Determinants of profit reinvestment undertaken by SMEs in the small island countries

What is it about?

This study investigates the factors that have potential to affect profit reinvestment decisions of small- and medium-sized enterprises (SMEs) in small island countries. Using World Bank Enterprise Surveys data, and Generalised Least Square regression model, we report that access to bank loans and overdraft facilities increases profit reinvestment by SMEs by approximately 5 percent and 8 percent, respectively. Fair Judiciary also increases profit reinvestment by ap-proximately 6 percent, whereas government expropriation leads to a reduction in reinvestment by 0.9 percent. Therefore, the policymakers in these small island countries should make an effort to improve the quality of the judiciary, and implement policies that lead to a reduction in cor-ruption levels. Also, it is important to introduce more external finance sources for SMEs.

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Why is it important?

This study adds new light to the profit reinvesting behaviour of SMEs from the smaller market perspectives. The profit reinvestment of SMEs in the small island countries in most cases ignored and in most prior studies relating to the profit reinvestment by firms have mainly focused on the large firms or developed or transitional economies.

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