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

Alfredo Grau () and Araceli Reig
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Alfredo Grau: University of Valencia
Araceli Reig: University of Valencia

Small Business Economics, 2021, vol. 57, issue 1, No 10, 242 pages

Abstract: 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.

Keywords: Operating leverage; Return on assets; Innovation and specificity; Europe (search for similar items in EconPapers)
JEL-codes: G31 G32 L26 M20 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11187-019-00294-y

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