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

Nirosha Wellalage () and Krishna Reddy

Global Finance Journal, 2020, vol. 43, issue C

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.

Keywords: Generalised Least Square regression; Pacific Island; Profit reinvestment; Small and medium enterprises (SMEs); Tobit model (search for similar items in EconPapers)
JEL-codes: D23 G30 L2 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:43:y:2020:i:c:s1044028317302089

DOI: 10.1016/j.gfj.2017.11.001

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