Operating Model or Financial Structure? Profitability in Italian SMEs

Research on small-firm profitability has organised itself around capital structure, leaving the operating model largely unexamined. This paper places both in one specification and estimates it three times — by panel methods, unsupervised partitioning and machine-learning regression — on 14,913 Italian firms observed between 2014 and 2025 across three regulatory regimes. Three findings emerge. The operating model dominates: the labour share of value added is stable across specifications, invariant across four clusters recovered from accounting data alone, and carries most of the out-of-sample predictive content. The capitalisation coefficient is not identified, changing sign across specifications; instrument failure traces to profit persistence. And the structure of profitability determination differs across the three populations, contradicting the common-mechanism premise underlying certification schemes.