Financial and Strategic Factors Associated with the Profitability and Growth of SME in Portugal

Ana Paula Silva, C. Machado Santos

Abstract


Drawing on literature from finance and strategic management, eight likely factors associated with the profitability and growth of unquoted, small and medium-sized enterprises (SMEs) are identified and evaluated. These factors are: leverage, liquidity, education, industry performance, low cost, differentiation, product focus and customer focus. The sample comprises 134 unquoted SMEs aged five years or more, operating in different sectors throughout the main districts of Portugal. Data are collected through face-to-face interviews and these are supplemented with secondary sources. Twenty-one independent variables are identified and LISREL is used to produce measurement equations relating the variables to factors. Hypotheses concerning the factors’ impact on profit and growth are tested through structural equation modelling using LISREL. The results show that low debt, effective liquidity management, operation in a profitable sector, differentiation, the avoidance of low cost and customer focus favour SMEs’ profitability. For high growth, although effective liquidity management and differentiation remain as key factors, they are joined by a product focus. These results carry a number of important implications for SME strategy most notably that there may not be one set of strategies that maximise both profitability and growth.


Full Text: PDF DOI: 10.5539/ijef.v4n3p46

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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