The Academic Journal of Contemporary Commercial Research

Vol. 3, No. 1, 2023

Faculty of Commerce, Cairo University, Egypt

Investigating the Macroeconomic and Firm Specific Determinants of

the Growth and Survival of SMEs: An Empirical Study of the
Egyptian Listed SMEs

Rania Ashraf Eldesouky a,▪ · Sara El Gazzar a · Marwa Waseem a

a Arab Academy for Science, Technology & Maritime Transport, Egypt
▪ Corresponding author: [email protected]

Abstract
Egypt faces high fluctuations in its external environment, which has triggered the
SMEs to face challenging factors. In this regard, this research investigates the firm-
specific and macroeconomic factors that may affect SMEs’ survival and growth by
applying multiple linear regression using a sample size of 23 listed SMEs at the Nile
Stock Exchange of Egypt from 2017–2021. The results of the multiple linear
regression analysis of the model of SMEs’ survival show that the model is
statistically significant. Moreover, the findings of the SMEs’ growth model are
statistically significant, but the model is weak and cannot strongly predict future
movements of SMEs’ growth. According to the authors’ knowledge, few studies
investigate the factors that influence SME growth and survival in Egypt, it is thus
recommended to apply more research in this field to the Egyptian market and to test
the influence of more variables and tools on organizations.
Keywords
SMEs, Economic growth; Exchange rate; Inflation rate; Lending interest rate;
Management efficiency; Leverage; Profitability; Pearson correlation approach and
multiple linear regression

Article history
Received: 12 December 2022 · Accepted: 26 March 2023

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1. Introduction
Small and medium-sized enterprises (SMEs) play an important role in supporting
national economies. They are considered the backbone of any emerging economy since
they help the government and its agencies in achieving their targets therefore, the
performance of SMEs can be regarded as a problem in several countries. Numerous
writings show that several internal factors (e.g., management efficiency, leverage,
profitability, etc.) and external factors (e.g., economic growth, exchange rate, inflation
rate, lending interest rate, etc.) contribute to explaining the performance of SMEs.
(Robb, 2002)
Avouba and Gilles (2022) suggest that all of these factors are necessary not only
for business formation but also for business survival and expansion. They also add that
by collectively working with large corporations, SMEs have the chance to achieve
better financial and operational conditions that lead to a stable, flourishing and
prospering economy, which will eventually drive sustainable development in countries.
As a result, Façanha et al. (2012) recommend that SMEs’ management shall
consider all internal and external factors that may affect growth. This can be achieved
by ensuring that SMEs’ management has the required human skills, knowledge,
abilities, experiences, tools and technology to deal with such changes and threats in
order to survive and flourish in the economy.
The purpose of this research paper is to create a framework that connects
macroeconomic factors and firm-specific determinants that may affect the growth and
survival of Egyptian SMEs, as well as to test its validity through an empirical study of
Egyptian listed SMEs. Importantly, the results of this research paper can also be
utilized by managers and owners of SMEs to provide better insight into the drivers of
SMEs’ growth and survival, which can provide them with a better prediction of the
performance of SMEs and their growth and survival in the economy.
The current research paper will present two main questions:
Q1. Do macroeconomic variables significantly affect SMEs’ growth and survival
in Egypt?
Q2. Do firm-specific variables significantly affect SMEs’ growth and survival in
Egypt?
The rest of this paper proceeds as follows. Section 2 reviews prior literature on
macroeconomic determinants, firm-specific determinants and SMEs’ determinants
followed by the development of the research hypotheses. Section 3 discusses the data
and methodology. Section 4 reports the data analysis and hypotheses testing. Finally,
Section 5 concludes and offers recommendations for academics, professionals and
regulators.

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2. Literature Review and Hypotheses Development

This section reviews the theoretical background for the macroeconomic factors,
the firm-specific determinants, and the SMEs’ growth and survival determinants in the
market. Furthermore, this section sheds light on the effects of macroeconomic factors
on the growth and survival of SMEs.
2.1 Macroeconomic Determinants
Kabir (2019) suggests that nowadays the global economies fluctuate significantly
across the globe due to the quick changes in human skills, education, training, client
preferences, physical capital availability, natural resource availability and
technological advancements. These factors affect the quality and quantity of products
and services and trigger the intensity of competition among the companies, leading to
efficiency improvements and more affordable prices. However, the world's political
instability weakens economic development and poses new challenges, which
deteriorates companies' survival and growth in the markets.
Zhu et al. (2021) indicate that the higher real gross domestic product (GDP) over
the years encourages more companies to be equipped with the most contemporary
machines and astute laborers to produce the highest output with the least inputs to have
more efficient operations and drive economic prosperity upward for higher national
income and better living standards. To do so, the countries need to be equipped with
the required factors of production to be ready to produce and develop outputs.
Countries with qualified and well-educated laborers can efficiently manage and run the
business. Additionally, having abundant resources available for production will help in
saving hard currency and minimizing costs, thereby producing more output and
meeting customers’ demand locally and internationally, which will eventually
strengthen the value of the home currency and increase the international reserves.
Alabi et al. (2019) suggest that a higher GDP increases the demand for products
as the national income increases as well. Thereby, the firms produce more and achieve
better financial and operational results, which will help them grow and survive in the
market. On the other side, if the GDP declines over the years and starts to hit a
recession, products and services reduce and prices rise in the market, reducing sales in
the company and deteriorating the profit margins, which will consequently threaten
firms’ survival and growth.
Zhu et al. (2021) argue that when the demand for the home currency exceeds the
supply, its value rises, and the imported goods and services become cheaper. Whereas,
when the supply exceeds the demand, the home currency falls in value and the goods
and services become more expensive. In this regard, emerging countries with more
import-oriented firms have problems with their foreign reserves, which lead to
devaluation in their home currencies. However, developed countries with more export-
oriented firms have an appreciation for their foreign reserves.
Ocampo et al. (2000) find that business firms operating in emerging markets face
depreciation of their home currencies, which leads to higher costs as imported goods
become more expensive. This forces firms to raise their prices, which weaken
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profitability, leading to a higher likelihood of bankruptcy. Firms that sell elastic
products or services are more vulnerable to changes in sales performance than inelastic
ones. The premise is that the quantity of elastic products is very sensitive to price
changes, which can indeed affect the size of sales and threaten the firm's survival and
growth in the markets. The study also supports that the inflation rate increases over the
years when the country has too much money chasing a few goods and services in the
market. In other words, when the central bank of the country reduces the interest rate
to attenuate the cost of financing and encourage more demand for loans, this will lead
to higher levels of investments and more spending on goods and services. However, if
the firms spend more than what is available in goods, this will lead to an increase in
the overall level of prices, and thus inflation will rise and disposable income of
households will reduce as well, thereby reducing sales and weakening the ability of the
firms to survive and grow in the markets. Finally, the study indicates that a higher
unemployment rate over the years lowers the wage rate, weakens the productivity of
the firms, and triggers the business firms to run under inefficiency, which eventually
leads to a lower capacity of production and a drop in sales, and thus lowering the profit
margin of the business firms and weakening their ability to survive in the markets.

2.2 Firm-Specific Determinants

Lekhanya (2016) suggests that business firms operate in general and specific
environments, and these environments are made up of factors that affect the firms'
performance either positively or negatively. The general environment has external
factors that affect the business firms’ performance such as changes in economic
conditions, political situations, technological advancements, and sociocultural
activities. Whereas, the specific environment is composed of the stakeholders of the
business firms that affect and are affected by the actions of the firms such as clients,
creditors, stockholders, employees, the government and society. The business firms
shall work on meeting the interests of the stakeholders to receive support and positive
interaction from their stakeholders for gaining higher value and more market share,
which improve the operational and financial results of the firms. Therefore, the
business firms shall design strategies, establish structure, and set cultures to guide the
employees on how to capture the opportunities and go through the obstacles to achieve
the firms’ objectives and goals without delay or failure.
While Alabi et al. (2019) recommend that the firms shall carefully watch the debt
size relative to their equity and measure the financial risk because the debt is considered
a double-edged sword that can either maximize or minimize the value of the firms
depending on the nature of the business and the stability level of the earnings. In other
words, those firms that see a stable increase in earnings over the years can use more
debt to maximize earnings, while those with unstable earnings shall reduce their debt
usage to avoid deterioration in earnings and the company's value. During COVID-19,
the tourism and airline industries were firstly affected by the pandemic as they faced
high debt levels relative to equity, causing huge drops in earnings that eventually
threatened their survival and growth.
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Therefore, Le et al. (2020) agree that the relationship between leverage and firms’
survival and growth depends on the nature of the business. If the firms have a high
level of earnings and stability over the years, it means there is a positive impact on their
survival and growth. On the other side, if the firms have unstable earnings over the
years, the leverage lowers the probability of their survival and growth in the markets.

2.3 SMEs Determinants

Trung (2021) argues that the importance of studying the performance of SMEs
derives from several salient aspects. First, SMEs have a major influence on both gross
domestic product (GDP) and unemployment. As previously mentioned, both in the EU
and globally, SMEs are responsible for an important share of GDP and the reduction
of unemployment. Second, in the current context of rapid changes in the world
economy, the interdependencies between national economies (a direct effect of
globalization) and a difficult recovery after the global economic crisis highlight the
increased role of SMEs. Third, SMEs represent the framework of free entrepreneurial
initiative and entrepreneurship. Although different, it was found that SMEs play a
major part in the process of promoting technical progress in society and innovation in
economic activity.
Trung (2021) also indicates that although most studies are useful to entrepreneurs
in their efforts to find the most appropriate ways to increase organizational
performance in the context of limited resources, they do not contribute significantly to
understanding the specific mechanisms and determinants of SMEs sector performance
in a specific country.
Based on the literature review, it has been revealed that there is a relationship
between macroeconomic factors, firm-specific determinants, and the SMEs’ growth
and survival, but no attention has been paid to examining these variables in the
Egyptian economy. The next section will illustrate the previous studies that tackle the
relationship between the variables.

2.4 Extensive Review on The Relationship Between Macroeconomic Factors and

Firm Specific Determinants and How it Affects SMEs’ Growth and Survival
In Nigeria, Okpara (2011) points out that several factors significantly affect the
survival and growth of SMEs by employing a survey questionnaire distributed across
211 owners and managers of SMEs and the multiple linear regression used for data
analysis. The findings show that poor management, lack of financial support, poor
infrastructure, corruption, lack of training and experience, low demand for products
and insufficient profits are the main drivers of SMEs’ survival and growth. The author
recommends that such results shall be considered by the officials of the government to
improve the current policies and to enable the SMEs to overcome the outstanding
dilemmas that exacerbate the problems. The results of the study reveal that the most
common constraints hindering small business growth and survival in Nigeria are lack

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of financial support, poor management, corruption, lack of training and experience,
poor infrastructure, insufficient profits and low demand for products and services.
Additionally, Liu and Pang (2006) examine the impact of macroeconomic and
firm-specific factors on the survival and growth of listed SMEs in China by employing
the generalized model of moments (GMM) regression for data analysis using time-
series data from 1990-2003 and a sample size of 1247 companies from different
industries and considering operation risk, public equity offerings, R&D activities,
ownership, age and size as the independent variables of the study. According to the
findings, a firm's size and seasoned equity offering have a positive significant impact
on the survival and growth of SMEs, whereas state ownership and R&D activities only
have a positive significant impact on the survival of SMEs. Moreover, a firm’s age has
a significant negative impact on the growth of SMEs.
Moreover, Yeboah and Polytechnic (2015) investigate the factors that
significantly affect SMEs’ growth in Ghana using a survey questionnaire distributed
across 121 SMEs for data collection and employing the Cramer’s V statistical test for
data analysis. Findings show that the size of the SMEs and the educational qualification
level of the management have a positive and significant impact on the SMEs’ growth.
In this regard, the authors suggest that the managers and owners of the SMEs shall be
well-educated in their fields by taking workshops and seminars guiding them on how
to run the business and how to manage risks to maximize profits and survive in the
markets.
In Ghana, Kusi et al. (2015) examine the factors that prevent the growth and
survival of SMEs by conducting a case study on the SMEs of the Kumasi Metropolitan
Area using a survey and case study for data collection. The findings reveal that most
of the employees are youths and females, usually with low levels of education and a
lack of qualified personnel. Furthermore, there is limited access to financing programs
and the majority of them are self-financed, which hinder SMEs from growing and
surviving. The authors thus far recommend allowing wealthy investors to establish
investment funds to help SMEs and investors to achieve their financial objectives.
In Egypt, El-Sady et al. (2022) investigate the determinants of Egyptian SMEs
financial failure predictability based on a sample of 32 failure SMEs and 28 non-failure
SMEs for the period 2013–2019. The determinants of SMEs financial failure are
categorized into four groups: working capital, asset structure, liquidity and leverage.
The factor and logistic regression analyses are used to identify the most significant
independent variables that differentiate between failure and non -failure Egyptian
SMEs and to identify the cause of their financial failure. The findings significantly
show that failing SMEs suffer from long cash conversion cycles resulting from a long
inventory holding period, an average collection period, and a short average payment
period, lower liquidity, excessive use of debt to assets and a lower fixed asset
percentage.
Furthermore, Lekhanya (2016) examine the factors that affect the survival and
growth of the SMEs in the rural area of KwaZulu-Natal by employing a survey
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questionnaire distributed across 150 owners or managers of SMEs. The findings show
that the infrastructure is poor and doesn’t facilitate the trading process, which impedes
the SMEs’ growth. Moreover, there is no sufficient financial support to help the SMEs
expansion because of the higher costs of financing, and thus restricting SMEs’ actions
and growth.
Moreira (2016) examines the factors which may affect the growth of the SMEs in
Europe by employing multiple linear regression for data analysis with a sample size of
1327 enterprises from the internet and high-tech industries, considering firm growth as
the dependent variable and the operating revenue, total assets, number of recorded
subsidiaries, profit or loss for the period, solvency ratio, and liquidity ratio as the
independent variables of the study. Findings reveal that the R2 of the regression model
is 99.49%, indicating that the independent variables can explain 99.9% of the total
variation in the growth of SMEs. This implies that the regression model is very useful
and can be used as an early alert to predict potential growth. Furthermore, the findings
reveal that firm size, net income or loss, and operating revenue have a positive
significant impact on SMEs’ growth, whereas the numbers of recorded subsidiaries are
found to be significant and have a negative relationship with SMEs’ growth. The
solvency and liquidity ratios are found to be insignificant, implying that their variations
cannot affect SMEs’ growth. Finally, the growth rate of SMEs does not strongly
depend on financial access in Europe.
In addition, in Namibia, Baporikar et al. (2016) investigate the factors that prevent
SMEs from growing by conducting a case study using unstructured in-depth interviews
and deep observations as a qualitative method for data collection, content and discourse
for data analysis. Their findings reveal that customer theft, fights, security problems,
outdated technology, limited access to finance, a lack of skilled manpower, poor
customer service and inappropriate marketing strategies are the main factors that
prevent SMEs from growing.
Alabi et al. (2019) examine the impact of government policies on SMEs growth
by employing a survey questionnaire for data collection using structured questions
distributed across 520 SMEs respondents in six states in southwestern Nigeria.
Findings show that lack of quality in education, custom, religion, and traditions, an
inefficient financial system, poor infrastructure, an inefficient legal system, a high level
of political corruption and political instability are the main factors that threaten SMEs’
survival and growth in the markets. In this regard, the authors recommend that the
officials of government need to consider such factors in their policy enactments to
improve SMEs’ ability to survive and grow in the market for better economic
conditions full of prosperity and flourishment.
Moreover, Kristanti et al. (2019) investigate the factors that significantly affect
the survival level of the SMEs by employing regression for data analysis on a sample
size of 34 SMEs listed on the stock exchange of Indonesia, utilizing time-series data
from 2009 to 2018. The findings reveal that net working capital to total assets and
SMEs’ age are significant and have a negative relationship with SMEs’ survival, while
inflation and economic growth have a significant positive impact on SMEs’ survival.
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Therefore, the authors recommend that the officials of the governments shall consider
both the significant micro and macro factors that improve SMEs’ ability to grow and
survive in the markets and diminish bankruptcy likelihood.
Le et al. (2020) examine the factors which affect the survival and the growth of
SMEs in Thanh Hoa province by employing a survey questionnaire distributed across
512 respondents for data collection, considering the tax-supporting policy, preferential
policies, insurance policy, the act of public administration, capital support packages
and the role of a professional association as the independent variables in the questions
of the survey. Based on the findings, the author recommends that the officials of
government have to reduce lending interest rates in the credit markets and extend the
period of repayment or the due date of the loan contracts to empower the SMEs and
enable them to survive and grow. Moreover, the government shall promptly deploy
support packages to enhance SMEs’
production capacity, reduce taxes and exempt those startup SMEs from paying
taxes for a longer time. The government shall further pass acts and policies suspending
the payment to retirement funds due to COVID-19 and to strengthen the cooperation
level among the SMEs. Finally, it is suggested that focusing on improving the
competency of the staff in the state administrative system enables the employees to be
sufficiently educated to manage the financial crisis and survive in the markets.
Zhu et al. (2021) examine the impact of inventory stickiness on the survival of
SMEs in China by employing the quadratic regression method for data analysis and
utilizing time-series data from 1999 to 2007. They use a sample of 188,065 SMEs,
considering financial constraints and environmental dynamism as the moderating
variables, while selecting the firm size, productivity, capital intensity, average firm
age, average firm size and industry entry rate as the control variables, and the survival
of SMEs as the dependent variable of the study. Inventory stickiness is found to have
an inverted U-shape relationship with SME survival, whereas financial constraints
moderate the relationship. Finally, the authors recommend that SMEs managers shall
improve their inventory stickiness before enhancing their lean inventory management.
Hence, inventory stickiness plays an important role in helping SMEs survival in a
dynamic environment.
Furthermore, Iwasaki et al. (2021) examine the determinants of SMEs’ survival
in Europe by employing regression for data analysis using a sample size of 94,401
SMEs in 17 European emerging markets. They utilize time-series data from 2007-
2017, considering firm size, ownership structure, financial performance and firm age
as the independent variables of the study. The findings show that 36,060 firms failed
at the end of 2017, while 58,341 SMEs survived in the market. Furthermore, financial
development is found to be very important for keeping SMEs alive in European
emerging markets., Foreign ownership, profit margin and solvency ratio can reduce
SMEs’ failure in the markets. Moreover, SMEs’ age is found to be significant and to
have a positive non-linear relationship with their survival. SMEs’ size and state
ownership are drivers of SMEs’ failures in the markets. Finally, the authors

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recommend that managers and owners of SMEs in Europe shall consider such factors
to avoid failures and bankruptcy filings.
Resende et al. (2015) examine the long-term viability of newly formed SMEs in
the Brazilian manufacturing sector using newly formed corporations from 1996 to
2005. A time-varying variant of Cox's proportional hazards model is employed in the
econometric study. The findings provide evidence consistent with the favorable effects
of firm size, industry size and industry growth on survivability, as well as the negative
effects of the efficient level, the industrial concentration level and the sub-optimal scale
on survivability. Finally, geographical disparities are a significant cause of
heterogeneity in overall survival.
Rahman et al. (2016) investigate the theoretical framework of technological
innovation on SME survival and indicate that studies on survival are still sparse. The
practice of technical innovation is highly related to corporate success in the prior
literature, but its impact on SME survival is still controversial. SME survival relates to
the number of years that a company exists, the accessibility of long-term plans, and the
variety of products and services it offers. Among the main technological advances
emphasized in the literature are social scientists and business executives, advanced
machines and equipment, integration of different technologies, appliances and
equipment and merging of various technologies and gadgets as tools of innovation.
Finally, since online consumers are larger than normal physical customers, the findings
give some insight into social networking as part of online marketing. Furthermore,
because of the potential to reach clients regardless of geographic location, the impact
of internet marketing via social media is crucial.
Rattanapongpinyo (2018) investigates the criteria for measuring SMEs’ survival
and flourishing, then investigates the elements that impact their survival and
flourishing and finally investigates the aspects that are associated with survival and
flourishing. Questionnaires are used to collect data from 400 SMEs and entrepreneurs
in Thailand's Western Regions. Means, standard deviation, t -test, ANOVA, and
correlation coefficient are utilized to analyze the data. The findings reveal that
achievement in corporate branding, enterprise value, recognition and measurement of
deals and employee involvement are the parameters for assessing SMEs’ survival and
prosperity. Leadership, organizational and business environment characteristics are
found to be associated with the survival and prospering of SMEs in Thailand's western
districts, with correlation coefficient values of 0.84, 0.76, and 0.65, respectively. The
relevant personnel shall improve the knowledge and capabilities of SME entrepreneurs,
make financing more accessible and assist them in taking advantage of exports.
Gamage et al. (2020) argue that due to the fast growth in rivalries, economic
globalization poses several obstacles for SME businesses. As a result, SMEs face
higher rates of failures within a short amount of time after they start operating. As a
result, SMEs shall implement survival strategies and strategic tactics in order to
overcome the different worldwide problems that the SME sector faces. The purpose of
the study is to critically review the available literature on global problems for SMEs to
better understand SMEs’ survival and subsequent strategies in the highly competitive
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marketplace. To accomplish the purpose of the study, multilateral institutions'
published information on the topic and 110 research articles published by four
reputable publishing organizations, Emerald, Elsevier, Taylor & Francis, and MDPI,
are chosen. In the context of economic globalization, the assessment shows important
worldwide issues for SMEs Including global market rivalry, global finance and
economic crises, ICT technologies, the creation of multinational and transnational
firms, consumer shifts and preferences, trade dumping, international terrorism,
religious conflicts and trade. Furthermore, the study investigates SMEs’ survival
mechanisms in the industrial system to identify survival policies required to face global
difficulties.
Latif et al. (2021) support the fact that business model innovation (BMI) may help
a company gain a competitive edge and increase performance. Many SMEs fail to
achieve the desired results when they innovate their business model. BMI causes
permanent, fundamental changes in critical parts of a company's business model,
posing severe risks, ambiguity and confusion. Using data from 563 European SMEs
from a variety of industries and employing structural equation modeling to examine
how changing a company's business model affects its performance. To investigate how
organizational capacities and the implementation of a profit- or growth-oriented
strategy, as manifested in BMI, impact a firm's overall performance, a conceptual
model is built. While the direct relationship between BMI and firm success is not
substantial, the findings show that this relationship is moderated by efficiency growth,
organizational capacities and revenue growth.
McGuinness et al. (2018) examine whether trade credit assisted cash-strapped
SMEs during the latest financial crisis. The findings show that trade credit has a strong
beneficial influence on business survival, a one standard deviation increase in trade
credit results in a 21% drop in the chance of distress while using data from 202,696
SMEs in 13 European nations from 2003 to 2012. The findings also provide evidence
of a strong redistribution impact, cash-rich or unrestricted SMEs offering much more
net trade credit than their less financially resourced peers. The findings are unaffected
by several econometric problems. The premise is that trade credit can significantly
lower the chance of financial trouble, particularly in the aftermath of the 2008 financial
crisis. During the crisis years, greater levels of financing provided by cash -rich or
unconstrained SMEs play a crucial role in supporting less liquid and financially
restricted SMEs for a length of time, and thus maintaining their survival. All other
things being equal, a one standard deviation rise in trade credit corresponds to a 21%
drop in the chance of distress.
Nunes et al. (2012) employe the two-step estimate approach to evaluate two
samples of SMEs in manufacturing industries to investigate whether there is a
comparable link between R&D intensity and growth in high-tech and non-high-tech
SMEs firms. Results indicate that at lower levels of R&D intensity, high-tech SMEs’
development can be restricted. However, at higher levels, growth is stimulated.
Nevertheless, despite the amount of R&D, the intensity of R&D limits the growth of
non-high-tech SMEs. This implies that the associations found between various
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characteristics in the prior literature and the growth of high-tech and non-high-tech
SMEs that is smaller, non-high-tech SMEs grow faster than non-high-tech SMEs.
When compared to non-high-tech SMEs, high-tech SMEs face more challenges to fund
their expansion plans. Internal funding is found to be more important for growth in
high-tech SMEs than in non-high-tech SMEs, indicating that high-tech SMEs face
more difficulties when obtaining external financing. The fact that research and
development investments in high-tech SMEs contribute to reduced development in
situations of financial distress and interest on debt, strongly supports the notion that
high-tech SMEs have a harder time financing their growth opportunities through
external financing instruments.
Based on the prior literature regarding the macro and micro variables that affect
the survival and growth of SMEs, no clear conclusion has been reached by the
researchers, especially in Egypt. Moreover, some of the researchers employ qualitative
approaches in their analysis while others use quantitative methods for data analysis,
and both provide different results. Some studies conclude that economic growth,
exchange rate and interest rate have a significant impact on the growth and survival of
SMEs, whereas solvency, profitability and operating management efficiency are micro
factors that have a significant impact on the survival and growth of SMEs. To the best
of our knowledge, no attention has been paid to thoroughly examining the impacts of
these variables on the survival and growth of SMEs. Finally, most studies employ
multiple linear regression to validate the significant factors and the most influential
variables.

2.5 Hypotheses
Based on the literature review, the research hypotheses can be stated as follows:
H1: The economic growth has a relationship with the survival and growth of the
SMEs.
H1-A: Economic growth has a positive relationship with SMEs survival.
H1-B: Economic growth has a positive relationship with SMEs growth.

H2: The exchange rate has a relationship with the survival and growth of the
SMEs.
H2-A: Exchange rate has a negative relationship with SMEs survival.
H2-B: Exchange rate has a negative relationship with SMEs growth.

H3: The inflation rate has a relationship with the survival and growth of the
SMEs.
H3-A: Inflation rate has a negative relationship with SMEs survival.
H3-B: Inflation rate has a negative relationship with SMEs growth.

H4: The lending interest rate has a relationship with the survival and growth of
the SMEs.
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H4-A: lending interest rate has a negative relationship with SMEs survival.
H4-B: lending interest rate has a negative relationship with SMEs growth.

H5: Management efficiency has a relationship with the survival and growth of the
SMEs.
H5-A: Management efficiency has a positive relationship with SMEs survival.
H5-B: Management efficiency has a positive relationship with SMEs growth.

H6: Solvency has a relationship with the survival and growth of the SMEs.
H6-A: Solvency has a negative relationship with SMEs survival.
H6-B: Solvency has a negative relationship with SMEs growth.

H7: Profitability has a relationship with the survival and growth of the SMEs.
H7-A: Profitability has a positive relationship with SMEs survival.
H7-B: Profitability has a positive relationship with SMEs growth.

Table (1): Summary of Research Variables

Symbol Variables Type Category Measurement
G SMEs Dependentvariable Firm-specific % Change in assets
Growth
Z SMEs Dependentvariable Firm-specific Z score model
Survival
GDP Economic Independentvariable Macroeconomic % Change in GDP
Growth
EX Exchange Rate Independentvariable Macroeconomic EGP/USD
INF Inflation Rate Independentvariable Macroeconomic % Change in
consumer priceindex
INT Lending Interest Independentvariable Macroeconomic Annual average
Rate interest rate
FS Management Independentvariable Firm-specific Asset turnover
Efficiency
Debt Leverage Independentvariable Firm-specific Debt ratio
ROA Profitability Independentvariable Firm-specific ROA, ROE

3. Methodology
This study examines the impact of firm-specific and macroeconomic factors on
the survival and growth of SMEs using quantitative methods and multiple linear
regression for data analysis over the period 2017-2021. The employed regression is
commonly used in the literature and is effective in measuring the effect of the
exploratory variables on the dependent variables, as a result predicting the future
movement of SMEs’ survival and growth. The research population contains 26 SMEs
listed at the Stock Exchange of the Nile in Egypt. The sample size of the study
comprises 23 firms and the sample size constitutes 88.5% of the population which can
help generalize the findings on all the listed SMEs of the Nile Exchange of Egypt. The
study period is relevant because many of the listed SMEs started to operate after 2017.
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The study relies on secondary data, the bank-specific data are gathered from the annual
reports of the Nile Stock Exchange of Egypt's listed SMEs and the macroeconomic
data are gathered from the Central Bank of Egypt's annual reports. The panel data of
this study comprises (5 x 23) 115 observations covering the period from 2017 to 2021.
Notably, the study period includes an economic and political transitional stage in
Egypt.

4. Data Analysis and Hypotheses Testing

Table (2): Multicollinearity Test
Collinearity Statistics
Variables Tolerance VIF
Management Efficiency .922 1.085
Leverage .951 1.051
Profitability .940 1.064
GDP .108 9.251
Exchange Rate .026 38.659
Inflation .107 9.359
Interest Rate .017 57.649

Collinearity Statistics
Tolerance VIF
Management Efficiency .926 1.080
Leverage .953 1.049
Profitability .946 1.057
GDP .226 4.415
Exchange Rate .077 13.067
Inflation .126 7.956

Collinearity Statistics
Variables Tolerance VIF
Management Efficiency .926 1.079
Leverage .953 1.049
Profitability .950 1.053
GDP .966 1.035
Inflation .927 1.078

The research applies the Variance Inflation Factor to examine the

multicollinearity of the collected data. The findings show that the interest rate and
exchange rate are multicollinear variables. Therefore, the research excludes the highest
one first which is the interest rate as it has 58 VIF which exceeds 10. Then, the study
reexamines the VIF analysis and finds that the exchange rate has VIF above 10 which
results in its exclusion as well. Consequently, five variables are only considered under
the study (Management Efficiency, Leverage, Profitability, GDP, and Inflation Rate)
as they are classified as non-multicollinear variables.

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Table (3): Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
SMEs Survival 115 -2.671 41.348 5.43510 8.877363
SMEs Growth 115 -.552 11.113 .22571 1.121357
Management Efficiency 115 .000 2.320 .47081 .531437
Leverage 115 .014 1.978 .42789 .341759
Profitability 115 -.288 .260 .00855 .079788
GDP 115 3.57 5.60 4.4540 .85275
EXR 115 15.6 17.8 16.760 .9456
INF 115 5.0 29.5 12.680 9.1312
IntR 115 9.4 18.3 14.680 3.6532
Valid N (listwise) 115

As shown above in Table 3, the study comprises 115 observations, as it will use a
sample of 23 listed firms during 2017–2021. The minimum column indicates that there
are no anomalies in the collected data, whereas the maximum column indicates that the
survival rate of SMEs is 41.348, indicating that such businesses are unlikely to fail but
are far from the mean (5), thus, they are outliers. Moreover, the standard deviation of
the SMEs’ survival is 8, which implies that the data are highly volatile from the mean,
but on average the data are 5, indicating that the majority of the SMEs are unlikely to
go bankrupt as long as their Z-score is exceeding 3. Moreover, the maximum
profitability in the listed SMEs of the Nile Stock Exchange of Egypt is 26%, while the
minimum is approximately -29. Inflation has the highest standard deviation in the data
set at 9%, which implies that inflation is fluctuating notably in Egypt during 2017–
2021. The remaining data sets have low volatility, as they are less than 1%, except for
the lending interest rate, which is 3%, indicating that it is slightly volatile compared to
SMEs’ survival and inflation. The maximum leverage in SMEs is 1.9%, implying that
the Nile Exchange-listed SMEs do not use excessive debt in their early stages, instead
relying on equity financing sources.
The multiple linear regression analysis is employed to examine the impact of firm-
specific and macroeconomic variables on the SMEs’ growth and survival during 2017–
2021. The paper uses two regression models. The first model is concerned about the
SMEs’ survival, and the second is concerned about the SMEs’ growth. Five
independent variables are considered in the regression models namely “GDP”,
“inflation”, “management efficiency”, “leverage” and profitability, after excluding the
interest rate and exchange rate since they are multicollinear variables.
Table (4): Model Summary b
Std. Error Change Statistics
R Adjusted of the R Square F Sig. F Durbin-
Model R Square R Square Estimate Change Change df1 df2 Change Watson
1 .864 a .747 .730 .830634 .747 43.152 5 73 .000 .707
a. Predictors: (Constant), INF, Leverage, Profitability, GDP, Management Efficiency.
b. Dependent Variable: SMEs Survival.

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Table (5): ANOVAa
Sum of
Model Squares df Mean Square F Sig.
1 Regression 148.866 5 29.773 43.152 .000 b
Residual 50.367 73 .690
Total 199.232 78
a. Dependent Variable: SMEs Survival.
b. Predictors: (Constant), INF, Leverage, Profitability, GDP,
Management Efficiency.
Table (6): Coefficients
Unstandardized Standardized Collinearity
Coefficients Coefficients Statistics
Model B Std. Error Beta t Sig. Tolerance VIF
1 (Constant) 2.679 .525 5.101 .000
Management
.747 .183 .249 4.076 .000 .926 1.079
Efficiency
Leverage -3.179 .302 -.635 -10.531 .000 .953 1.049
Profitability 6.264 1.038 .364 6.034 .000 .950 1.053
GDP .064 .110 .035 .585 .561 .966 1.035
INF -.007 .011 -.040 -.661 .511 .927 1.078
a. Dependent Variable: SMEs Survival
As shown in Table 6, the multiple linear regression results of the SMEs’ Survival
model show that the model is statistically significant. Moreover, the adjusted R square
is 73%, indicating that the regression model can predict 73% of the total variation in
the SMEs’ survival. Furthermore, as shown in Table 6, management efficiency and
profitability are statistically significant and have a positive association with SMEs’
survival, while leverage has a negative relationship with SMEs’ survival. In addition,
the GDP and inflation rates are found to be statistically insignificant, implying that
their movements cannot predict the future movement of SMEs’ survival. In this regard,
the findings show that the firm-specific variables have a severe impact on SMEs’
survival compared to the macroeconomic variables.
Table (7): Model Summary b
Std. Error Change Statistics
R Adjusted of the R Square F Sig. F Durbin-
Model R Square R Square Estimate Change Change df1 df2 Change Watson
1 .383 a .147 .089 .175098 .147 2.515 5 73 .037 2.000
a. Predictors: (Constant), INF, Leverage, Profitability, GDP, Management Efficiency .
b. Dependent Variable: SMEs Growth.
Table (8): ANOVA
Model Sum of Squares df Mean Square F Sig.
1 Regression .386 5 .077 2.515 .037 b
Residual 2.238 73 .031
Total 2.624 78
a. Dependent Variable: SMEs Growth
b. Predictors: (Constant), INF, Leverage, Profitability, GDP, Management Efficiency
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Table (9): Coefficients a
Unstandardized Standardized Collinearity
Coefficients Coefficients Statistics
Model B Std. Error Beta t Sig. Tolerance VIF
1 (Constant) .020 .111 .179 .859
Management
-.009 .039 -.025 -.225 .822 .926 1.079
Efficiency
Leverage .199 .064 .347 3.131 .003 .953 1.049
Profitability .348 .219 .177 1.592 .116 .950 1.053
GDP -.017 .023 -.082 -.745 .459 .966 1.035
INF .002 .002 .080 .709 .480 .927 1.078
a. Dependent Variable: SMEs Growth
The results of the multiple linear regression model of SMEs’ growth, as shown in
Table 9, show that the model is statistically significant. Moreover, the adjusted R
square is 8.9%, indicating that the regression model can predict 8.9% of the total
variation of SMEs’ growth. This implies that this model is weak and cannot strongly
predict future movements of SMEs’ growth. Furthermore, all the variables are found
to be statistically insignificant except for the leverage which is found to be statistically
significant and has a positive association with SMEs’ growth. In this regard, the
findings show that the considered firm-specific and macroeconomic variables are not
appropriate for predicting the future movement of SMEs’ growth.
Hypotheses Testing
Based on the regression results, the hypotheses testing results are shown below:
H# Hypotheses Accepted/Rejected
H1-A Economic growth has a positive relationship with SMEs’ survival Rejected
H2-A The exchange rate has a negative relationship with SMEs’ survival N/A
H3-A The inflation rate has a negative relationship with SMEs’ survival Rejected
H4-A The lending interest rate has a negative relationship with SMEs’ survival N/A
H5-A Management efficiency has a positive relationship with SMEs’ survival Accepted
H6-A Solvency has a negative relationship with SMEs’ survival Accepted
H7-A Profitability has a positive relationship with SMEs’ survival Accepted
H1-B Economic growth has a positive relationship with SMEs’ growth Rejected
H2-B The exchange rate has a negative relationship with SMEs’ growth N/A
H3-B The inflation rate has a negative relationship with SMEs’ growth Rejected
H4-B The lending interest rate has a negative relationship with SMEs’ growth N/A
H5-B Management efficiency has a positive relationship with SMEs’ growth Rejected
H6-B Solvency has a negative relationship with SMEs’ growth Rejected
H7-B Profitability has a positive relationship with SMEs’ growth Rejected

5. Conclusion and Recommendations

This study investigates firm-specific and macroeconomic factors that may affect
the growth and survival of SMEs in Egypt. After ensuring that the collected data meet
the linear regression assumptions, multiple linear regression is employed in the current
research paper. In this regard, the research examines the impact of five independent
variables after excluding the exchange rate and interest rate as they are multicollinear.
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Regarding the multicollinear hypotheses, the researchers mention N/A in the accepted
or rejected column of the hypotheses testing table. The research findings can help
financial managers to have better insights into the factors that may affect their
organization, and they can also predict the future movements of the SMEs’ growth and
survival.
Academic Recommendation: Findings can be of great interest to academics
concerned about determining the main factors that drive SMEs’ survival and growth.
Management efficiency, leverage and profitability are the main influential factors that
affect SMEs’ survival. The paper also recommends that future researchers shall
consider other variables to increase the adjusted R2 of the SME growth model and to
have a more informative estimated model that can predict the future movement of SME
growth. Moreover, the research recommends employing the Generalized Methods of
Moments (GMM) regression on the same selected variables to indicate whether there
is any discrepancy in the findings or not. Importantly, the research recommends that
future researchers need to examine also the impacts of public debt, external debt,
capital ratio, government subsidies, liquidity and stock performance on SMEs’ survival
and growth and extend the panel data.
Professional Recommendation: Research findings help the financial managers
of SMEs to gain better insight into the factors that affect their survival. The regression
analysis results help predict the survival probability of the SMEs, and accordingly, the
financial managers can use the model as an early alert to take proactive actions against
bankruptcy. The financial managers of the SMEs shall observe the movement of
management efficiency, leverage and profitability to predict the company's future
financial health and accordingly, they can take decisive actions that can help enhance
the company’s survival. The greater the management inefficiency and leverage, the
lower the probability of market survival. Whereas the greater the profitability, the
greater the probability of market survival for SMEs.
Regulatory Recommendation: Research results can further help the regulators
to have better insight into the factors that affect firms’ survival, and accordingly
suggesting future modifications to the outstanding regulation that better control SMEs’
behavior towards management inefficiency, leverage, and profitability.

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