Econometric Modeling of SME Performance. Case of Romania

Ioan Batrancea,Sabau Catalin,Ioan-Dan Morar,Liviu Bechis,Ema Masca

doi:10.3390/su10010192

Abstract

In the present study, we analyzed the financial equilibrium factors that have a major impact on SME financial performance, as this performance is considered to have played a pivotal role in Romania’s recovery from the economic crisis. Thus, we built econometric models based on return on assets and return on sales in five economic sectors, i.e., pharmaceuticals, furniture manufacturing, leather garment factories, software firms and textile factories. We show how the enterprises’ performance was influenced by the independent variables of the equilibrium: fixed assets, current assets, inventory, receivables, equity and liabilities. The results indicate that return on assets is influenced by the current assets ratio and the inventory ratio in all models, as well as by the equity-to-total liabilities ratio in 80% of the models. We also notice that assets ratios have the highest influence on performance evaluation, namely inventory ratio in all models and current assets ratio in 87.5% of the models. In addition, liabilities ratios influence performance as follows: equity-to-total liabilities ratio in 80% of the models and total debt-to-assets ratio in 35% of the models.

Highlights

small and medium enterprises (SMEs) play an essential role in the global economy and they are a source of entrepreneurial skills, innovation and job creation, a factor of social and economic cohesion both in the European Union (EU) and in the United States (US)
In order to highlight the economic and financial performance of SMEs in Romania, we analyzed the evolution of the return on assets (ROA) and the return on sales (ROS) as dependent variables and other ratios as independent variables on a sample pool comprising 1233 SMEs from five economic sectors (Table 1)
We present the econometric model estimating return on assets for the sample of SMEs operating in the textile industry, when taking into account equity-to-total liabilities ratio (REL) and total debt-to-assets ratio (RDA)

Summary

Introduction

SMEs play an essential role in the global economy and they are a source of entrepreneurial skills, innovation and job creation, a factor of social and economic cohesion both in the European Union (EU) and in the United States (US). The last two decades, characterized by dramatic changes at technical, economic, social, informational, educational, cultural and political levels, highlight the fundamental role of small and medium enterprises sector for the development of a modern, dynamic, knowledge-based economy. This sector plays an essential role in the European economy. Dynamic units in hi-tech areas such as informatics, electronic commerce, genetics or biotechnology are or have recently been developed by small and medium enterprises

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Conclusion