Financial Expenditures on Stakeholders in Small and Medium Enterprises (SMEs): Do Financial Conditions Matter?

Abstract

The research seeks to answer whether small and medium-sized enterprises (SMEs) with divergent financial conditions present differences in mandatory and spontaneous spendings on three of their most relevant stakeholders (the workforce, customers, and the community). The data came from the accounting reports of 121 SMEs covering five years. We applied cluster analysis to group companies by levels of financial conditions and Kruskal-Wallis's non-parametric test to compare groups concerning levels of mandatory and spontaneous spending on stakeholders. We identified that higher financial conditions raised the expenses with the workforce (including mandatory ones) in micro and small industrial companies and in micro and medium service companies, showing that these companies recognize the importance of this stakeholder for the business. Lower financial conditions of SMEs raised spending on customers (mandatory and spontaneous) and on the community, indicating that SMEs are spending more financial resources on mistaken sales strategies and assistance toward the community actions unrelated to the business strategy. The study has implications for better targeting business investments among stakeholders under contingent conditions and Slack Resource Theory.