SMEs’ performance and IT investment: a structural equation modeling (SEM) approach

Abstract

In the knowledge-based and globalized economy, information provides value to firms and Information Technology (IT) is the mechanism through which this can be achieved. Firms that exploit endless possibilities of IT obtain the capacity to overcome future challenges. This study focuses on Greek manufacturing SMEs that face an extremely competitive and unfriendly macro environment. The performance of IT investments of Greek SMEs is examined through a survey-based methodology covering the time period of 2004-2010, derived into two sub-periods (pre and post crisis period). Financial and qualitative (primary) longitudinal data are used to examin the impact of IT investments on financial performance during the last eight years. Additionally, the relationship between firm profitability and European IT investment subsidies along with other factors such as crisis, leverage, size, are examined. Using structural equation modelling, the results indicate that Greek SMEs with higher IT investments present higher profitability than their rivals, while IT investment subsidies affect positively firms’ performance. As SMEs are the backbone of national economy, their competitiveness plays a significant role to national development and growth. Therefore, the findings of this research are important for practitioners, managers and policy makers.