Determinants of Profit Efficiency Among Small and Medium-Sized Enterprises (SMEs) in Indonesia Muhamad Wahid Ibrahim, Ravindra Ardiana Darmadi
Program Studi Manajemen, Fakultas Ekonomi dan Bisnis, Universitas Muhammadiyah Magelang, Magelang, Indonesia
Abstract
SMEs create employment and support economic growth (ILO, 2019). Therefore, SMEs should be efficient. There is extensive research on SMEs efficiency, whereas it still focuses on cost efficiency, which is only a partial assessment compared to a more comprehensive profit efficiency measurement (Perez-Gomez, et .al, 2018). The study aims to understand the current condition of the efficiency level of SMEs and identify the factors that affect profit efficiency. The SFA method is used to estimate profit efficiency. A panel data regression using E-Views analyzed the determinant of profit efficiency. The data is from 106 Indonesian companies. The average profit efficiency of Indonesian SMEs was 15.65%. The size and age of the company have a negative effect on profit efficiency. Conversely, labor productivity, export activity, and digitalization have a positive effect. However, government assistance did not affect profit efficiency since it was proven statistically insignificant. Policymakers should encourage SMEs to adopt digital-based operations to compete in the international market. SMEs managers are advised to facilitate various capacity-building activities to improve workforce ability to enhance productivity. Finally, future studies should work on more disaggregated company data over time and take samples from other Asian countries.
Keywords: Profit efficiency- Profit inefficiency- Stochastic Frontier Analysis- Small and medium-sized enterprises- Indonesia