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Operating leverage and profitability of SMEs: agri-food industry in Europe

Author

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  • Alfredo Grau

    (University of Valencia)

  • Araceli Reig

    (University of Valencia)

Abstract

The objective of this paper is to analyse the effect that operating leverage exerts on the profitability of SMEs, both in isolation and indirectly through its other determinants. We use panel data from a total of 9652 European agri-food SMEs from 2009 to 2016. The work’s principal contribution is the study of the SMEs of a key sector of the European economy in terms of the cost structure, since this is an issue that directly affects the competitiveness of firms, but which has not garnered sufficient attention in the literature. It also considers the importance of the institutional and legal environment on the risk assumed by companies. The results obtained confirm that operating leverage or cost structure, in addition to affecting profitability, also affects the relationship between that profitability and other sources of risk that depend on the country in which the company operates. More specifically, indebtedness, size, innovation specificity and reputation all affect profitability to a greater or lesser extent, depending on the level of operating leverage of the company.

Suggested Citation

  • Alfredo Grau & Araceli Reig, 2021. "Operating leverage and profitability of SMEs: agri-food industry in Europe," Small Business Economics, Springer, vol. 57(1), pages 221-242, June.
    • Handle: RePEc:kap:sbusec:v:57:y:2021:i:1:d:10.1007_s11187-019-00294-y
    DOI: 10.1007/s11187-019-00294-y
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    Cited by:

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    2. Maria Zuba-Ciszewska & Aneta Suchoń, 2024. "The Role of State Aid in the Achievement of the Energy Efficiency Objective in the Food Industry—The Example of Poland," Energies, MDPI, vol. 17(12), pages 1-32, June.
    3. Raza Ali & Tursoy Turgut & Shaikh Erum & Shaikh Ahsan-ul-Haque, 2024. "Investigating the Symmetric Effects of Working Capital on Profitability in Turkish Banking: An ARDL Empirical Analysis," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 34(1), pages 74-97, March.
    4. Vivien Lefebvre, 2024. "Layoffs in SMEs: The Role of Social Proximity," Journal of Business Ethics, Springer, vol. 190(4), pages 801-820, April.
    5. Yehui Tong & Ramon Saladrigues, 2022. "An analysis of factors affecting the profits of new firms in Spain: Evidence from the food industry," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(1), pages 28-38.
    6. Hamelin, Anaïs & Lefebvre, Vivien & Weill, Laurent, 2022. "No debt no performance? CEO gender matters," Economics Letters, Elsevier, vol. 219(C).
    7. Mattia Iotti & Giuseppe Bonazzi, 2023. "Financial Sustainability in Agri-Food Companies: The Case of Members of the PDO Parma Ham Consortium," Sustainability, MDPI, vol. 15(5), pages 1-31, February.
    8. Vivien Lefebvre, 2023. "Mobilizing potential slack and firm performance: Evidence from French SMEs before and during the COVID-19 period," Post-Print hal-04585954, HAL.
    9. Stranieri, Stefanella & Orsi, Luigi & De Noni, Ivan & Olper, Alessandro, 2023. "Geographical Indications and Innovation: Evidence from EU regions," Food Policy, Elsevier, vol. 116(C).
    10. Sherwood Lane Lambert & Kevin Krieger & Nathan Mauck, 2024. "Predicting Operating Income via a Generalized Operating-Leverage Model," IJFS, MDPI, vol. 12(1), pages 1-19, January.

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    More about this item

    Keywords

    Operating leverage; Return on assets; Innovation and specificity; Europe;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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