The role of institutional factors on SME firm growth

This paper aims to show the role of institutional factors in the growth of Small and Medium Enterprises (SMEs). SMEs are a vital segment of the world economy that contributes to employment growth and economic growth. According to research, prosperous SMEs frequently make strategic use of both formal and informal institutions, operating in compliance with the law and utilizing social networks and local expertise. Designing policies that promote the expansion of SMEs sustainably and increase their economic resilience requires an understanding of the influence of formal and informal institutions. The growth of SMEs of 86 firms for a total of 11 years was taken as a dependent variable. While formal (Tax Rate, Tax Administration, Doing Business, Customs Barriers) and informal (Corruption, Political Instability, and Judicial Obstacles) were taken as independent variables. The total number of observations is 946. As an econometric model, it is a panel data linear regression model. In conclusion, the statistically significant variables are; tax rate, tax administration, customs barriers, and corruption, while the variables that were not significant. Tax Rate, Tax Administration, and Corruption have positive impact on SME firm growth, while Custom Barriers have negative impact on SME firm growth.