Fixed effects models to assess the effectiveness of entrepreneurial diversification strategy in SMEs

The purpose of this paper is to analyze the business environment, before and after 2009, and see if the divesification strategy for types of activity, chosen by Romanian SMEs, was efficient, similarly to porfolio divesification. We explore multiple types of models aiming to differentiate between two categories of companies: those with only one type of activity and those who kept their options open by having multiple types of activities. The studied companies are from the Bucharest-Ilfov metropolitan area, the variables taken into consideration are profit, number of employees, geographical position, type of activity, revenues, losses, and the time period is 2000-2012, so as to properly capture the events in 2008 without straying too far from that point in time. We fitted fixed linear regression models for panel data, with and without an interaction variable to represent the crysis, as a dummy variable, and the total number of companies as a proxy variable for the level of competition in a certain type of activity and geographical position. As a matter of expectations, we departred from a similarity with the portfolio theory, and anticipated that we ought to find significant differences in favor of those companies which allow themselves multiple types of activities, more exactly the second category. The results confirmed that there are many differences between the two categories, that companies with multiple types of activity have not been affected by the crysis as much, and they seem to have more stable profits.