Small Firms Research Articles

The Impact of Organizational Factors and Environmental Factors on the Adoption of Computer Assisted Audit Tools and Techniques (CAATTs) by SME in Sri Lanka

The study investigates the low adoption of Computer-Assisted Audit Tools and Techniques (CAATTs) in developing countries, focusing on environmental and organizational factors that influence technology adoption in firms, particularly small audit firms in Sri Lanka. Key variables identified include Clients’ AIS complexity firm size as organizational factors and, perceived support from professional accounting bodies firm size, and top management commitment as environmental factors to CAATT adoption. The objective is to assess the impact of organizational and environmental factors on CAAT adoption by SME in Sri Lanka. The population comprises 71,126 small audit firms listed as Small and Medium-Sized Enterprises (SMEs) as of December 31, 2021, according to the Accounting Auditing Standards Monitoring Board in Sri Lanka. A sample size of 40 small audit firms was selected from this population. Data collection involved distributing questionnaires among auditors, with analysis conducted using the SPSS version 23. Correlation analysis reveals a positive correlation between all variables and CAATT adoption, while regression analysis demonstrates the impact of AIS complexity, perceived support from professional accounting bodies has a high impact on CAAT adoption by SME. The findings suggest that organizational factors such as AIS complexity and Perceived Support from professionals play a significant role in CAATT adoption among small audit firms. In conclusion, the study highlights the importance of considering organizational factors, such as in promoting CAATT adoption. These findings provide valuable insights for enhancing audit productivity and reducing costs in developing countries like Sri Lanka.

Impact of productivity drivers on the performance of manufacturing firms

A considerable number of research indicates that a nation's industrial sector plays a crucial role in its economic growth. Therefore, it is crucial to research the productivity drivers among businesses engaged in the manufacturing sector to create a sound, inclusive, long-lasting, and innovative industry. Thus, as a micro-perspective of industrialization, this study looks into the main productivity drivers of manufacturing firms in Nigeria. The study analyses an imbalanced panel firm-level dataset from 2007 to 2019 using the simultaneous approach of the stochastic frontier to achieve its goal. Our research shows that Nigerian manufacturing firms deal with growing returns to scale and a high labour intensity. For policy actions, it was recommended that a realistic industrialization strategy has to be micro-founded. This strategy should prioritise large-scale industrial companies, promote exports, and provide a steady supply of electricity. The findings also show that small and micro firms in Nigeria are more productive than large manufacturing firms, even though the frequency of power outages and average labour costs impede the productivity of these firms.

Capital structure decisions and R&D investment: The contingency role of firm size

This paper explores how the size of a firm influences the relationship between capital structure choices and research and development (R&D) investment. By analyzing data from publicly listed U.S. pharmaceutical firms between 2011 and 2020 and using an instrumental variables regression, we present evidence that the impact of capital structure on R&D investment varies depending on firm size. Our findings show that firm size plays a critical role in shaping financing decisions to support R&D. Specifically, large and small firms employ different strategies for developing and implementing R&D projects. Our results reveal that R&D investment is negatively (positively) and significantly associated with debt financing (equity financing). Moreover, we show that firm size attenuates the adverse effect of debt financing on R&D investment and accentuates the positive effect of equity financing. Our study provides a refined distinction between debt and equity financing and clarifies the importance of structural characteristics in explaining a firm’s R&D investment decisions. Our study assists policymakers and practitioners in designing effective policies to enhance the understanding of the complex relationship between capital structure decisions and R&D investment.

Loan application due diligence and financing small firms in Africa

ABSTRACT Banks gauge and verify business potential when processing small business loan applications by conducting due diligence on the firm. Although research has examined the factors that influence small business financing, little attention has been given to understanding the due diligence process that informs credit decision making. We address this gap using signal theory to analyze and develop insights from 24 qualitative interviews. Our study identified 11 key hard and soft signals loan officers use to access small business credit risk during due diligence. The key signals include key person risk, change in leadership risk, articulation of company value, adaptation to change, separating business and personal finances, personal reputation, transparency and willingness to share information, data accuracy and completeness, regular account operation, faulty budget and turnover assumptions, and legitimacy of collateral. The implications for small and medium-sized enterprises finance theory and practice are discussed.

Shippers/freight forwarders’ acceptance of dedicated rail freight corridors for freight mobility in India

This paper investigates the acceptance of a mega rail freight infrastructure as a sustainable alternative to road transport for domestic freight movements in India. The dedicated rail freight corridors (DFCs) are the freight-only rail corridors proposed by the Indian government to improve freight mobility from a sustainable outlook. A shipper/freight forwarder survey was conducted to gather information on mode attributes and their stated preferences toward DFCs. We employ discrete choice (binary logit) and machine learning algorithms (random forest and extreme gradient boosting) to analyse the choice behaviour. The machine learning methods exhibited higher prediction accuracy, while discrete choice models offered better interpretability. On-time performance and transport costs are crucial factors that influence mode choice. Large-scale companies are more willing to shift to DFCs compared to small and medium firms. The policy scenario analysis indicates that providing a better on-time performance can gain a substantial share of DFCs.

Understanding Financial Constraints: Causes, Effects, and Strategies for Overcoming Economic Limitations

In developing countries like Nigeria, the development and sustainability of people, companies, and economies were greatly impeded by economic and financial limitations. The main causes of these constraints included the limited availability of financial resources, high interest rates, rigorous regulatory regimes, and volatile economic situations. The most severe obstacles were encountered by small and medium-sized firms (SMEs) and marginalised people, who frequently struggle to get the required funds for growth and development. The ramifications of financial limitations were extensive, resulting in less investment, hindered economic expansion, more joblessness, and worsened wealth disparity. These constraints may also sustain societal instability, thereby further eroding economic resilience. Successfully managing financial limitations requires a holistic strategy that addresses both the supply and demand dimensions of money. A crucial aspect of the supply side was enhancing loan accessibility by creating novel financial products and services specifically designed for small and medium-sized enterprises (SMEs) and marginalised groups. Both microfinance organisations and fintech solutions have shown potential for offering alternative financial methods, especially in rural regions. By improving financial literacy, people and companies may make well-informed financial choices and efficiently allocate resources on the demand side. Government actions, such as implementing regulatory changes and stabilising macroeconomic factors, are crucial for establishing a more favourable financial climate. This research aimed to acquire knowledge on the factors, consequences, and approaches for surmounting financial limitations in Nigeria. Therefore, it emphasised the need for customised solutions that took into account the distinct economic, social, and cultural circumstances of the area. By conducting a comprehensive examination of peer-reviewed literature and empirical research, this study identified significant obstacles and suggested practical suggestions to improve financial accessibility, stimulate economic growth, and guarantee sustainable development. The results emphasised the importance of implementing targeted policies and regularly assessing current methods to tackle the changing financial environment in Nigeria. Keywords: Economic limitations, Financial limitations, Developing countries, Sustainability, Small and medium-sized enterprises (SMEs).

Navigating Financial Constraints: Understanding Causes, Effects, and Strategic Solutions across Individual, Corporate and Governmental Sectors

Limitations in financial resources were a widespread obstacle in the interdependent global economy, impacting people, firms, and governments. These limitations were evident in the limited availability of financial resources, high levels of debt, and constricted cash flow, often resulting from an intricate interaction of internal and external elements. This paper offered an extensive investigation of the causes, consequences, and strategic remedies for financial limitations in these three areas. On an individual level, financial constraints were often caused by stagnating salaries, excessive living expenses, and insufficient financial knowledge, resulting in heightened susceptibility to financial shocks. Corporations, especially small and medium-sized firms (SMEs), have financial limitations caused by restricted capital access, increased operating expenses, and market instability, which may impede development and prevent innovation. As a result of fiscal mismanagement, increasing public debt, and economic recessions, governments, particularly in emerging countries, have financial limitations that might hinder their capacity to fund vital services and infrastructure. Financial limitations had extensive consequences, affecting economic stability, growth, and general living standards. Individuals with financial constraints encountered a decline in their quality of life and heightened levels of stress, while firms may endure declining profitability and competitiveness. Governments may be compelled to enforce austerity policies, resulting in enduring socio-economic repercussions. To tackle these difficulties, it was crucial to use customised approaches such as enhancing financial literacy, optimising corporate financial management, and advancing fiscal consolidation and structural changes at the governmental level. The objective of this research was to provide practical insights for improving financial resilience and fostering sustainable economic growth by adopting a comprehensive strategy that took into account the interdependence of financial limitations across different sectors. Keywords: Financial constraints, Global economy, Financial resources, Debt levels, Cash flow.

Credit allocation and public credit guarantee schemes for small businesses: evidence from Japan

ABSTRACT We investigate the relationship between the use of a public credit guarantee scheme for small businesses and the efficiency of credit allocation using region- and industry-level data from Japan for the period from 1968 to 2005. Because credit constraints are more severe for small businesses than for large firms, a public credit guarantee scheme that mitigates this constraint on small firms’ growth could enhance social welfare. If credit-guaranteed loans are allocated to firms with high value added, a public credit guarantee scheme would enhance the efficiency of credit allocation. Conversely, however, public credit guarantee schemes can squeeze credit allocations for small businesses. When financial institutions offer loans through credit guarantee schemes, the incentives of the financial institutions to monitor the activity of small business borrowers may decline. In addition, because Japan’s public credit guarantee scheme is a component of a broader set of social policies aiming to eliminate inequality, credit-guaranteed loans can be offered to economically distressed firms. In this situation, we identify a negative relationship between the amount of credit guaranteed and value added. We show that Japan’s public credit guarantee schemes reduced the efficiency of credit allocations, with negative implications for industry and regional growth.

Can government-led urban expansion simultaneously alleviate pollution and carbon emissions? Staggered difference-in-differences evidence from Chinese firms

The outward expansion of city centers is a typical feature of rapid urbanization in developing countries, leading to complex environmental pollution effects due to evolving urban spatial patterns. This study examines the impact of government-led urban expansion on pollution and carbon emissions by firms, utilizing firm and city-level data. Employing the staggered difference-in-differences (DID) method and taking the county-to-district conversion (CDC) as a quasi-natural experiment, the study finds that CDC reduced SO2 emissions by 80.95% and CO2 emissions by 13.12%. The key to this synergistic emission reduction lies in a series of source control strategies, including enhancing energy efficiency and innovation, industrial restructuring, and production reduction. Furthermore, the study reveals that CDC has a more significant effect on emission reduction for NOEs and small firms. Additionally, large cities, cities with high fiscal self-sufficiency, and cities with high per capita GDP exhibit greater environmental regulatory strength, leading to more effective emissions reduction. This paper seeks to explore potential gaps in research on the environmental impacts of government-led urban expansion, and it may provide empirical support for relevant policies in developing countries.

Ownership concentration and SME IPO underpricing in India – moderating impact of board monitoring and resource provision role

PurposeThe study aims to explore how the monitoring and resource provision function of board of directors impact the association between ownership concentration and small- and medium-sized enterprise (SME) initial public offering (IPO) underpricing in the context of an emerging economy like India.Design/methodology/approachThe sample comprises 390 SME IPOs listed on Bombay Stock Exchange SME platform and National Stock Exchange EMERGE (EMERGE is the NSE new initiative for SMEs to raise the funds from investors) in India. To test the moderating impact of the board monitoring role and resource provision role, the study employs hierarchical moderated regression subject to the fulfillment of assumptions.FindingsThe findings divulge that ownership concentration significantly reduces underpricing, hinting towards the operationalization of alignment of interest hypothesis. With regards to moderating relationship, the study found that while board resource providing role negatively moderates the relationship between ownership concentration and SME IPO underpricing, board monitoring function fails to cast any significant impact on the relationship between ownership concentration and SME IPO underpricing.Research limitations/implicationsThe present study ignores larger firms listed on the main platform which have complex decision-making than smaller firms. Besides, it is confined to only a single country, i.e. India. Extending the study to other countries with similar institutional characteristics would have validated the findings. Furthermore, the moderating impact of other organizational factors like firm age, lifecycle of firm and change in technology would form an interesting avenue for future research.Practical implicationsThe findings of the study have practical implications for managers in designing the adequate board structure that significantly reduces underpricing. It thus further advices the issuers on focusing more on strengthening the resource provision role of board of directors for achieving higher rewards. The findings are helpful to policymakers in framing such policies that enhance the resource-oriented role of board of directors and resource accessibility for SMEs. Furthermore, the results advise the investors to be relatively assured about the SMEs whose board exercises its resource provision role emphatically. Accordingly, findings are helpful to investors in making investment decisions in alternative market settings characterized by the concentrated ownership structure.Originality/valueThe study furthers the debate on the importance of two prominent roles played by board as a moderating variable in the underexplored context of IPO underpricing of small and medium-sized firms in India.

The effects of the functional and geographical breadth of collaborations on radical innovation performance: the moderating role of firm size

PurposeDue to the constantly increasing competitiveness along with the complexity of knowledge, firms perceive collaboration as a key strategy that preserves firms' radical innovation performance. In this context, this paper aims to examine how firms’ partners’ diversity in open innovation activities influences the development of radical innovations, critical for social development. In particular, this study analyzes how the functional and geographical breadth of the firm’s collaboration portfolio affects its radical innovation performance. Furthermore, it also explores the role of firm size as a moderator in the relationships proposed.Design/methodology/approachThis research employs panel data analysis, using a sample of 4,677 Spanish firms, with data sourced from the PITEC database.FindingsThe results of this study show that there is an inverted U-shaped relationship between the functional and the geographical breadth of collaborations and the firms’ radical innovation performance. Moreover, this study finds partial support for the moderating role of firm size, in the sense that small and medium-sized enterprises (SMEs) and large firms vary in their optimal number of diversity of partners.Originality/valueThis research provides a better understanding on how partners’ functional and geographical diversity, along with organizational characteristics such as firm size, affect how firms benefit from collaboration for innovation. This study shows that both SMEs and large firms experience diminishing returns when their collaboration networks become overly diverse in pursuit of radical innovation, due to increased costs. However, in SMEs, the turning point occurs at a later stage, consistent with the idea that small firms need broader functional networks to access complementary and novel resources they usually lack.

The impact of stock market liberalization on management forecast precision–Evidence from Mainland-Hong Kong Stock Connect Programs in China

This study examines the effects of stock market liberalization, specifically through the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect initiatives (jointly referred to as MHKSCPs), on the precision of management forecasts and the underlying mechanisms. We find that post MHKSCPs, management forecasts become less precise for bad news and more precise for good news, leading to an overall decrease in precision. The channels include litigation risk and media/analyst attention. The results are particularly pronounced in firms without foreign investors, within industries with higher proprietary costs, or in smaller firms. Moreover, there is a decrease in the information content of management forecasts, management forecast optimism, and financial report readability post MHKSCPs.

Developing a Dynamic Business Strategy: From Research and Goal Setting to Implementation and Evaluation

A dynamic company plan was essential for retaining competitiveness in today’s continuously shifting corporate climate. This review paper explored the effectiveness of combining continuous research, flexible goal formulation, agile execution, and continuing assessment to provide a strong framework for adjusting to market changes, technological breakthroughs, and competitive challenges. This review conducted a comprehensive evaluation of literature published using data from Scopus and Google Scholar. It employed thematic and meta-analytical methodologies to identify the key elements of dynamic strategy creation. The main discoveries consisted of the significance of using real-time data analytics to make well-informed decisions, the need for flexible goal-setting frameworks, and the advantages of Agile and Lean techniques in carrying out tasks. Furthermore, the implementation of ongoing evaluation and feedback processes was essential for improving tactics and maintaining a competitive edge. The review also highlighted problems such as the integration of real-time data, the establishment of flexible goals, and the promotion of organisational agility. Subsequent investigations prioritised examining the effects of developing technology and dynamic tactics on small and medium-sized firms (SMEs). This examination offered a thorough comprehension of how to manage and flourish in the current dynamic business environment by combining theoretical ideas and practical experiences. Keywords: Dynamic Business Strategy Continuous Research, Flexible Goal Formulation, Agile Execution Ongoing Assessment, Real-Time Data Analytics, Agile Methodologies Lean.

Digital Capabilities and Risk Management Practice in Small Accounting Firms in Malaysia

Digital Capabilities and Risk Management Practice in Small Accounting Firms in Malaysia

Compliance measurement and labour regulation enforcement: a randomized field experiment

ABSTRACT Labour regulation matters for the economy. But measuring firms’ compliance with this regulation poses significant challenges as inspections, enforcement, or reporting might be correlated to compliance risk factors of each firm. We propose estimating the compliance rate by a randomized controlled trial (RCT) of standard labour inspections. We run the experiment on small and medium firms (SME) in Chile. We estimate a non-compliance sanction rate of 13%. Our results are robust to various alternative estimation methods. Additional results look at the effects of enforcing labour laws, showing no significant differences on firms’ growth; neither on the intensive (employment and sales) nor the extensive margin (exit). Nonetheless, the experiment had limited power for these additional results. Our methods and results matter for the monitoring and enforcement of labour policies.

A Lost Opportunity? Environmental Investment Tax Incentive and Energy Efficient Technologies

AbstractThis paper examines the impact of the Spanish Environmental Investment (EI) tax credit on adoption of green technologies by employing data from 2567 industrial firms for 6 years. It makes use of the sudden re-introduction of the tax incentive in March 2011, that aimed at favouring energy efficient over solely pollution abating technologies. I exploit this unexpected change and perform a difference-in-differences analysis to study its effect on green investments and as an extention on green employment outcomes. The policy change, aimed at switching financing to energy efficient technologies, is assessed as semi-effective. Admittedly, it decreased investment in end-of-pipe technologies, but the investment in superior cleaner production technologies increased only for the small firms (below 50 employees), which are especially vulnerable to the capital market failure. Unfortunately, the policy change had also a few unexpected indirect effects, firms in response to the tax incentive regime modification reduced the number of their green employees and their associated salaries. In stark contrast to the decision of the Spanish government on this EI tax credit, the results of this analysis seem to be quite encouraging for the continued use of this green fiscal policy and show that the modifications in the precision of the existing fiscal policies can be successful.

Financial Transparency of Private Firms: Evidence from a Randomized Field Experiment

ABSTRACTThis paper examines why private firms choose to be financially transparent or opaque by conducting a field experiment with more than 25,000 firms in Germany. We inform a randomly chosen set of firms about a disclosure option that allows eligible firms to restrict access to their otherwise publicly available financial statements. We also vary the messaging in subtle ways to induce experimental variation in the probability that firms take transacting (capital providers or customers and suppliers) versus non‐transacting stakeholders (competitors or general interest parties) into consideration when making their filing decision. Based on each firm's actual filing decision, we find that treated firms are 15% more likely to restrict access to their financial statements. This intention‐to‐treat effect is persistent and concentrated among firms that should derive lower net benefits from disclosure (smaller, more mature firms in less capital‐intensive industries). These findings indicate that informational constraints affect firms’ disclosure practice. Additionally, we show that the treatment effect is almost 40% larger for firms that have a higher, exogenously induced, probability of considering non‐transacting stakeholders when making their disclosure decision. By analyzing subsequent firm activity and complementary survey evidence, we also provide suggestive evidence that disclosure requirements put an undue burden on very small private firms.

Labor protection and corporate labor investment efficiency - Evidence based on the implementation of the "Labor Contract Law"

This research examines non-financial companies listed in China's capital market, using the “Labor Contract Law” as a natural experiment to explore how labor protection influences investment efficiency. The study provides insights into how such policies shape corporate investment behavior. Findings indicate that stronger labor protection significantly improves labor investment efficiency and the allocation of labor resources within companies. Furthermore, the positive impact on investment efficiency is more pronounced in smaller firms and non-state-owned enterprises.

Enterprise Performance, R & D Expense Ratio and the Total Factor Productivity of TCM Listed Enterprises -- Empirical Research in the Context of New Quality Productivity

This study, focusing on the high-quality development of traditional Chinese medicine (TCM) enterprises, examines A-share listed TCM companies from 2018 to 2022. It uncovers that operational performance positively influences total factor productivity, with R&D expenses exerting a negative intermediary effect. This impact is more pronounced in smaller firms. Enhancing operational performance is thereby crucial for the successful transformation and high-quality growth of TCM enterprises.

The Moderating Role of Digital Innovation between Digital Leadership, learning and Sustainable Performance among Small and Medium-Sized Firms

This research effort explores the role of digital leadership, learning and innovation in influencing sustainable performance among small and medium enterprises. Digital leadership and learning have been considered as exogenous constructs to predict sustainable performance, and digital innovation is incorporated as a moderator variable to assess the relationships. This study bridges the research gap in explaining the role of digital leadership, which is an untapped research area for explaining sustainable performance. Similarly, digital learning is an essential element in sustainable performance. Further, digital innovation plays an effective and striking role in adopting and implementing technological advancements to achieve organizational goals. The researcher focused on the SME sector of Punjab, Pakistan to investigate the hypothesized relationships between variables. The convenience sampling technique was applied and G*Power was utilized to select the sample. Later, Smart-PLS was utilized for analysis. The results revealed that digital leadership remains insignificant in predicting sustainable performance. Digital learning and digital innovation were significant in influencing sustainable performance. Moreover, digital innovation moderates the relationship between digital learning and sustainable performance, but no moderation effect was observed between digital leadership and sustainable performance. Implications, future research avenues, and limitations of the study are given at the end of this paper.