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Determinants of profit reinvestment undertaken by SMEs in the small island countries

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  • Wellalage, Nirosha Hewa
  • Reddy, Krishna

Abstract

This study investigates the factors that have potential to affect profit reinvestment decisions of small- and medium-sized enterprises (SMEs) in small island countries. Using World Bank Enterprise Surveys data, and Generalised Least Square regression model, we report that access to bank loans and overdraft facilities increases profit reinvestment by SMEs by approximately 5 percent and 8 percent, respectively. Fair Judiciary also increases profit reinvestment by approximately 6 percent, whereas government expropriation leads to a reduction in reinvestment by 0.9 percent. Therefore, the policymakers in these small island countries should make an effort to improve the quality of the judiciary, and implement policies that lead to a reduction in corruption levels. Also, it is important to introduce more external finance sources for SMEs.

Suggested Citation

  • Wellalage, Nirosha Hewa & Reddy, Krishna, 2020. "Determinants of profit reinvestment undertaken by SMEs in the small island countries," Global Finance Journal, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:glofin:v:43:y:2020:i:c:s1044028317302089
    DOI: 10.1016/j.gfj.2017.11.001
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    Cited by:

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    2. Wellalage, Nirosha Hewa & Fernandez, Viviana, 2019. "Innovation and SME finance: Evidence from developing countries," International Review of Financial Analysis, Elsevier, vol. 66(C).
    3. Carmen Elena Anton & Alexandra Zamfirache & Ruxandra-Gabriela Albu & Titus Suciu & Sergiu Mihai Sofian & Oana-Andreea Ghiță-Pîrnuță, 2024. "Sustainable Entrepreneurship: Romanian Entrepreneurs’ Funding Sources in the Present-Day Context of Sustainability," Sustainability, MDPI, vol. 16(2), pages 1-29, January.

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    More about this item

    Keywords

    Generalised Least Square regression; Pacific Island; Profit reinvestment; Small and medium enterprises (SMEs); Tobit model;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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