Business Financial Strategies and SMEs Performance: Evidence from China’s Shenzhen Stock Exchange

Abstract

This study investigated the impact of business financial strategies (BFSs) on the performance of listed small and medium enterprises (SMEs) on China’s Shenzhen Stock Exchange from 2010 to 2023. Utilising a mixed-methods approach, with a quasi-experimental design grounded in pragmatism, the research analysed data from 1,575 SMEs, supplemented by interviews. A two-step system generalised method of moments estimation technique was used to address endogeneity, heteroscedasticity, reverse causality, simultaneity, Nickell bias, autocorrelation, measurement error and other econometric challenges, supported by fixed effect and random effect models to address unobserved heterogeneity and omitted variable biases and ensure the robustness of the study findings. The results indicated that total-debt-to-total-assets ratio and dividend yield significantly and indirectly affected SMEs’ performance. Contrarily, factors such as total-equity-to-total-assets ratio, cash conversion cycle, current ratio, total assets turnover, tangibility, dividend payout ratio and firm age had direct impacts on SMEs’ performance. The study highlighted the importance of SMEs deleveraging, optimising capital structure and prudently managing assets/working capital. It also recommended that SMEs adopt diverse investment appraisal (capital budgeting) techniques to generate adequate cash flows and ensure sustained dividend payments. Although focused on China, the study’s framework applies to other emerging markets, integrating BFS metrics into the resource-based view theory, extending the RBVT, making it more generalisable and robust, strengthening the research theoretically, conceptually and methodologically.