Profitability Of Small Firms Research Articles

The impact of working capital management on the profitability of firms in selected industries in the Republic of Croatia

The aim of the paper is to detect the impact of working capital management (WCM) on the profitability of Croatian firms which belong to manufacturing, trade, and information and communication industries. The time frame of interest is from 2008 to 2015, and the final sample consists of 19.355 firms, i.e. 116.002 firm-year observations. The data sources are the databases of the Financial Agency and Croatian Bureau of Statistics. In order to test research hypothesis, among other methods, panel regression analysis is used. The study results show that, after controlling for firm characteristics and macroeconomic conditions, aggressive WCM has a significantly positive effect on the profitability of small firms from selected industries and for medium-sized manufacturing firms. Moreover, the results imply the existence of a significantly convex quadratic dependence and overall downward trend, marked by the increasing marginal returns of profitability with the extension of working capital cycles. The latter indicates that a more aggressive strategy significantly increases the profitability of firms at increasing rate. In other words, the managers of those firms should strive to shorten the working capital cycles in order to increase profitability. The limitations of the research are: the impossibility of spatial and temporal generalization of identified results, limited possibility of explaining identified directions and the significance of the influence of observed indicators of variables, as well as detection of reasons for agreement or contradiction with previous research results, unavailability of certain data, and omission of potentially significant variables and/or their alternative indicators. Scientific contribution can be summarized as follows: a comprehensive and systematic review of previous research; in addition to dominant linear impact testing, testing of nonlinear quadratic relation between the observed variables, which, is beginning to appear in the relevant literature and, accordingly, is generally poorly represented in all the previous studies, and has not been conducted in the Republic of Croatia; respectable spatial and temporal coverage; the expansion of coverage from listed and large firms to private firms and small and medium-sized firms.

Does debt really matter on the profitability of small firms? A perspective on small manufacturing firms in Bulawayo, Zimbabwe

Small firms are the engines for economic development of several developed countries such as the US and Japan. Developing countries such as Zimbabwe have also identified the potential of small firms to turn economies with negative growth into vibrant ones. For this reason, several governments in developing countries offer funding to small firms either directly or by guaranteeing the payment of such loans as lack of funding is cited as one of the major challenges faced by small businesses. Due to limited resources by governments, not all small firms receive funding from the government, therefore, the other option would be to go for bank loans. The aim of this paper was to investigate the impact of debt on the profitability of small manufacturing firms in Zimbabwe. The results indicated that the use of debt has a negative impact on the profitability of small manufacturing firms. The study recommended the creation of tax incentives and more equity funding for small manufacturing firms Key words: Debt, profitability, small manufacturing firms.

An investigation into the impact of investment appraisal techniques on the profitability of small manufacturing firms in the Nelson Mandela Metropolitan Bay Area, South Africa

This study investigated the impact of investment appraisal techniques on the profitability of small manufacturing firms in the Nelson Mandela Bay area of the Eastern Cape Province, South Africa. Small firms are widely considered important to solving South Africa’s unemployment problems and the rejuvenation of its economy. The study used survey data generated from one hundred and twenty four small manufacturing firms in the Despatch, Uitenhage and Port Elizabeth areas of the Nelson Mandela Bay to analyze their capital budgeting practices. The study ascertained, by statistically testing the hypotheses of the study, that small manufacturing firms’ owners do not use sophisticated investment appraisal techniques when evaluating their proposed projects. A multiple regression analysis was employed to confirm the impact of investment appraisal techniques on the profitability of the small manufacturing firms. The study concluded that the use of non-sophisticated investment appraisal techniques has a negative impact on the profitability of small firms. Recommendations were made to improve the managerial and financial skills of the owners of small manufacturing firms. Key words: Small firms, investment appraisal techniques, profitability.

Financial Performance of SMEs - Evidence on the Impact of Ownership Structure and Board Composition

This study investigates the impact that ownership structure and board composition have on performance in a sample of Finnish SMEs. Our study is one of few that shed light on how corporate governance and ownership structures affect performance of small firms. Our results suggest that the ownership structure, in particular, affects both the growth and profitability of small firms. Firms with high managerial ownership levels exhibit higher profitability ratios, but have lower growth rates. We further find that firms with high Venture Capital Firm ownership ratios grow faster and are less profitable. These results can be interpreted to indicate that owner-managers are risk averse and that Venture Capital Firms seek investments with high growth potential. Our results on board structure suggest that board structure has little impact on the performance of small firms. The only significant result in this context is that firms with outside board members have lower growth rates and are less profitable.

Formal and informal networks in small businesses in the media industry

This paper examines the formal and informal networks in small businesses in the media industry. Networks are important to small firms and are an integral part of the structure of the media industry. Technological changes and the proliferation of new channels have changed the nature of the television industry and this paper examines the role of networks in meeting these challenges. The research was based on questionnaires followed up with interviews. This study found that the social and cultural factors were important in the establishment and maintenance of both formal and informal networks. Low barriers to entry in terms of investment in fixed assets and powerful customers have meant that formal and informal networks play an important role in the survival and profitability of small firms in the media industry.

Management development in small firms

This paper is a review of the literature concerning management development in small firms. It looks at the benefits in terms of growing a small firm and whether the lack of management skills contributes to their failure. In addition, this paper looks at some of the barriers to management development, including the attitudes and characteristics of the entrepreneur, and also looks at learning models that may be appropriate for small firms. The paper also looks at the authors’ views on the effectiveness of management development for small firms, the barriers to learning as well as the skills required. Management development programmes are now widely accepted as a means of improving the competitiveness of firms and the economy as a whole. Although management education and training has, in the past, been designed mainly for larger firms, there is a growing awareness of the requirements of small businesses. Government initiatives designed to encourage start‐ups and to boost the growth of small firms have emphasized the importance of management development. This review of the literature shows that, on balance, management development programmes are effective for small firms. The main benefits appear to be survival and growth, reduction in failure and improvement in performance. The skills required include leadership and management, developing management systems and techniques and team building. Other skills include planning, delegation and financial management. The paper concludes that there is a need for further research into the effectiveness of management development programmes, the skills required and the barriers to learning in small firms and, also, whether they have an impact on the survival, growth and profitability of small firms.

Strategy and Performance across Size Classification of Small Firms in the United States

Using data of ALMANAC Business and Industrial Financial Ratios(2003), this paper investigates the impacts of strategies on profitability of small firms according to firm size classification. The results show as follows : 1. The relationship between advertising or capital intensity and profitability is different according to firm size classification. 2. The association of inventory and debt with profitability in all 3 groups are not significant as unexpected results. This suggests that advertising and capital intensity of small firms may be differently pursued according to size classification and situation. The results provide useful and beneficial information for strategic planning of small firms and for academic research.

Capital Growth, Financing Source and Profitability of Small Businesses: Evidence from Taiwan Small Enterprises

This paper examines the relationship between profitability and financial capital for 1,276 small firms in Taiwan over the period 1992–1997. The results indicate a statistically positive relationship between profitability and capital growth. When financial capital is further divided into debt and equity, the results indicate a significantly positive relationship between profitability and equity financing, but a significantly negative relationship between profitability and debt financing. Moreover, the profitability of small firms is positively related to both the external economic conditions and the firms’ previous profitability.