well as its cost to SMEs, and their performance, as well as the reciprocal effects, without ignoring the role that managerial ownership may establish with those dimensions, is of particular importance for both business and for the conduct of economic and fiscal policy in those economies. Besides establishing close relationships with banks, SMEs are characterized by a substantial involvement of the equity holders in governing bodies, from which discretionary management rises with expected impacts on performance (Johnson et al, 2000, Dittmar and Mahrt-Smith, 2007). The existing literature does not fail to suggest relationships of reciprocal causality between managerial ownership and performance (e.g., Fama and Jensen, 1983b, Miguel et al, 2004), supporting the Published by Sciedu Press
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
