EPU and SMEs' financial performance: Industry vs. service sector

Abstract

The objective of this paper is to analyze the Economic Policy Uncertainty impact on Small and Medium Enterprises’ financial performance, considering the role that sector plays and firm characteristics. Thus, a data sample of 80,620 Spanish SMEs was selected for 2012–2020. Using system Generalized Method of Moments estimators, the results show a negative impact, especially in the service sector. Industrial Spanish SMEs that are larger, younger, more indebted, with more growth opportunities and with higher asset turnover are the most resilient to EPU. The findings can help SMEs design better management strategies to deal with this uncertainty.

Keywords

• Economic policy uncertainty
• Financial performance
• Small and medium enterprises
• Firm characteristics
• Sector