Impact of Macroeconomic Uncertainty on European SMEs Performance

This PhD thesis investigates the multifaceted association between working capital management (WCM) and profitability for small and medium-sized businesses (SMEs) in several European countries, including Germany, France, Italy, and the United Kingdom, from2010 to2019. Understanding how SMEs manage their working capital in this shifting environment is essential, given their crucial role in economic growth and susceptibility to globalisation, technological advancements, climate change, and social shifts. The primary research problem focuses on the influence of WCM on SME profitability, with a particular emphasis on economics-based performance metrics, filling a significant gap in the body of knowledge. The study's methodology involves carefully analysing panel data using the Generalised Method of moments (GMM) and Ordinary Least Squares (OLS) regression, ensuring the reliability and robustness of the results. From this comprehensive examination, important conclusions are drawn. The Cash Conversion Cycle (CCC) of SMEs is initially found to correlate negatively with profitability. However, after accounting for endogeneity problems, this association becomes less significant. Non- moderators in the relationship between WCM and company profitability were also discovered to be macroeconomic variables such as GDP growth rates, inflation rates, and the Economic Policy Uncertainty Index (EPUI). Notably, the study underscores the substantial influence of macroeconomic conditions on WCM, which in turn affects SME profitability. The findings suggest that WCM is significantly shaped by GDP and inflation rates and that economic policy uncertainty, as evaluated by the EPUI index, has a pronounced impact on both WCM and SME profitability. These implications are crucial for SMEs and policymakers, highlighting the need for strategies to manage WCM in the face of macroeconomic uncertainty. These findings have far-reaching implications for stakeholders. SMEs can increase profitability using adaptable WCM strategies, considering firm-specific and macroeconomic aspects. Policymakers, particularly during economic uncertainty, should consider these findings when developing policies that affect SMEs' access to credit and financial resources. Nevertheless, some limitations are recognised, including the study's narrow geographic coverage, which only includes four European countries, and the absence of the long-term effects of the COVID-19 pandemic and Brexit on SMEs. Future research directions may examine the impact of additional macroeconomic parameters, such as interest rates and employment levels, on WCM and SME profitability while extending the spatial and temporal aspects of the analysis. In conclusion, this thesis offers a comprehensive view of how WCM influences SME profitability in a dynamic macroeconomic environment. It emphasises the necessity of proactive WCM tactics, particularly during unstable economic times. Future research could result in the creation of predictive models that forecast the effect of macroeconomic variables on SME profitability, enhancing the ability to make well-informed decisions about business strategy and policy design.