Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania

Albana Jupe; Ervi Kosta; Anxhela Bakiasi

doi:doi:10.11648/j.jbed.20220704.13

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Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania

Albana Jupe, Ervi Kosta, Anxhela Bakiasi

Published in Journal of Business and Economic Development (Volume 7, Issue 4)

Received: 3 July 2022 Accepted: 1 August 2022 Published: 29 December 2022

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Abstract

Small and medium enterprises (SME) comprise 99.9% of the enterprises, playing the engine of Albanian economy, employing 52.2% of active population (INSTAT 2018). Previous studies in Albania related to SME show problems related to the environment in which SMEs operate, the obstacles faced by SMEs in maintaining their market position, such as poor management, low funding opportunities, lack of specialization as well as measures to be taken at the macro level to stimulate SME development. In our paper we want to identify the main financial management tools that allow the SME to reach the profitability. The purpose of this paper is to determine the role of financial management on profitability of SME. For this aim, the financial statements and financial reporting of 100 small and medium enterprises in Tirana published by firms on National Business Center were reviewed for information and data. The study used secondary data retrieved for a five-year period covering year 2013-2017 to establish the relationship between financial practices and financial performance of SMEs. The linear regression model used to determine the relationship between ROA ratio (measures financial performance) and Liquidity management, Capital budgeting, Debt management (independent variables used to define financial management practices). In this study we will show how financial analysis as a financial management tool helps a firm achieve profitability objectives. The study was faced by certain limitations which hindered the effectiveness of data collection. The study was also limited to two financial management practices in the SMEs. This includes liquidity management and profitability management. The panel regression results revealed that Capital budgeting (ROCE) had a high positive significant effect on performance as measured using ROA. Liquidity management had a negative insignificant effect on financial performance of SMEs. Debt management had a negative significant effect on financial performance of SMEs in Tirana. The results of the study may also be limited by time and financial constraints.

Published in	Journal of Business and Economic Development (Volume 7, Issue 4)
DOI	10.11648/j.jbed.20220704.13
Page(s)	117-122
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2022. Published by Science Publishing Group

Keywords

Financial Management, SMEs, Profitability, Liquidity, Debt Management

References

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[7]	Jalilvand, Abol, and Robert Harris. 1984. “Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Studyitle.” Journal of Finance 39.
[8]	Lartey, Victor Curtis, Samuel Antwi, and Eric Kofi Boadi. 2013. “The Relationship between Liquidity and Profitability of Listed Banks in Ghana.” International Journal of Business and Social Science 4 (3): 48–56.
[9]	Lasher. 2010. Practical Financial Management. 6th edition.
[10]	Modigliani, Franco, and Merton H Miller. 1958. “The Cost Of Capital, Corporation Finance And The Theory Of Investmient.” The American economic 48 (3): 261–97.
[11]	Myers, Stewart, and Nicholas Majluf. 1984. “Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have.” Journal of Financial Economics 13: 187–221.
[12]	Ngeta, Jacqueline, Fredrick Mukoma Kalui, and Albanus Munyao. 2014. “The Relationship Between Capital Budgeting Techniques And Financial Performance Of Companies Listed At The Nairobi Stock Nexchange, Kenya.” Scholarly Research Journal for Humanity Science & English Language 1 (5): 8.
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[16]	Motohashi Kazuyuki. 2008. “Impact of the Debt Ratio on Firm Investment : A Case Study of Listed Companies in China.” Discussion Paper 08-E-011: 1–17.

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APA Style

Albana Jupe, Ervi Kosta, Anxhela Bakiasi. (2022). Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania. Journal of Business and Economic Development, 7(4), 117-122. https://doi.org/10.11648/j.jbed.20220704.13

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ACS Style

Albana Jupe; Ervi Kosta; Anxhela Bakiasi. Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania. J. Bus. Econ. Dev. 2022, 7(4), 117-122. doi: 10.11648/j.jbed.20220704.13

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AMA Style

Albana Jupe, Ervi Kosta, Anxhela Bakiasi. Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania. J Bus Econ Dev. 2022;7(4):117-122. doi: 10.11648/j.jbed.20220704.13

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@article{10.11648/j.jbed.20220704.13,
  author = {Albana Jupe and Ervi Kosta and Anxhela Bakiasi},
  title = {Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania},
  journal = {Journal of Business and Economic Development},
  volume = {7},
  number = {4},
  pages = {117-122},
  doi = {10.11648/j.jbed.20220704.13},
  url = {https://doi.org/10.11648/j.jbed.20220704.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20220704.13},
  abstract = {Small and medium enterprises (SME) comprise 99.9% of the enterprises, playing the engine of Albanian economy, employing 52.2% of active population (INSTAT 2018). Previous studies in Albania related to SME show problems related to the environment in which SMEs operate, the obstacles faced by SMEs in maintaining their market position, such as poor management, low funding opportunities, lack of specialization as well as measures to be taken at the macro level to stimulate SME development. In our paper we want to identify the main financial management tools that allow the SME to reach the profitability. The purpose of this paper is to determine the role of financial management on profitability of SME. For this aim, the financial statements and financial reporting of 100 small and medium enterprises in Tirana published by firms on National Business Center were reviewed for information and data. The study used secondary data retrieved for a five-year period covering year 2013-2017 to establish the relationship between financial practices and financial performance of SMEs. The linear regression model used to determine the relationship between ROA ratio (measures financial performance) and Liquidity management, Capital budgeting, Debt management (independent variables used to define financial management practices). In this study we will show how financial analysis as a financial management tool helps a firm achieve profitability objectives. The study was faced by certain limitations which hindered the effectiveness of data collection. The study was also limited to two financial management practices in the SMEs. This includes liquidity management and profitability management. The panel regression results revealed that Capital budgeting (ROCE) had a high positive significant effect on performance as measured using ROA. Liquidity management had a negative insignificant effect on financial performance of SMEs. Debt management had a negative significant effect on financial performance of SMEs in Tirana. The results of the study may also be limited by time and financial constraints.},
 year = {2022}
}

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TY - JOUR
T1 - Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania
AU - Albana Jupe
AU - Ervi Kosta
AU - Anxhela Bakiasi
Y1 - 2022/12/29
PY - 2022
N1 - https://doi.org/10.11648/j.jbed.20220704.13
DO - 10.11648/j.jbed.20220704.13
T2 - Journal of Business and Economic Development
JF - Journal of Business and Economic Development
JO - Journal of Business and Economic Development
SP - 117
EP - 122
PB - Science Publishing Group
SN - 2637-3874
UR - https://doi.org/10.11648/j.jbed.20220704.13
AB - Small and medium enterprises (SME) comprise 99.9% of the enterprises, playing the engine of Albanian economy, employing 52.2% of active population (INSTAT 2018). Previous studies in Albania related to SME show problems related to the environment in which SMEs operate, the obstacles faced by SMEs in maintaining their market position, such as poor management, low funding opportunities, lack of specialization as well as measures to be taken at the macro level to stimulate SME development. In our paper we want to identify the main financial management tools that allow the SME to reach the profitability. The purpose of this paper is to determine the role of financial management on profitability of SME. For this aim, the financial statements and financial reporting of 100 small and medium enterprises in Tirana published by firms on National Business Center were reviewed for information and data. The study used secondary data retrieved for a five-year period covering year 2013-2017 to establish the relationship between financial practices and financial performance of SMEs. The linear regression model used to determine the relationship between ROA ratio (measures financial performance) and Liquidity management, Capital budgeting, Debt management (independent variables used to define financial management practices). In this study we will show how financial analysis as a financial management tool helps a firm achieve profitability objectives. The study was faced by certain limitations which hindered the effectiveness of data collection. The study was also limited to two financial management practices in the SMEs. This includes liquidity management and profitability management. The panel regression results revealed that Capital budgeting (ROCE) had a high positive significant effect on performance as measured using ROA. Liquidity management had a negative insignificant effect on financial performance of SMEs. Debt management had a negative significant effect on financial performance of SMEs in Tirana. The results of the study may also be limited by time and financial constraints.
VL - 7
IS - 4
ER -

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Author Information

Albana Jupe

Faculty of Economy and Agribusiness, Agricultural University of Tirana, Tirana, Albania
Ervi Kosta

IDRA Research and Consulting, Tirana, Albania
Anxhela Bakiasi

Tirana Agriculture, Tirana, Albania

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APA Style

Albana Jupe, Ervi Kosta, Anxhela Bakiasi. (2022). Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania. Journal of Business and Economic Development, 7(4), 117-122. https://doi.org/10.11648/j.jbed.20220704.13

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ACS Style

Albana Jupe; Ervi Kosta; Anxhela Bakiasi. Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania. J. Bus. Econ. Dev. 2022, 7(4), 117-122. doi: 10.11648/j.jbed.20220704.13

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AMA Style

Albana Jupe, Ervi Kosta, Anxhela Bakiasi. Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania. J Bus Econ Dev. 2022;7(4):117-122. doi: 10.11648/j.jbed.20220704.13

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@article{10.11648/j.jbed.20220704.13,
  author = {Albana Jupe and Ervi Kosta and Anxhela Bakiasi},
  title = {Role of Financial Management Practices on the Financial Performance of Small and Medium Enterprises in Albania},
  journal = {Journal of Business and Economic Development},
  volume = {7},
  number = {4},
  pages = {117-122},
  doi = {10.11648/j.jbed.20220704.13},
  url = {https://doi.org/10.11648/j.jbed.20220704.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20220704.13},
  abstract = {Small and medium enterprises (SME) comprise 99.9% of the enterprises, playing the engine of Albanian economy, employing 52.2% of active population (INSTAT 2018). Previous studies in Albania related to SME show problems related to the environment in which SMEs operate, the obstacles faced by SMEs in maintaining their market position, such as poor management, low funding opportunities, lack of specialization as well as measures to be taken at the macro level to stimulate SME development. In our paper we want to identify the main financial management tools that allow the SME to reach the profitability. The purpose of this paper is to determine the role of financial management on profitability of SME. For this aim, the financial statements and financial reporting of 100 small and medium enterprises in Tirana published by firms on National Business Center were reviewed for information and data. The study used secondary data retrieved for a five-year period covering year 2013-2017 to establish the relationship between financial practices and financial performance of SMEs. The linear regression model used to determine the relationship between ROA ratio (measures financial performance) and Liquidity management, Capital budgeting, Debt management (independent variables used to define financial management practices). In this study we will show how financial analysis as a financial management tool helps a firm achieve profitability objectives. The study was faced by certain limitations which hindered the effectiveness of data collection. The study was also limited to two financial management practices in the SMEs. This includes liquidity management and profitability management. The panel regression results revealed that Capital budgeting (ROCE) had a high positive significant effect on performance as measured using ROA. Liquidity management had a negative insignificant effect on financial performance of SMEs. Debt management had a negative significant effect on financial performance of SMEs in Tirana. The results of the study may also be limited by time and financial constraints.},
 year = {2022}
}

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