Exploring Financial Sustainability of SMEs during Periods of Production Growth: A Simulation Study

Leila Schwab, Stefan Gold, Gerald Reiner

Publication: Chapter in book/Conference proceedingContribution to conference proceedings


The purpose of this paper is to understand the impact of financial key performance indicators (KPIs)—namely customer accounts receivable flow time and credit limit allowed by financial partners since new banking constraints have been introduced (such as BASEL III regulations)—on the sustainability of small and medium sized enterprises’ (SMEs) business growth trajectories. From an angle of operations management, business growth means that production capacity is to be adapted to growing demand. Business growth can be considered sustainable if it increases the long-term economic, social and environmental capital of a company. Based on data from a longitudinal empirical case study of a Swiss family-owned SME, we have built a simulation model by combining agent-based with system dynamics modelling that comprehensively represents the growing firm, its decisionmaking, and enables the impact evaluation of relevant financial KPIs on growth trajectories. Our analysis shows that the baseline scenario entails 80% risk of bankruptcy for high-growth SMEs (featuring 30 days customer accounts receivable flow time target and a credit limit allowed by the financial partner of 25% of turnover). However, if customer accounts receivable flow time is reduced to ten days, and credit limit increased to 65%, the risk of bankruptcy drops to 30%. Our findings point to the detrimental unanticipated side effects of macro-level banking regulation on micro-level firm performance, and hence have implications for policy-making. Moreover, our study guides managers and financial service providers in anticipating risky situations, and in taking corrective actions by effectively monitoring financial KPIs.
Original languageEnglish
Title of host publicationProceedings of 20th International Working Seminar on Production Economics, Pre-Prints, Vol. 1
Editors Grubbström, R.W, Hinterhuber, H.H., Lundquist, J. (Eds)
Place of PublicationInnsbruck
Pages327 - 338
Publication statusPublished - 2018

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 102009 Computer simulation
  • 502052 Business administration
  • 502012 Industrial management
  • 211
  • 502017 Logistics
  • 502032 Quality management

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