Determinants of SMEs’ financial performance: evidence from an emerging economy

Abstract

Financial performance (FP) is important to every firm, especially SMEs, but FP determinants are debatable. This paper investigates determinants of FP among Ghanaian SMEs. Employing a survey data set of 238 SMEs, multiple regression analysis was performed to determine the extent to which each firm-specific characteristic and industry impact FP. The findings show that a significant relationship exists between company ownership type and FP. There is also a positive link between firm age, firm size, and FP. The industry effect is significant in the service sector. The results also show that the impact of firm-specific characteristics and industry differs across the sub-components of FP and manufacturing and service industries. The results demonstrate the relevance of the tenets of resource base view and structure-conduct-performance in explaining the SMEs' FP variations in a developing country’s context. The managerial and policy implications of the findings for both sectors have been discussed.

RÉSUMÉ

La performance financière (PF) est importante pour chaque entreprise, en particulier les PME, mais les déterminants de la PF sont discutables. Cet article examine les déterminants de la PF parmi les PME ghanéennes. À partir d’un ensemble de données d’enquête portant sur 238 PME, une analyse de régression multiple a été réalisée afin de déterminer dans quelle mesure chaque caractéristique spécifique à l’entreprise et à l’industrie a un impact sur la PF. Les résultats montrent qu’il existe un lien significatif entre le type de propriété d’une entreprise et la PF. Il existe également un lien positif entre l’âge et la taille de l’entreprise, et la PF. L’effet de l’industrie est significatif dans le secteur des services. Les résultats montrent aussi que l’impact des caractéristiques propres à l’entreprise et à l’industrie diffère selon les sous-composantes de la PF et les industries manufacturières et de services. Les résultats démontrent la pertinence des principes de la vue basée sur les ressources et du paradigme structure comportement performance dans la compréhension des variations de la PF des PME dans un contexte de pays en développement. Les implications managériales et politiques des résultats pour les deux secteurs sont discutées.

Keywords:

• Firm specific and industry characteristics
• financial performance
• RBV
• SMEs

MOTS-CLÉS:

• Caractéristiques spécifiques
• l’entreprise et
• l’industrie
• performance financière
• vue basée sur les ressources
• structure-comportement-performance
• PME

Acknowledgment

We are grateful to the two anonymous reviewers who spent their time to review the paper and made useful suggestions which has been incorporated the study.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Gabriel Sam Ahinful

Gabriel Sam Ahinful is the Director of Finance at Takoradi Technical University, Ghana. He holds PhD in Accounting from Bournemouth University in the UK. His research interests include the link between environmental management practices and financial performance, corporate governance, social and environmental reporting and accounting education. Gabriel has published in several peer-reviewed academic journals over the years.

Jeff Danquah Boakye

Jeff Danquah Boakye is the Deputy Director of Finance at Koforidua Technical University, Ghana. He had his PhD from Bournemouth University, UK and is also Chartered Accountant with several years of practical experience. Jeff's research interest is mainly on effect of sustainability on firm performance with issues of corporate governance been of interest. He has published his works in various academic journals.

Nana Dwomoh Osei Bempah

Nana Dwomoh Osei Bempah is a Phd candidate at University of Southampton. She holds MSc in Finance from Kwame Nkrumah University of Science and Technology (KNUST), School of Business, Kumasi, Ghana. Prior to pursuing Phd, she taught for several years and had also worked with Barclays bank, UK. Her research focuses on the link between corporate governance and financial performance.