Unconventional Determinants Of Financial Performance In Algerian Smes

Abstract

This study examines the impact of corporate governance and financial control mechanisms on the performance of small and medium enterprises (SMEs) in Algeria, using a sample of 100 firms. While existing literature emphasizes the importance of governance structures for firm performance, our empirical analysis reveals no significant relationship between traditional governance indicators (ownership concentration and board composition) and financial performance (measured by ROA and ROE). This suggests that formal governance mechanisms may play a limited role in Algeria’s SME sector, where informal ownership and management structures often dominate. However, we identify two key financial determinants of performance: firm size exhibits a positive and significant effect, likely due to economies of scale and stronger institutional oversight, while debt levels show a strong negative correlation, highlighting the challenges Algerian SMEs face in leveraging external financing efficiently. The age of the firm, contrary to expectations, does not significantly influence performance. These findings contribute to the growing body of research on governance in emerging markets, suggesting that institutional context and financial management may outweigh formal governance structures in driving SME success.