Darush Yazdanfar

Profitability determinants among micro firms: evidence from Swedish data

Purpose - The purpose of this paper is to investigate the variables affecting firm profitability, applying the seemingly unrelated regression method to a large sample of approximately 87,000 observations covering 12,530 non-financial micro firms operating in four industry sectors, from 2006 to 2007. Design/methodology/approach - The study considers profitability determinants at the firm as well as industry affiliation levels in examining hypotheses developed from resource-based approaches. Seemingly unrelated regression (SUR) was used to detect the combination of variables that best estimated the impact of the explanatory variables on the dependent variable. Findings - The findings indicate that while firm size, lagged profitability, growth, and productivity positively influence profitability, firm age and industry affiliation negatively influence it. The empirical results suggest that productivity is the most significant determinant of profitability. These results are fairly robust across the various industry sectors covered in the study and are largely consistent with the hypotheses developed from the resource-based approach. Research limitations/implications - The current study addresses an issue that is relevant to various stakeholders, including managers, investors, and debtholders, and may facilitate further research in similar areas of small business studies. Practical implications - The question of what factors determine profitability should accordingly be one of high priority for both researchers and practitioners, including managers, investors, debt holders, and policy makers. Originality/value - Most of previous studies of profitability determinants were actually performed in the industrial organization discipline. This study examines the impact of internal determinants including firm size, age, and sector on firm profitability from a managerial perspective. Unlike the other approaches, this approach suggests that firm performance is mainly determined by internal rather than external variables.

Debt financing and firm performance: an empirical study based on Swedish data

Purpose - – The purpose of this study is to examine the relationship between debt level and performance among small and medium-sized enterprises (SMEs). Design/methodology/approach - – Unlike the vast majority of previous research, this study uses three-stage least squares (3SLS) and fixed-effects models to analyse a comprehensive, cross-sectoral sample of 15,897 Swedish SMEs operating in five industry sectors during the 2009-2012 period. Findings - – This study confirms that debt ratios, in terms of trade credit, short-term debt and long-term debt, negatively affect firm performance in terms of profitability. As a high debt ratio seems to increase the agency costs and the risk of losing control of the firm, SME owners and managers tend to finance their businesses with equity capital to a fairly high degree. Practical implications - – As debt policy significantly influences firm performance, and thereby firm value and survival, SME owners and managers should focus on finding a satisfactory debt level. Originality/value - – To the authors’ best knowledge, this study is among the first to use 3SLS and fixed-effects models to analyse the relationship between debt level and firm performance. Moreover, while most previous research has examined listed firms, this study highlights the issue among SMEs, which play a fundamental role in the economy.

The impact of cash conversion cycle on firm profitability: An empirical study based on Swedish data

Purpose - – The purpose of this paper is to seek to investigate the impact of cash conversion cycle (CCC) on performance (i.e. profitability) in Swedish small and medium-sized enterprises (SMEs) over the 2008-2011 period. Design/methodology/approach - – The study uses a seemingly unrelated regression (SUR) model to analyse cross-sectional panel data covering 13,797 SMEs operating in four industries. Findings - – The study provides empirical evidence that CCC significantly affects profitability. In addition, the firm-level control variables size, age, and industry affiliation significantly affect firm profitability. These findings imply that managers could increase firm profitability by improving their working capital management. Research limitations/implications - – The present study is limited to a sample of Swedish SMEs in four industries; further research could examine the generalizability of these findings to other countries and industries. Practical implications - – Improved working capital policy could improve firm profitability by reducing the firms CCC, thereby creating additional firm value. In addition, the results can be used for other purposes, including monitoring of firms by auditors, debt holders, and other stakeholders. Originality/value - – The present study contributes to the literature by employing a SUR model to analyse a comprehensive cross-sectoral sample in a high-tax environment. To the authors’ knowledge, this is the first empirical study to address this issue in the Swedish context based on a large data set covering SMEs in various industries.

The growth determinants among Swedish SMEs: evidence from firm-level data

This paper identifies the firm-level internal determinants that explain the economic growth of Swedish SMEs. The analysis is based on a sample consisting of 989 growth SMEs and 6,119 non-growth SMEs with 95,475 observations, and applies logistic regression models for the period 2004-2006. The results, which have a high rate of accuracy, indicate that a set of four factors – age, size, leverage rate and profitability – had a significant impact on the growth probability of sample firms over a period of three years. The results can be summarised as follows. First, younger SMEs have a better chance of seeing growth. Second, financial constraints significantly decrease the probability of growth in terms of employees. Third, profitability plays a significant role in the growth process. Lastly, access to external financial resources has a positive effect on the growth of firms. The results of this paper are useful for firm stakeholders, including managers, shareholders, debt holders and potential investors, as well as academic researchers and policy makers.

The growth-profitability nexus among Swedish SMEs

Purpose - – The purpose of this paper is to examine the growth-profitability nexus among small- and medium-sized enterprises (SMEs). Design/methodology/approach - – The data comprise 106,884 observations covering 26,721 Swedish SMEs in six industry sectors over the 2008-2011 period. The data were analysed using several statistical techniques, including two-stage least squares regression, fixed-effects and random regressions, and bootstrapped quantile regression. Findings - – Consistent with the hypotheses derived from the resource-based approach, the results indicate that current profitability significantly and positively affects firm growth. The firm-level control variable size significantly and positively affects firm growth, though firm age significantly and negatively affects growth. Firm industry affiliation also affects firm growth. Research limitations/implications - – Since SME performance is commonly equated with access to knowledge, consultancy services or business training programmes sponsored by governmental organizations can help SMEs improve their management skills and thereby their performance. Moreover, adopting advanced financial management practices can improve the use of financial resources, leading to higher profitability and thereby sustainable growth. This implies that managers should change their strategy from “growth now, profitability later” to “profitable growth now”. Originality/value - – Unlike most previous studies, this study employs several multivariate methods to analyse a comprehensive, cross-sectoral sample comprising non-financial, independent, and active SMEs in several industries. This study focuses explicitly on SMEs, which play a fundamental role in the Swedish economy.

Life cycle and performance among SMEs: Swedish empirical evidence

Purpose - – This study aims to empirically examine the applicability of the life cycle model of firm performance to growth and profitability among Swedish small- and medium-sized enterprises (SMEs). Design/methodology/approach - – Using analysis of variance, multiple analysis of variance and three-stage least square modelling, this study analyses a longitudinal data set covering 26,721 Swedish SMEs in six industries from 2008 to 2011. Findings - – The empirical results indicate a clear life cycle performance pattern among the sampled SMEs, and that a six-stage life cycle model is applicable in predicting the performance pattern in terms of growth and profitability. On average, younger SMEs tend to display better performance in terms of growth and profitability than do their older and larger counterparts; moreover, larger SMEs tend to achieve better performance than do smaller ones. Practical implications - – The findings help SME managers understand how their decision-making style, strategy and structure can be related to various life cycle stages. Such an understanding may help them improve firm performance over time. Policymakers may find the results useful in coordinating SME support in line with various life cycle stages. Originality/value - – To the authors’ knowledge, this study is one of only a few using two performance variables to test the applicability of the life cycle model in a longitudinal and cross-industrial sample.

Exploring the financing gap between native born women- and immigrant women-owned firms at the start-up stage : Empirical evidence from Swedish data

Purpose: The main purpose of this study is to provide empirical evidence which identifies the impact of ethnicity and other relevant variables on external capital acquisition among Swedish women-ow ...

Substitute or complement? The use of trade credit as a financing source among SMEs

Purpose This study aims to investigate trade credit as a financing source among small- and medium-sized enterprises (SMEs), particularly the influence of short-term debt, long-term debt and profitability on the use of such credit. Design/methodology/approach Ordinary least squares (OLS), fixed-effects and generalized method of moments (GMM) system models were used to analyze a large cross-sectional panel data set of 15,897 Swedish SMEs in five industry sectors for the 2009-2012 period. Findings The study provides empirical evidence that long-term debt and profitability each significantly and negatively influence trade credit (i.e. accounts payable) and that short-term debt positively influences trade credit. Notably, while trade credit seems to complement other short-term debt, it replaces long-term debt. Moreover, firm size in terms of sales is positively related and firm age is negatively related to accounts payable. Industry affiliation is another significant explanatory variable. Practical implications The results provide debt holders, potential investors, policymakers and academic researchers with insights into the relationship between trade credit demand, on the one hand, and external financing (i.e. short- and long-term debt) and internal retained earnings (i.e. profit), on the other. From a manager’s perspective, the findings may be important for decision-making regarding trade credit use. Originality/value When investigating trade credit determinants, the literature has seldom distinguished between short- and long-term debt and considered that they may influence the use of trade credit in different ways. The present study adds to the literature by using OLS, fixed-effects and GMM system models to analyze a large cross-sectoral sample in a high-tax country where both bank loans and trade credit are considered important financing instruments.

Firm-level determinants of job creation by SMEs: Swedish empirical evidence

Purpose – Using a resource-based approach, the purpose of this paper is to examine the effects of the firm-level determinants financial leverage and liquidity on job creation at small and medium-sized enterprises (SMEs) in six industry sectors in Sweden. Design/methodology/approach – The generalized method of moments system model was used to analyse an extensive panel data set of 26,721 Swedish SMEs over the 2008-2011 period. Findings – The empirical results indicate that job creation is positively related to SMEs’ financial leverage and liquidity, and to their size and age. SMEs’ financial leverage and size are the most important firm-level determinants of job creation. Although there are differences between industry sectors, the results confirm the general pattern of the effect of financial leverage and liquidity on job creation. Research limitations/implications – Due to the importance of job creation for economic growth, the relationship between SMEs’ capital structure and job creation should be of in...

Business advisory services and risk among start-ups and young companies : A gender perspective

Purpose – This study aims to investigate the demand for business advisory services by owners of start-ups and young companies by taking a gender perspective. The study also examines whether risk-ta ...