The case study examines the main determinants of the performance of firms in Greece. It differentiates the non financial and financial drivers of firm performance in the country. The measures used to examine firm performance include return on equity, return on assets, and profit margin or return on sales. The results of the study show that the factors that significantly affect firm performance in Greece include effective management, size, location, export activity and leverage (Liargovas & Skandalis, 2010). The firms with the best performance in Greece are big young firms which deal with exports and are headed by competitive management teams. Such firms use their liquidity to finance their investments and they tend to have optimal debt-equity ratios.
Analyzing Case Data
Globalization has led to lower costs of transportation and communication, spread of technology and reduced trade barriers. Consequently, international competition has increased to unprecedented levels. The emergences of new economic power houses in the globe as well as the completion of the European Union have significantly affected the competitiveness and production structure of national industries. Intense local and global competition has necessitated the need for improved financial performance in firms. The necessity is particularly essential in small countries such as Greece where profitability allows firms to achieve their maximum potential by overcoming the limitations imposed by their small home markets ((Liargovas & Skandalis, 2010). Financial improvement benefits both firms and national economies. The case study in question studied a total of 150 firms operating in 15 different industries. The case study excluded investment companies, insurance companies, banks, financial institutions, firm operating in industries with too few firms, and firms engaging in multiple activities.
The numbers provided by the data analysis reveal that in most of the firms, the average number of experience for management personnel was twenty years. The stock ownership of members of the management team was approximately 34% of the shares of the company. The average age for members of the management team was 50-60 yeas (Liargovas & Skandalis, 2010). All the management teams embraced innovative practices including introduction of new organization structures, new markets, new production techniques, and new products. The researchers used the profit margin or return on sales measure to determine company earnings in relation to their sales. The measure was also used to determine the ability of the company to withstand adverse operating costs and competition, declining sales and falling prices. The Return on Assets measure was used to determine the ability of a firm to use its assets while the return on equity measure was used to determine the value the stockholders get for investing in the firms (Agiomirgiannakis, Voulgaris & Papadogonas, 2006).
- Increase exports
- Reduce liquidity
- Increase debt leverage
- Increase net investments and size
- Improve management competence
Evaluation of Alternatives
Increasing exports is a very substantial factor in improving firm performance. This is because exports relate positively to return on assets, a fact which boosts firm profitability. Greek firms have a readily available market for their exports in the South Eastern European (Balkans) markets (Stavros et al., 2012). The export share of Greek exports rose rapidly within the last fifteen years of the study. Firms engaging in export are, therefore, more profitable than non-exporting firms. Liquidity should be reduced since excessive liquidity has a negative impact on the performance and profitability of a firm. Debt leverage should be increased since it positively impacts the competitiveness of a firm. This is because Greek managers are stringent when operating on debt, which results in improved firm performance (Liargovas & Skandalis, 2010). Increases in net investments as well as firm size are directly correlated to improved firm performance (Agiomirgiannakis, Voulgaris & Papadogonas, 2006). Improving management competence is an alternative that must be implemented in every firm since members of the management team play key roles in determining and influencing firm performance. This is because in Greek firms, the management team decides the net investments, size, and location of a firm.
Agiomirgiannakis, G., Voulgaris, F., & Papadogonas, T. (2006). Financial factors affecting profitability and employment growth: the case of Greek manufacturing, International Journal of Financial Services Management, 1 (2/3), 232–242.
Liargovas, P. & Skandalis, K (2010). Factors Affecting Firms’ Performance: The Case of Greece. Global Business and Management Research: An International Journal, 2 (2&3), 184-197.
Stavros, S. et al. (2012). Identifying Factors Affecting Firm Performance: the Role of Exporting Activity on Greek Industry. International Journal of Business and Globalisation, 9 (1), 59-69.