Description
Our paper about impact of financial crisis on the profitability of sme in the republic of macedonia.
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Impact of fnancial crisis on the
proftability of sme in the Republic of
Macedonia – pollog region
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi***
Lector at the State University of Tetovo, Macedonia
*PHD candidate, Tel:0038970278236, @: [email protected]
**PHD candidate, @: [email protected]
***Mr., @: [email protected]
Abstract
SME play a signifcant role in all economies and are key agents of employment,
innovation and growth. A signifcant number of SME could use funds productively
if they were available, but are ofen denied access to fnancing, thus impeding their
creation, survival and growth. Although SME form a broad spectrum as far as their
relative size, sector of activity, seniority, location and performance are concerned,
there is a vital need for innovative solutions for their fnancing in particular for
innovative and high growth SME in a globalised knowledge based economy.
Trough this paper will try to explore the impact of fnancial crisis in the
proftability of SME in the Republic of Macedonia- Pollog region. Given that
Macedonia is a small country with an economy not quite developed, small enterprises
and medium enterprises play a decisive role in economic development of this country.
Konferenca e Katërt Ndërkombëtare për Riskun — QSHR 214
Te sample consist 150 SME operating in the Pollog region. Te data used in
empirical analysis are obtained from annual reports of business development. From
the results of this paper is expected to highlight determinants that have the more
impact in the proftability of businesses.
Key words: Financial crisis, proftability, SME, fnancing
1 Introduction
Te fnancial crisis that erupted in mid-2008 led to an expansion of public
debt in many economies of advanced countries. Governments were forced to
make the capitalization of banks, take over a large debt to arise in the failure of
fnancial institutions, and to introduce major incentive programs to revive demand.
Involvement of the world economy from fnancial crisis was refected very negatively
on the economies of diferent countries, and once on business activities in general.
Balkan region countries, which are part of Macedonia, are afected by this crisis, to
what extent was the impact on them is relying specifc macroeconomic conditions
where countries are located, diferent levels of structural reforms carried out, and their
exposure the crisis. At the beginning of the crisis impact on developing economies,
in a way we can say that it was limited, (taking into account that the crisis started in
developed economies), but this crisis was quickly transformed into a global economic
crisis, which brought tremendous consequences in the real and fnancial sectors of
the economy. Economic crisis, many countries included rapid (essentially businesses
in the country), starting from the countries that generated the fnancial crisis (U.S.),
European Union and beyond, which includes Macedonia itself. Economic sector in
Macedonia comprise entirely of small and medium enterprises, who at the leading
participation in economic growth and reducing unemployment. According to data
available on 90% of the existing enterprises consist of small enterprises with about 15
employees. Macedonia as a small economy and open trade with an orientation towards
Euro-zone countries was afected more rapid decline in foreign demand, and increase
the rate of unemployment in some neighboring countries to the EU which caused a
decrease in workers’ remittances, export reduction, reduction of foreign investment,
etc., that these sources are treated as one of the most important to the economy of a
whole region of Macedonia in particular. Precisely, the recession of the neighboring
countries and the euro-zone countries (countries with which Macedonia has trade
links) quickly afect the distribution of the efects of the crisis on local businesses
and the immediate impact on trade exchange and balance of payment system. All
these indicators quickly led to the destabilization of all other macroeconomic
parameters, and that given the rising unemployment, shrinking monetary policy and
thus decreased the growth rate of lending, and noted deterioration of credit quality.
Terefore, these tight fnancial conditions will infuence the activities of businesses
and business fnancing structure in the short and medium term. Terefore, businesses
now began to feel the weakening of their liquidity, the mere fact of fnancial tightening,
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi*** 215
primarily from the impossibility of obtaining credit through banks and reduction in
fnancial market activities.
In this work we have items cross-sectional analysis which is taken into account
these variables: liquidity, proftability, fnancial leverage, fxed assets, proftability,
employees, liabilities of the frm, etc... In our case all the variables included in the
analysis showed signifcant which means that all have an impact on the liquidity of the
business structure, which in essence represents the research answered the question
which are the determinants afecting the liquidity of businesses in the region and
beyond. Simultaneously with this we get the answer to the question that are the
attributes involved in the heterogeneity of the variables relations between dependent
and independent variables. Te sample consists of 150 companies operating in the
Pollog region. Te data used in empirical analysis are obtained from annual reports of
business development in the region in question.
2 Literature review
SME play a particularly important role in economic development: SMEs generate
a disproportionate share of job opportunities; SMEs contribute substantively to
the gross Domestic Product (GDP); and SMEs spur innovation. Prior to the global
fnancial crisis, SMEs already faced multiple obstacles.
In recent years there has been an increased focus on the relationship between
frm’s strategic orientation and frm performance (Madsen, 2007). Prior studies have
generally found a positive relationship between EO (entrepreneurial orientation)
and frm performance (Madsen, 2007; Wiklund & Shephe-rd, 2005; Jantunen et al,
2005). However, there are also studies where such a relationship has not been found
(Smart & Conant, 1994). Typically, the measure that has been used to assess the
frm performance has been a combination of both proftability measures and growth
measures (Avlonitis & Salavou, 2007; Wiklund, 1999; Covin & Slevin, 1989).
Liquidity is a very important economic category, even if we examine the macro
or micro economic. If may be said that liquidity is fat, which facilitates the smooth
functioning of fnancial markets (in the macro sense) and the mechanism of the
existence of long-term stage companies in the micro sense, hence the lack of liquidity
is a form of friction in the system (Stoll, 2000). Tus, the negative efects of lack of
liquidity can be harmful, especially the value of assets, demonstrated by (Amihud
and Mendelson, 1986). Also, in the period leading cause of lack of liquidity was the
presentation of the crisis in fnancial markets.
J. Alan Taub investigated the relationship between variables that explain the
infuence of various factors in business decision making regarding fnancing activity.
For this purpose, the author considered the sample of 89 frms for 10 years, from year
1960 to 1969. For empirical treatment was used to model two types of tests: the test of
probability and t - test. Empirical results show that the diferences between the returns
Konferenca e Katërt Ndërkombëtare për Riskun — QSHR 216
of the frm and the interest rate on long term and frm size that have shown positive
infuence on the debt to equity ratio. Te uncertainty of the frm’s income is shown to
have negative impact on the debt to equity ratio. Results for the remaining variables
were contrary to expectations.
Fakher Buferna, Kenbata Bangassa and Lynn Hodgkinson (2005) provided
empirical evidence for theories of capital structure that frm of developed countries.
Independent variables were fnancial leverage report and explanatory variables were
frm size, frm growth opportunities, and debt ratio of frm assets and proftability
of the frm. Te sample of this research was based on 5 years by treating the data
from 1995 to 1999 for 55 companies. Teory and empirical evidence suggest that deep
economic crises have profound efects on frms, but the efects are uneven between
the frms (Narjoko & Hill, 2007). In this framework it is essential to further investigate
if there are some frm specifc strategic factors that enable SMEs to bear better this
kind of challenging changes in the surrounding environment. Economic recessions
and frms in these harsh environments have ofered a fruitful setting for researchers
for decades. An ample strand of literature called the turnaround strategy literature
(e.g. Pearce II & Robbins, 1994; Laitinen, 2000; Cater & Schwab, 2008; Naidoo, 2010)
has focused on frms’ strategies used to survive and meet the performance targets
during recessionary periods of time. Some of these turnaround strategies resemble
very closely the dimensions of the entrepreneurial orientation, and therefore, we
are interested to see if the entrepreneurial orientation has a positive efect on frms
struggling to overcome the recession.
Empirical studies fnd mixed evidence. Wiwattanakantang (1999), Booth et al.
(2001), Pandey (2001), Al-Sakran (2001), and Huang and Song (2002) fnd a signifcant
positive relationship between leverage ratios and size in developing countries. While
Rajan and Zingales (1995) fnd a positive relationship between size and leverage in
G-7 countries, Titman and Wessels (1988) report a positive correlation between the
size of the frm and the total debt ratio and the long-term debt ratio. On the other
hand, Bevan and Danbolt (2002) report that size is found to be negatively related to
short-term debt and positively related to long-term debt.
Teory and empirical evidence suggest that deep economic crises have profound
efects on frms, but the efects are uneven between the frms (Narjoko & Hill, 2007).
In this framework it is essential to further investigate if there are some frm specifc
strategic factors that enable SMEs to bear better this kind of challenging changes
in the surrounding environment. Economic recessions and frms in these harsh
environments have ofered a fruitful setting for researchers for decades. An ample
strand of literature called the turnaround strategy literature (e.g. Pearce II & Robbins,
1994; Laitinen, 2000; Cater & Schwab, 2008; Naidoo, 2010) has focused on frms’
strategies used to survive and meet the performance targets during recessionary
periods of time. Some of these turnaround strategies resemble very closely the
dimensions of the entrepreneurial orientation, and therefore, we are interested to see
if the entrepreneurial orientation has a positive efect on frms struggling to overcome
the recession.
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi*** 217
Table 19.1 — Macroeconomic indicators in Republic of Macedonia. Source: www.
Economywatch.com.
Indicator 2010 2009 2008 2007 2006 2005 2004 2003
GDP Growth (Constant
Prices, National Currency) for
Macedonia 3.97 3.98 4.01 4.2 3.65 3 0.7 -0.9
GDP (Current Prices, National
Currency) for Macedonia,
(billion) 641.6 605.4 563.2 521.5 488.8 454.6 423.9 409
Infation, Average Consumer
Prices (Indexed to Year 2000)
for Macedonia, in other Years 116.5 114.3 112.2 110.2 108.1 106 100.8 99.3
Total Government Gross
Debt (National Currency) for
Macedonia, in other Years
(billion) 166.7 158.3 148.6 141.4 133.8 121.9 105.2 97.9
Infation (End of Year Change
%) for Macedonia, in other
Years 1.9 1.8 1.8 1.9 2 7.5 2.96 -1.64
Te table shows that GDP from 2003 until 2008 is trend to rice, where in 2009
this trend reduced from 4.1% to 3.98% and in 2010 reduced to 3.97%. All this are
results of fnancial crisis that came over the world economy. Also another important
indicator of Macedonian economy is public debt. Public debt rose from 97.86 billion
denar in 2003 to 166.68 billion denar in 2010. Tese indicators tell us about the state
of Macedonian economy through the years. As we see all indicators point to the
deplorable situation of the Macedonian economy and thereby also to SMEs operating
in the country.
3 Efects of the economic crisis in Greece on the
Macedonian economy
Macedonia as a small open economy, cannot achieve good growth rates and to
operate successfully isolated from its environment (foreign trading partners and
investors). Terefore, the various shocks in the environment which is important
for our economy are easily transmitted as a spiral in our economy. Te reduction in
economic activity the most important trade partners of Macedonia negatively afect
foreign efective demand, which in 2009 was the deepest historical decline of 3.7%.
Efective demand by Greece is far less than the total foreign efective demand of
Macedonia. In the period 2010 - 2011 years. Has noticed a clear distinction between
foreign efective demand and foreign efective demand without Greece, it can be
concluded that the reduced efective demand by Greece will lead to reduction of total
Konferenca e Katërt Ndërkombëtare për Riskun — QSHR 218
foreign efective demand but the efects of reduced efective demand by Greece have
small and less signifcant efects on total foreign efective demand.
Deep economic crisis that is currently shaking our neighbor R. Greece has
emerged as a new variable in the prediction and planning of economic activity barked
loudly with all the economic variables in the Macedonian economy. Te dominant
part of the analysis will focus on determining the future efects of the economic crisis
on Greece: foreign efective demand of Macedonia (exports and trade trends), fows
of foreign direct investment and other direct and indirect efects (efects on GDP, the
exchange rate and foreign exchange reserves, the banking sector, etc.).
4 Methodology of research
Tis research paper investigates the impact of fnancial crisis in proftability of small
and medium enterprises that operate in the region of Pollog. In this study we treated 150
frms of various activities, classifed as small and medium enterprises according to law
in force that defnes the activity of frms in the real sector of economy. Te necessary
data, which are used in this work are the fnancial reports provided by the respective
frms. We defne these research important determinants of decisions related to capital
structure. Te methodology used in this paper is built on the basis of the methodology
that the small amount of squares, using data to cross. Tis methodology enables that
through multivariable regression analysis, to analyze the efects of diferent variables
that afect business decision, on the basis that the capital structure and liquidity. So
the main purpose of this methodology is ; the small amount of squares to be applied
through regression analysis that multivariable change is forecast to average depended
variables (proftability), as a result of unit change in explanatory variables.
In order to analyze how the fnancial crisis has afected on the proftability of
SMEs in the Pollog region so we use regression analysis for 2008, 2009 and 2010.
4.1 Empirical Analysis
For our quantitative analysis we used the correlation between variables and
regression analysis. Correlation between variables will help us to measure the
association between explanatory variables and their association with pendant variable.
Correlation is calculated for all explanatory variables. Regression analysis is used
to accurately measure the individual efect of explanatory variables in the relation
between variable and their hangers.
4.2 Analysis of descriptive data
Determinants of capital structure of small frms and medium of Pollog region are
studied individually, through the calculation of the maximum, minimum, average,
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi*** 219
standard deviation and standard error. Descriptive analyses were conducted in order
to assistant and empirical analysis to support the fndings of empirical analysis. Table
2 shows that there are negative values for minimum values, for e.g. observe any of the
frms has operated at a loss during the fscal year.
Table 19.2 — Descriptive statistics.
Variable N Minimum Maximum Mean
Standard
Deviation
Proftability 2008 150 -5.1619 1.3268 0.0097 0.0414
ROA 2008 150 -0.3182 1.9186 0.0828 0.0186
ROE 2008 150 -9.3378 11.5774 0.1437 0.1117
LN Age 2008 150 0.0000 2.30255 1.9581 0.0554
LN Size 2008 150 0.0000 19.3300 12.5246 0.4004
LN Liability 2008 Liability/
Assets
150 0.0000 23.3478 1.13489 0.21345
Proftability 2009 150 -13.786 1.3268 -91.867 91.910
ROA 2009 150 -0.3949 1.9186 0.1090 0.0205
ROE 2009 150 -8.1334 11.5773 0.2841 0.1256
LN Age 2009 150 0.0000 2.3025 1.9581 0.0554
LN Size 2009 150 0.0000 19.4275 13.5167 0.2991
LN Liability 2009 Liability/
Assets
150
Proftability 2010 150 -5.1619 1.32686 0.04340 0.0423
ROA 2010 150 -0.3182 1.91867 0.1110 0.0203
ROE 2010 150 -3.0586 11.5773 0.3377 0.11229
LN Age 2010 150 0.0000 2.30258 1.95810 0.05543
LN Size 2010 150 0.000 19.4519 13.6951 0.27561
LN Liability 2010 Liability/
Assets
150 -3.3234 2.64364 -0.4830 0.07419
Table 19.3 — Regression analysis.
Coefcient
Standard
deviation
t P
Proftability 2008 -0.0187 0.1285 -0.1455 0.8845 -0.2727 0.2353
ROA 2008 0.8674 0.1697 5.1123 0.0000 0.5320 1.2027
ROE 2008 -0.0545 0.0286 -1.9060 0.0586 -0.1109 0.0020
LN Age 2008 -0.0715 0.0653 -1.0950 0.2754 -0.2004 0.0575
LN Size 2008 0.0090 0.0089 1.0091 0.3146 -0.0086 0.0267
LN Liability 2008
Liability/Assets 0.0250 0.0432 0.5783 0.5640 -0.0604 0.1104
ROA 2008 -0.0187 0.1285 -0.1455 0.8845 -0.2727 0.2353
Multiple R= 0.426 R Square =0.1819 Adjusted R Square=0.1534
Konferenca e Katërt Ndërkombëtare për Riskun — QSHR 220
Proftability 2009 -1.0675 0.4657 -2.2922 0.0234 -1.9880 -0.1469
ROA 2009 1.3149 0.3919 3.3556 0.0010 0.5403 2.0895
ROE 2009 -0.0086 0.0704 -0.1227 0.9025 -0.1478 0.1305
LN Age 2009 -0.1621 0.1411 -1.1483 0.2528 -0.4410 0.1169
LN Size 2009 0.0828 0.0266 3.1130 0.0022 0.0302 0.1353
LN Liability 2009
Liability/Assets -0.0652 0.1496 -0.4357 0.6637 -0.3610 0.2306
ROA 2009 0.0452 0.0820 0.5510 0.5825 -0.1169 0.2073
Multiple R= 0.392 R Square =0.1593 Adjusted R Square=0.1241
Proftability 2010 -0.0535 0.1934 -0.2764 0.7827 -0.4358 0.3289
ROA 2010 0.8284 0.1625 5.0985 0.0000 0.5072 1.1496
ROE 2010 -0.0362 0.0291 -1.2439 0.2156 -0.0936 0.0213
LN Age 2010 -0.0683 0.0583 -1.1705 0.2437 -0.1835 0.0470
LN Size 2010 0.0130 0.0113 1.1468 0.2534 -0.0094 0.0353
LN Liability 2010
Liability/Assets 0.0385 0.0628 0.6133 0.5407 -0.0856 0.1626
ROA 2010 -0.0535 0.1934 -0.2764 0.7827 -0.4358 0.3289
Multiple R= 0.423 R Square =0.1789 Adjusted R Square=0.1445
5 Conclusion
Te results of multiple linear regressions with fnancial performance indicators as
dependent variables are shown in Table 3. In these regression models we predict the
fnancials of 2009 15 using the 2008 values as control variables and EO dimensions
as independent variables. Te models for the two volume indicators (operating
revenue and total assets) give very similar results. Te R squares are above 0.18, the
lagged fnancial indicator has a positive coefcient with a very large t-value, and
innovativeness/proactiveness dimension has a signifcant positive efect while risk-
taking is not signifcant. Tus, the more innovative and proactive frms have sufered
less in terms of the operations volume. Te proftability models are also signifcant
but the R squares are somewhat lower than in the volume models. Te proftability
measures are largely dependent on the previous year’s values, but to a notably lesser
extent than the volume measures. Risk-taking has negative efects which are signifcant
or close to signifcance. Tat means that the more risk taking a company is, the more
its liquidity and proftability have decreased during the crisis.
From the results of the regression analysis we saw that all coefcients are
statistically diferent from zero (statistical signifcance), thus increase the explanatory
power of the model.
From the regression analysis shows that the proftability coefcient has changed
from year to year, in 2008 this coefcient was -0,0187 in 2009 was reduced in 2010
-1,067 and -0,053. So according to above mentioned analysis we can conclude that the
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi*** 221
proftability of enterprises in 2009 was lower due to the fnancial crisis that conquered
Macedonia. From the regression analysis shows that variables return on assets (ROA)
in the three years has greater statistical signifcance.
Spondents in 2008 and ROA of 1% will indicate in increasing the proftability
of 0, 86%. In 2009 this ratio varies from 1% a pendants, the ROA will impact on
increasing the proftability of 1,31% and in 2010 the ROA of 1% will afect the growth
and proftability by 0,828%. From all regression analysis to conclude that the fnancial
situation of enterprises in the Pollog region weren’t immune to the fnancial crisis.
Worst situation is observed had noticed in 2009 where the coefcient of
proftability has been lower. ROA was obtained as the ratio between profts and assets
of the company. Increase ROA in 2009 is the result of non distributions of proft to
the utilities. Non-distribution of proft was the result of panic of enterprises from the
fnancial crisis on the one hand, while on the other hand was a result of changing the
law on proft tax in the Republic of Macedonia. According to legal changes, enterprises
can not distribute profts also they are not obliged to pay tax. Also, it was the cause
which motivated the enterprises to accumulate proft made.
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doc_548616001.pdf
Our paper about impact of financial crisis on the profitability of sme in the republic of macedonia.
R
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K
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Impact of fnancial crisis on the
proftability of sme in the Republic of
Macedonia – pollog region
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi***
Lector at the State University of Tetovo, Macedonia
*PHD candidate, Tel:0038970278236, @: [email protected]
**PHD candidate, @: [email protected]
***Mr., @: [email protected]
Abstract
SME play a signifcant role in all economies and are key agents of employment,
innovation and growth. A signifcant number of SME could use funds productively
if they were available, but are ofen denied access to fnancing, thus impeding their
creation, survival and growth. Although SME form a broad spectrum as far as their
relative size, sector of activity, seniority, location and performance are concerned,
there is a vital need for innovative solutions for their fnancing in particular for
innovative and high growth SME in a globalised knowledge based economy.
Trough this paper will try to explore the impact of fnancial crisis in the
proftability of SME in the Republic of Macedonia- Pollog region. Given that
Macedonia is a small country with an economy not quite developed, small enterprises
and medium enterprises play a decisive role in economic development of this country.
Konferenca e Katërt Ndërkombëtare për Riskun — QSHR 214
Te sample consist 150 SME operating in the Pollog region. Te data used in
empirical analysis are obtained from annual reports of business development. From
the results of this paper is expected to highlight determinants that have the more
impact in the proftability of businesses.
Key words: Financial crisis, proftability, SME, fnancing
1 Introduction
Te fnancial crisis that erupted in mid-2008 led to an expansion of public
debt in many economies of advanced countries. Governments were forced to
make the capitalization of banks, take over a large debt to arise in the failure of
fnancial institutions, and to introduce major incentive programs to revive demand.
Involvement of the world economy from fnancial crisis was refected very negatively
on the economies of diferent countries, and once on business activities in general.
Balkan region countries, which are part of Macedonia, are afected by this crisis, to
what extent was the impact on them is relying specifc macroeconomic conditions
where countries are located, diferent levels of structural reforms carried out, and their
exposure the crisis. At the beginning of the crisis impact on developing economies,
in a way we can say that it was limited, (taking into account that the crisis started in
developed economies), but this crisis was quickly transformed into a global economic
crisis, which brought tremendous consequences in the real and fnancial sectors of
the economy. Economic crisis, many countries included rapid (essentially businesses
in the country), starting from the countries that generated the fnancial crisis (U.S.),
European Union and beyond, which includes Macedonia itself. Economic sector in
Macedonia comprise entirely of small and medium enterprises, who at the leading
participation in economic growth and reducing unemployment. According to data
available on 90% of the existing enterprises consist of small enterprises with about 15
employees. Macedonia as a small economy and open trade with an orientation towards
Euro-zone countries was afected more rapid decline in foreign demand, and increase
the rate of unemployment in some neighboring countries to the EU which caused a
decrease in workers’ remittances, export reduction, reduction of foreign investment,
etc., that these sources are treated as one of the most important to the economy of a
whole region of Macedonia in particular. Precisely, the recession of the neighboring
countries and the euro-zone countries (countries with which Macedonia has trade
links) quickly afect the distribution of the efects of the crisis on local businesses
and the immediate impact on trade exchange and balance of payment system. All
these indicators quickly led to the destabilization of all other macroeconomic
parameters, and that given the rising unemployment, shrinking monetary policy and
thus decreased the growth rate of lending, and noted deterioration of credit quality.
Terefore, these tight fnancial conditions will infuence the activities of businesses
and business fnancing structure in the short and medium term. Terefore, businesses
now began to feel the weakening of their liquidity, the mere fact of fnancial tightening,
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi*** 215
primarily from the impossibility of obtaining credit through banks and reduction in
fnancial market activities.
In this work we have items cross-sectional analysis which is taken into account
these variables: liquidity, proftability, fnancial leverage, fxed assets, proftability,
employees, liabilities of the frm, etc... In our case all the variables included in the
analysis showed signifcant which means that all have an impact on the liquidity of the
business structure, which in essence represents the research answered the question
which are the determinants afecting the liquidity of businesses in the region and
beyond. Simultaneously with this we get the answer to the question that are the
attributes involved in the heterogeneity of the variables relations between dependent
and independent variables. Te sample consists of 150 companies operating in the
Pollog region. Te data used in empirical analysis are obtained from annual reports of
business development in the region in question.
2 Literature review
SME play a particularly important role in economic development: SMEs generate
a disproportionate share of job opportunities; SMEs contribute substantively to
the gross Domestic Product (GDP); and SMEs spur innovation. Prior to the global
fnancial crisis, SMEs already faced multiple obstacles.
In recent years there has been an increased focus on the relationship between
frm’s strategic orientation and frm performance (Madsen, 2007). Prior studies have
generally found a positive relationship between EO (entrepreneurial orientation)
and frm performance (Madsen, 2007; Wiklund & Shephe-rd, 2005; Jantunen et al,
2005). However, there are also studies where such a relationship has not been found
(Smart & Conant, 1994). Typically, the measure that has been used to assess the
frm performance has been a combination of both proftability measures and growth
measures (Avlonitis & Salavou, 2007; Wiklund, 1999; Covin & Slevin, 1989).
Liquidity is a very important economic category, even if we examine the macro
or micro economic. If may be said that liquidity is fat, which facilitates the smooth
functioning of fnancial markets (in the macro sense) and the mechanism of the
existence of long-term stage companies in the micro sense, hence the lack of liquidity
is a form of friction in the system (Stoll, 2000). Tus, the negative efects of lack of
liquidity can be harmful, especially the value of assets, demonstrated by (Amihud
and Mendelson, 1986). Also, in the period leading cause of lack of liquidity was the
presentation of the crisis in fnancial markets.
J. Alan Taub investigated the relationship between variables that explain the
infuence of various factors in business decision making regarding fnancing activity.
For this purpose, the author considered the sample of 89 frms for 10 years, from year
1960 to 1969. For empirical treatment was used to model two types of tests: the test of
probability and t - test. Empirical results show that the diferences between the returns
Konferenca e Katërt Ndërkombëtare për Riskun — QSHR 216
of the frm and the interest rate on long term and frm size that have shown positive
infuence on the debt to equity ratio. Te uncertainty of the frm’s income is shown to
have negative impact on the debt to equity ratio. Results for the remaining variables
were contrary to expectations.
Fakher Buferna, Kenbata Bangassa and Lynn Hodgkinson (2005) provided
empirical evidence for theories of capital structure that frm of developed countries.
Independent variables were fnancial leverage report and explanatory variables were
frm size, frm growth opportunities, and debt ratio of frm assets and proftability
of the frm. Te sample of this research was based on 5 years by treating the data
from 1995 to 1999 for 55 companies. Teory and empirical evidence suggest that deep
economic crises have profound efects on frms, but the efects are uneven between
the frms (Narjoko & Hill, 2007). In this framework it is essential to further investigate
if there are some frm specifc strategic factors that enable SMEs to bear better this
kind of challenging changes in the surrounding environment. Economic recessions
and frms in these harsh environments have ofered a fruitful setting for researchers
for decades. An ample strand of literature called the turnaround strategy literature
(e.g. Pearce II & Robbins, 1994; Laitinen, 2000; Cater & Schwab, 2008; Naidoo, 2010)
has focused on frms’ strategies used to survive and meet the performance targets
during recessionary periods of time. Some of these turnaround strategies resemble
very closely the dimensions of the entrepreneurial orientation, and therefore, we
are interested to see if the entrepreneurial orientation has a positive efect on frms
struggling to overcome the recession.
Empirical studies fnd mixed evidence. Wiwattanakantang (1999), Booth et al.
(2001), Pandey (2001), Al-Sakran (2001), and Huang and Song (2002) fnd a signifcant
positive relationship between leverage ratios and size in developing countries. While
Rajan and Zingales (1995) fnd a positive relationship between size and leverage in
G-7 countries, Titman and Wessels (1988) report a positive correlation between the
size of the frm and the total debt ratio and the long-term debt ratio. On the other
hand, Bevan and Danbolt (2002) report that size is found to be negatively related to
short-term debt and positively related to long-term debt.
Teory and empirical evidence suggest that deep economic crises have profound
efects on frms, but the efects are uneven between the frms (Narjoko & Hill, 2007).
In this framework it is essential to further investigate if there are some frm specifc
strategic factors that enable SMEs to bear better this kind of challenging changes
in the surrounding environment. Economic recessions and frms in these harsh
environments have ofered a fruitful setting for researchers for decades. An ample
strand of literature called the turnaround strategy literature (e.g. Pearce II & Robbins,
1994; Laitinen, 2000; Cater & Schwab, 2008; Naidoo, 2010) has focused on frms’
strategies used to survive and meet the performance targets during recessionary
periods of time. Some of these turnaround strategies resemble very closely the
dimensions of the entrepreneurial orientation, and therefore, we are interested to see
if the entrepreneurial orientation has a positive efect on frms struggling to overcome
the recession.
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi*** 217
Table 19.1 — Macroeconomic indicators in Republic of Macedonia. Source: www.
Economywatch.com.
Indicator 2010 2009 2008 2007 2006 2005 2004 2003
GDP Growth (Constant
Prices, National Currency) for
Macedonia 3.97 3.98 4.01 4.2 3.65 3 0.7 -0.9
GDP (Current Prices, National
Currency) for Macedonia,
(billion) 641.6 605.4 563.2 521.5 488.8 454.6 423.9 409
Infation, Average Consumer
Prices (Indexed to Year 2000)
for Macedonia, in other Years 116.5 114.3 112.2 110.2 108.1 106 100.8 99.3
Total Government Gross
Debt (National Currency) for
Macedonia, in other Years
(billion) 166.7 158.3 148.6 141.4 133.8 121.9 105.2 97.9
Infation (End of Year Change
%) for Macedonia, in other
Years 1.9 1.8 1.8 1.9 2 7.5 2.96 -1.64
Te table shows that GDP from 2003 until 2008 is trend to rice, where in 2009
this trend reduced from 4.1% to 3.98% and in 2010 reduced to 3.97%. All this are
results of fnancial crisis that came over the world economy. Also another important
indicator of Macedonian economy is public debt. Public debt rose from 97.86 billion
denar in 2003 to 166.68 billion denar in 2010. Tese indicators tell us about the state
of Macedonian economy through the years. As we see all indicators point to the
deplorable situation of the Macedonian economy and thereby also to SMEs operating
in the country.
3 Efects of the economic crisis in Greece on the
Macedonian economy
Macedonia as a small open economy, cannot achieve good growth rates and to
operate successfully isolated from its environment (foreign trading partners and
investors). Terefore, the various shocks in the environment which is important
for our economy are easily transmitted as a spiral in our economy. Te reduction in
economic activity the most important trade partners of Macedonia negatively afect
foreign efective demand, which in 2009 was the deepest historical decline of 3.7%.
Efective demand by Greece is far less than the total foreign efective demand of
Macedonia. In the period 2010 - 2011 years. Has noticed a clear distinction between
foreign efective demand and foreign efective demand without Greece, it can be
concluded that the reduced efective demand by Greece will lead to reduction of total
Konferenca e Katërt Ndërkombëtare për Riskun — QSHR 218
foreign efective demand but the efects of reduced efective demand by Greece have
small and less signifcant efects on total foreign efective demand.
Deep economic crisis that is currently shaking our neighbor R. Greece has
emerged as a new variable in the prediction and planning of economic activity barked
loudly with all the economic variables in the Macedonian economy. Te dominant
part of the analysis will focus on determining the future efects of the economic crisis
on Greece: foreign efective demand of Macedonia (exports and trade trends), fows
of foreign direct investment and other direct and indirect efects (efects on GDP, the
exchange rate and foreign exchange reserves, the banking sector, etc.).
4 Methodology of research
Tis research paper investigates the impact of fnancial crisis in proftability of small
and medium enterprises that operate in the region of Pollog. In this study we treated 150
frms of various activities, classifed as small and medium enterprises according to law
in force that defnes the activity of frms in the real sector of economy. Te necessary
data, which are used in this work are the fnancial reports provided by the respective
frms. We defne these research important determinants of decisions related to capital
structure. Te methodology used in this paper is built on the basis of the methodology
that the small amount of squares, using data to cross. Tis methodology enables that
through multivariable regression analysis, to analyze the efects of diferent variables
that afect business decision, on the basis that the capital structure and liquidity. So
the main purpose of this methodology is ; the small amount of squares to be applied
through regression analysis that multivariable change is forecast to average depended
variables (proftability), as a result of unit change in explanatory variables.
In order to analyze how the fnancial crisis has afected on the proftability of
SMEs in the Pollog region so we use regression analysis for 2008, 2009 and 2010.
4.1 Empirical Analysis
For our quantitative analysis we used the correlation between variables and
regression analysis. Correlation between variables will help us to measure the
association between explanatory variables and their association with pendant variable.
Correlation is calculated for all explanatory variables. Regression analysis is used
to accurately measure the individual efect of explanatory variables in the relation
between variable and their hangers.
4.2 Analysis of descriptive data
Determinants of capital structure of small frms and medium of Pollog region are
studied individually, through the calculation of the maximum, minimum, average,
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi*** 219
standard deviation and standard error. Descriptive analyses were conducted in order
to assistant and empirical analysis to support the fndings of empirical analysis. Table
2 shows that there are negative values for minimum values, for e.g. observe any of the
frms has operated at a loss during the fscal year.
Table 19.2 — Descriptive statistics.
Variable N Minimum Maximum Mean
Standard
Deviation
Proftability 2008 150 -5.1619 1.3268 0.0097 0.0414
ROA 2008 150 -0.3182 1.9186 0.0828 0.0186
ROE 2008 150 -9.3378 11.5774 0.1437 0.1117
LN Age 2008 150 0.0000 2.30255 1.9581 0.0554
LN Size 2008 150 0.0000 19.3300 12.5246 0.4004
LN Liability 2008 Liability/
Assets
150 0.0000 23.3478 1.13489 0.21345
Proftability 2009 150 -13.786 1.3268 -91.867 91.910
ROA 2009 150 -0.3949 1.9186 0.1090 0.0205
ROE 2009 150 -8.1334 11.5773 0.2841 0.1256
LN Age 2009 150 0.0000 2.3025 1.9581 0.0554
LN Size 2009 150 0.0000 19.4275 13.5167 0.2991
LN Liability 2009 Liability/
Assets
150
Proftability 2010 150 -5.1619 1.32686 0.04340 0.0423
ROA 2010 150 -0.3182 1.91867 0.1110 0.0203
ROE 2010 150 -3.0586 11.5773 0.3377 0.11229
LN Age 2010 150 0.0000 2.30258 1.95810 0.05543
LN Size 2010 150 0.000 19.4519 13.6951 0.27561
LN Liability 2010 Liability/
Assets
150 -3.3234 2.64364 -0.4830 0.07419
Table 19.3 — Regression analysis.
Coefcient
Standard
deviation
t P
Proftability 2008 -0.0187 0.1285 -0.1455 0.8845 -0.2727 0.2353
ROA 2008 0.8674 0.1697 5.1123 0.0000 0.5320 1.2027
ROE 2008 -0.0545 0.0286 -1.9060 0.0586 -0.1109 0.0020
LN Age 2008 -0.0715 0.0653 -1.0950 0.2754 -0.2004 0.0575
LN Size 2008 0.0090 0.0089 1.0091 0.3146 -0.0086 0.0267
LN Liability 2008
Liability/Assets 0.0250 0.0432 0.5783 0.5640 -0.0604 0.1104
ROA 2008 -0.0187 0.1285 -0.1455 0.8845 -0.2727 0.2353
Multiple R= 0.426 R Square =0.1819 Adjusted R Square=0.1534
Konferenca e Katërt Ndërkombëtare për Riskun — QSHR 220
Proftability 2009 -1.0675 0.4657 -2.2922 0.0234 -1.9880 -0.1469
ROA 2009 1.3149 0.3919 3.3556 0.0010 0.5403 2.0895
ROE 2009 -0.0086 0.0704 -0.1227 0.9025 -0.1478 0.1305
LN Age 2009 -0.1621 0.1411 -1.1483 0.2528 -0.4410 0.1169
LN Size 2009 0.0828 0.0266 3.1130 0.0022 0.0302 0.1353
LN Liability 2009
Liability/Assets -0.0652 0.1496 -0.4357 0.6637 -0.3610 0.2306
ROA 2009 0.0452 0.0820 0.5510 0.5825 -0.1169 0.2073
Multiple R= 0.392 R Square =0.1593 Adjusted R Square=0.1241
Proftability 2010 -0.0535 0.1934 -0.2764 0.7827 -0.4358 0.3289
ROA 2010 0.8284 0.1625 5.0985 0.0000 0.5072 1.1496
ROE 2010 -0.0362 0.0291 -1.2439 0.2156 -0.0936 0.0213
LN Age 2010 -0.0683 0.0583 -1.1705 0.2437 -0.1835 0.0470
LN Size 2010 0.0130 0.0113 1.1468 0.2534 -0.0094 0.0353
LN Liability 2010
Liability/Assets 0.0385 0.0628 0.6133 0.5407 -0.0856 0.1626
ROA 2010 -0.0535 0.1934 -0.2764 0.7827 -0.4358 0.3289
Multiple R= 0.423 R Square =0.1789 Adjusted R Square=0.1445
5 Conclusion
Te results of multiple linear regressions with fnancial performance indicators as
dependent variables are shown in Table 3. In these regression models we predict the
fnancials of 2009 15 using the 2008 values as control variables and EO dimensions
as independent variables. Te models for the two volume indicators (operating
revenue and total assets) give very similar results. Te R squares are above 0.18, the
lagged fnancial indicator has a positive coefcient with a very large t-value, and
innovativeness/proactiveness dimension has a signifcant positive efect while risk-
taking is not signifcant. Tus, the more innovative and proactive frms have sufered
less in terms of the operations volume. Te proftability models are also signifcant
but the R squares are somewhat lower than in the volume models. Te proftability
measures are largely dependent on the previous year’s values, but to a notably lesser
extent than the volume measures. Risk-taking has negative efects which are signifcant
or close to signifcance. Tat means that the more risk taking a company is, the more
its liquidity and proftability have decreased during the crisis.
From the results of the regression analysis we saw that all coefcients are
statistically diferent from zero (statistical signifcance), thus increase the explanatory
power of the model.
From the regression analysis shows that the proftability coefcient has changed
from year to year, in 2008 this coefcient was -0,0187 in 2009 was reduced in 2010
-1,067 and -0,053. So according to above mentioned analysis we can conclude that the
Rametulla Ferati,* Aida Yzeiri,** Elsana Ejupi*** 221
proftability of enterprises in 2009 was lower due to the fnancial crisis that conquered
Macedonia. From the regression analysis shows that variables return on assets (ROA)
in the three years has greater statistical signifcance.
Spondents in 2008 and ROA of 1% will indicate in increasing the proftability
of 0, 86%. In 2009 this ratio varies from 1% a pendants, the ROA will impact on
increasing the proftability of 1,31% and in 2010 the ROA of 1% will afect the growth
and proftability by 0,828%. From all regression analysis to conclude that the fnancial
situation of enterprises in the Pollog region weren’t immune to the fnancial crisis.
Worst situation is observed had noticed in 2009 where the coefcient of
proftability has been lower. ROA was obtained as the ratio between profts and assets
of the company. Increase ROA in 2009 is the result of non distributions of proft to
the utilities. Non-distribution of proft was the result of panic of enterprises from the
fnancial crisis on the one hand, while on the other hand was a result of changing the
law on proft tax in the Republic of Macedonia. According to legal changes, enterprises
can not distribute profts also they are not obliged to pay tax. Also, it was the cause
which motivated the enterprises to accumulate proft made.
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