Italian SMEs are the driving force behind the Italian economy. They operate in all the economic sectors, include approximately 4 million firms and make up, in most cases, the basic assets of the families they belong to. Half a million of these firms are based in the Veneto region where they employ approximately 5 million people. In late 2008 the global financial crisis that originated in the USA in 2007 arrived in Italy, and Italian SMEs faced a general fall in demand, high losses in receivables from customers and strong limits to bank credit access. There ensued a consequential impact on their financial performance. Now, after 5 years it is said that most companies have changed their business model and costs have been aligned to new levels of revenue. What is the final impact on profitability levels of this crisis? The economic literature suggests that the profitability of companies in the medium term period should be adequate to business risks and aligned to long term trends. Some studies analysed the financial performance of listed companies and others that of larger firms. There is a lack of studies on SMEs in the regional context (the Veneto region) that cover the past decade. The present study was based on an empirical analysis of the financial statements of the companies considered. During the period 2007-2012 we collected data from the limited liability companies in the provinces of Verona and Vicenza (both within the Veneto region) with at least 10 to 249 employees, operating in the macro sectors of manufacturing (C), building (F) and grocery and distribution (G). For each of the approximately 4,500 companies included in our study, we calculated the main financial indexes plus some specific ratios to be used in our study. We found that over the 5-year study period the companies suffered a strong reduction of profit margins (ROS). Cost reductions and increased labour productivity balanced the negative effect on margins. The final impact on profitability (after the crisis occurred) was negative. During the period 2009-12 the ROI of the companies considered declined by 40%-50%. Is this the new (lower) profitability index really linked to the business risk? Is it sustainable in a long term view?
FINANCIAL PERFORMANCE OF ITALIAN SMES IN THE VENETO REGION: EFFECT OF THE 2007 WORLD FINANCIAL CRISIS
ROFFIA, Paolo
2014-01-01
Abstract
Italian SMEs are the driving force behind the Italian economy. They operate in all the economic sectors, include approximately 4 million firms and make up, in most cases, the basic assets of the families they belong to. Half a million of these firms are based in the Veneto region where they employ approximately 5 million people. In late 2008 the global financial crisis that originated in the USA in 2007 arrived in Italy, and Italian SMEs faced a general fall in demand, high losses in receivables from customers and strong limits to bank credit access. There ensued a consequential impact on their financial performance. Now, after 5 years it is said that most companies have changed their business model and costs have been aligned to new levels of revenue. What is the final impact on profitability levels of this crisis? The economic literature suggests that the profitability of companies in the medium term period should be adequate to business risks and aligned to long term trends. Some studies analysed the financial performance of listed companies and others that of larger firms. There is a lack of studies on SMEs in the regional context (the Veneto region) that cover the past decade. The present study was based on an empirical analysis of the financial statements of the companies considered. During the period 2007-2012 we collected data from the limited liability companies in the provinces of Verona and Vicenza (both within the Veneto region) with at least 10 to 249 employees, operating in the macro sectors of manufacturing (C), building (F) and grocery and distribution (G). For each of the approximately 4,500 companies included in our study, we calculated the main financial indexes plus some specific ratios to be used in our study. We found that over the 5-year study period the companies suffered a strong reduction of profit margins (ROS). Cost reductions and increased labour productivity balanced the negative effect on margins. The final impact on profitability (after the crisis occurred) was negative. During the period 2009-12 the ROI of the companies considered declined by 40%-50%. Is this the new (lower) profitability index really linked to the business risk? Is it sustainable in a long term view?
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