Financial distress and the role of management in micro and small-sized firms
In this paper, we focus on the managerial characteristics of micro and small-sized
firms. Using linked employer-employee data on the Portuguese economy for the 2010-2018
period, we estimate the impact of management teams’ human capital on the probability
of firms becoming financially distressed and their subsequent recovery. Our estimates
show that the relevance of management teams’ formal education on the probability of
firms becoming financially distressed depends on firms’ size and the type of education.
We show that management teams’ formal education and tenure reduce the probability
of micro and small-sized firms becoming financially distressed and increases the probability
of their subsequent recovery. The estimates also suggest that those impacts are stronger
for micro and small-sized firms. Additionally, our results show that functional experience
previously acquired in other firms, namely in foreign-owned and in exporting firms
and in the area of finance, may reduce the probability of micro firms becoming financially
distressed. On the other hand, previous functional experience in other firms seems
to have a strong and highly significant impact on increasing the odds of recovery
of financially distressed firms. We conclude that policies that induce an improvement
in the managerial human capital of micro and small-sized firms have significant scope
to improve their financial condition, enhancing the economy’s resilience against shocks.
Published on July 08, 2021
In series:OECD Productivity Working Papersview more titles