Firm-Specific Factors Influencing the Performance of Young Small and Micro-Sized Firms Located in Algarve

Abstract

The main objective of this paper is to study how firm-specific factors affect the financial performance of tourism-related young small and micro-sized firms located in Algarve, Portugal, that started their activity during the last years of the debt crisis of Europe. The sample included 106 Portuguese small and micro-sized firms in the hospitality sector, established between 2012-2014, which remain active in 2019 and financial data from 2015 to 2018 was analysed. Descriptive statistics, group statistics, correlations, and regression model analyses were applied. The dependent variable representing profitability was the return on assets ratio (ROA). The independent variables were short-term, long-term and total debts, slack resources, sales growth, tangibility and size of the firm. A negative relationship between performance and long-term and short-term debts was found, confirming the theory that the most profitable firms tend to borrow less as they do not need external capital. Also, a negative relationship between ROA and tangibility was found, which means that as the level of tangible assets lessens, more intangible assets there are. These results give some hints to help tourism-related small and micro-sized firms located in Algarve take innovation, flexibility, and digitalisation strategies, particularly important during a pandemic crisis.