The impact of advisory services on SME performance

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Abstract: Small and Medium-Sized Enterprises (SMEs) play an important role in all economies, and are believed to hold the potential to sustainable development and poverty alleviation. However, the majority of SMEs tend to fail due to a lack of marketing knowledge and managerial skills or expertise. Professional accountants are in a unique situation to help SME owner/managers to achieve their business objectives. Therefore, this paper examines the factors affecting Iranian SMEs to use external accountants' advisory services and the effect of such utilisation of advisory services on SME performance. This study is premised on a resource-based view (RBV) theorization model. A questionnaire survey of 658 Iranian manufacturing SMEs is utilised. The results of regression analysis reveal significant positive relationship between utilisation of external accountants′ advisory services and three independent variables (knowledge of owner/manager, competitive intensity and complexity of marketing decisions). Furthermore, this study evidences that the use of advisory services is significantly positively associated with SME performance. More importantly, this study clarifies the partial mediating role of advisory services on the relationship between three independent variables and firm performance.

Keywords: professional accountants, advisory services, resource-based view, performance and SMEs

Introduction

Small and Medium- Sized Enterprises (SMEs) play an important role in all economies, and are believed to hold the potential to sustainable development and poverty alleviation (Samujh and Devi, 2008; OECD, 2009). For example, SMEs comprise ninety-nine percent of all enterprises and one hundred million jobs in the European Union (IFAC, 2010), In Australia, small business sector accounts for about ninety-five percent of all businesses and employs 3.3 million people in industries across all sectors of the economy (Leung et. al. (2008). Similarly, in emerging economies as well, for example, in Iran, SMEs represent over ninety percent of all companies (Bayati and Taghavi, 2007). However, most SMEs tend to fail due to a lack of marketing knowledge and managerial skills or expertise (Dyer and Ross, 2008). For instance, "SMEs have been especially hard hit by the global crisis" (OECD, 2009, p.6). Consequently, SMEs are seen as most needy recipients of business support services as a result of both their economic contribution and their vulnerability to market imperfections (Lowe and Talbot, 2000). For example, "SMEs are more vulnerable now for many reasons: not only has the traditional challenge of accessing finance continued to apply, but new, particularly supply-side, difficulties are currently apparent" (OECD, 2009, p.6). Furthermore, the new competitive environment is more complex (Espino Rodríguez and Padrón-Robaina, 2004), and SMEs cannot control the markets in which they operate (Bennett, 2008). Therefore, in this globalised era, as competitive pressures intensify, smaller firms are forced to reduce their costs and seize new opportunities through optimized utilisation of external resources (Mahmoodzadeh et al., 2009). There is a need to scrutinize ways of empowering SMEs (Samujh and Devi, 2008). In this context, a transformation in professional accountants' services to their small business clients is critical (IFAC, 2010). External accountants can assist SMEs operating in a competitive environment, to integrate operational considerations within long-term plans (Ismail and King, 2005) to enhance their sustainability. For example, Resource- based view (RBV) and evidence show that SME owners/managers use external sources of advisory and support services chiefly as a result of a gap in their internal resource base (Gooderham et al, 2004; Doving and Gooderham, 2005; IFAC, 2010).

Given that SMEs operate within uncertain environments (Mole, 2004), external accountants can take advantage of opportunities to support owner/managers of SMEs to address succession issues by using their analytical skills, commercial expertise and broader industry perspectives to knowledge of clients' succession situations (Martin, 2005). It is evidenced that the main source of professional and support services for SMEs in the competitive market in the Asian business community are professional accountants (Dhaliwa, 2003). Increasingly, hence, attention has been given to the external accountant as business advisor and to the multidisciplinary practice concept, a focus partly precipitated by a downswing in economic activity (Greenwood et al., 2002; Carey et.al, 2005; Samujh and Devi, 2008; IFAC, 2010). Specialization is a key to success, with many professional accountants concentrating on particular services (Martin, 2005). One form of specialization can be the provision of integrated solutions for small companies, a further enhancement of the traditional role of the professional accountant and, possibly, extending into employment and training, sales and marketing and customer care (Martin, 2005).

RBV suggests that SME performance can be increased via receiving information and advice (Bennett and Robson, 2004). Hence, the evidence indicates that SMEs perceive a benefit from external accountants' advisory services, but there is a little empirical evidence that SMEs obtain a direct benefit from those services (Bennett and Robson, 1999; Robson and Bennet, 2000; Berry et al., 2006). These studies have been carried out in more developed economies. Furthermore, the results are inconclusive. Besides, Devi and Samujh (2010) evidence a shift towards provision of more non-compliance services to SMEs among professional accountants in Malaysia, an emerging economy [1] . However, the effect of external accountants' services on SME performance has not been examined in an emerging economy context. Even in the context of developed countries, for example, Australia, whilst it is evidenced that external accountants were the most common sources of advice, being used by 72 percent of SMEs (Leung et. al., 2008), there is no evidence to suggest that utilisation of external accountants' services impact SME performance. Furthermore, arguably, evidence from the more developed economies may not be as applicable to economies such as Iran [2] (Mashayekhi and Mashayekh, 2008) due to differing institutional context (Devi and Samujh, 2010) and level of state intervention in economic activities (Ismail and Zin, 2009; Ismail and King, 2006). Given that, the nature of accountants' services is people-intensive (Everaert et al., 2008), and the resource gap and competitive environment faced by SMEs (IFAC, 2010), it is timely to explore whether the provision of external accountants' advisory services is associated with SME performance in an emerging economy. Hence, this paper aims to identify the factors that affect Iranian SME decision to utilise external accountants' advisory services and to examine the effect of external accountants' advisory services on SME performance using the resource-based View (RBV) theorisation in the Iranian manufacturing sector.

The rest of the discussion is organised as follows: Section one provides the review of literature and develops hypotheses utilising the RBV as a theoretical framework to investigate the use of advisory services. Section two explains the research methodology. Section three presents the findings. Section four discusses the implications. Section five concludes with suggestions for future research.

1. Review of Literature

1.1. Professional accountants in Iran

As a result of the privatisation programme in 1991 and the requirement for financial reporting with regard to privatisation of economic entities, the Iranian Association of Certified Public Accountants (IACPA) was established in 2001 as an independent professional body (Salehi and Azary, 2008; Mashayekhi and Mashayekh, 2008). Professional accountants play a vital role in Iranian SME environment which encompass about ninety percent of enterprises of Iran (Mirshekary and Saudagaran, 2005). In fact, IACPA is an Iranian accountancy body with 1684 members [3] which offers the Certified Public Accountant (CPA) qualification. In fact, the number of professional accountants holding CPA certificates in Iran is very small in contrast to other developed and developing countries. Therefore, a comparison of professional accountants in developed and developing countries, as at 27 June 2010, are as shown in Table 1.

Table 1: Number of professional accountants

Country

Iran

Uzbekistan

Malaysia

UK

US

Canada

Population

74,196,000

27,488,000

27, 468,000

61,565,000

314, 659,000

33,573,000

Professional accountant

1684

4000

26261

140,000

360000

75,000

Ratio

1:44,060

1:6,872

1:1,046

1:440

1:874

1: 448

Source: http://www.un.org/en/databases/ and http://web.ifac.org/about/member-bodies

We note that compared to more developed countries, there is insufficient accountants in the emerging economies. Hence, SMEs are unable to employ in-house qualified accountants (Devi and Samujh, 2010). There is greater need to engage services of professional accountants.

1.2. The Role of External Accountants in SMEs

Professional accountants play a critical role in assisting SME owner/managers to manage their companies effectively (Mole, 2002). External accountants are shown to be of important support to the SME owner/managers in running the firm specifically when it comes to the introduction and implementation of changes (Gooderham et al., 2004). For example, in more complex conditions, professional accountants are in a unique position to provide approaches and assist SME owner/managers to achieve their business objectives (Martin, 2005; Devi and Samujh, 2010). In the developed countries' context, external accountants are the main advisers to most businesses on all aspects of doing business (Leung et al., 2008). Undeniably, external accountants maintain a broad base of expertise, enabling them to contribute to the success of companies beyond traditional services (e.g. accounting and auditing) (Greenwood et al., 2002). This trend is also observed in emerging economies as noted by Devi and Samujh (2010) in the context of Malaysia.

1.3. External Accountants as Source Advisory and Support Services

In the UK, many empirical studies show that smaller enterprises used their external accountant as a source of advisory and support services (Kirby et al., 1998; Berry et al., 2006; Scott and Irwin, 2009). In Norway, Gooderham et al. (2004) revealed that professional accountants are a reliable provider of advisory services and support in small companies. In Australia, many claimed that external accountants have provided much of the financial management and support services for the SME sector (Carey et al., 2005; Leung et al., 2008). In New Zealand, Lewis et al. (2005) found external accountants were the main source of advice in terms of frequency, usefulness and significance of advice in SME context. Although a number of studies examined external accountants' advisory services in Australian SMEs (Carey et al., 2005; Carey, 2008; Leung et al., 2008), the effect of external accountants' services on SME performance or resource-based view was not examined in those studies. In summary, whilst this research was undertaken in more developed economies, literature on role of professional accountants in emerging economies such as Iran is missing except for the limited research conducted in Malaysia (Devi and Samujh, 2010).

1. 4. Theoretical Framework

Resource Based View theory posits that with a unique bundle of assets and resources or capabilities, if a company engages it in distinctive ways, it can create competitive benefit (Barney, 1991). For example, McIvor (2009) explains resources and capabilities can be valuable if they permit a firm to take advantage of opportunities and counter threats in the competitive environment. Consequently, in the context of accounting, resources are defined as knowledge and expertise (Everaert et al., 2006; Jayabalan et al., 2009). Interestingly, consistent with the RBV theorisation, SMEs use external accountants as sources of advisory services and decision making to fill up gaps in their internal resource (Gooderham et al, 2004; Doving and Gooderham, 2005; Everaert et al., 2006; Marriott et al., 2008). Therefore, the RBV is imperative to the study of utilisation of external resources and enhancing performance sources (Bennett and Robson, 2004; McIvor, 2009).

1.4.1. Owner/ Manager Knowledge

RBV argues if firms are to grow, they need to obtain expert knowledge from external service providers and then embed the knowledge into their firms (Worrall, 2007). Moreover, RBV explains that SMEs are unable to carry out the accounting function in-house due to inadequate knowledge and unqualified employees (Everaert et al., 2006; Jayabalan et al., 2009). However, many claimed that SME owner/managers are frequently not aware of the range of support services and advice available to them (Liddicoat and Stringer, 2005; Ismail and King, 2007; Ismail and Zin, 2009), due to the unavailability of sufficient evidence of the benefits of such services (Watson, 2003), or lack of support in seeking relevant information (Curran and Blackburn, 2000). In fact, sophisticated SME owner/managers may be aware of the benefits of compensating their own inadequate knowledge or skills by utilising external service provider (Watson, 2003; Ismail and King, 2007). For example, Audet and St-Jean (2007) revealed that the SME owner/managers, who knew more about the external service providers, used those services more than SME owner/managers who did not have any information about these services. However, less sophisticated and incapable SME owner/managers might be unaware of their own weaknesses to ask for support and advice, believing they can do it all themselves (Watson, 2003). Hence, it is hypothesized that:

Hypothesis 1: the utilisation of external accountants' advisory services is positively associated with owner/manager knowledge of the firm.

1.4.2. Competitive Intensity

SMEs are unable to continue when they face intense competitive pressure because their resource gap does not permit them to adapt their product (Gooderham et al, 2004; IFAC, 2010). For example, RBV explains the firm facing intense competition needs more resources and support than the firm that does not face competitive pressure (Gooderham et al, 2004; Worrall, 2007). More importantly, in the competitive condition, SME owner / managers should learn how to exploit external resources to assist their enterprises to become more productive and competitive (Worrall, 2007). Referring to earlier discussion, one possible way to lessen competitive pressure and gain sufficient resource is to employ qualified persons (Gooderham et al, 2004). However, given the insufficient number of qualified professional accountants, we expect SMEs will turn to external accountants for advisory and support services (Berry et al. 2006; Devi and Samujh, 2010). For example, Gooderham et al. (2004) indicate that when a smaller company is faced with vulnerable competition, they refer to an external accountant as a source of support and advice to attain competitive advantage. As a result, our hypothesis based on the earlier discussion is as follows:

Hypothesis 2: The utilisation of external accountants' advisory services is positively related to competitive intensity.

1.4.3. Complexity of Marketing Decisions

RBV explains that smaller enterprises need to acquire external support advice to broaden their market for achieving competitive advantage (Marriott et al., 2008). In fact, the need of a firm owner/manager to obtain external support and advice is dependent on the nature of the market within which the firm is operating (Johnson et al., 2007). For example, "the market conditions and regulatory environment within which SMEs are operating is constantly changing and as a corollary, the demand for business advisory services will also be evolving" (IFAC, 2010, p. 7). Moreover, the firm owner/managers may be expert or proficient in the product markets within which they work, they may not be proficient in accounting and financial management issues, or may lack other important skills and expertise (Marriott and Marriott, 2000; Collis and Jarvis, 2002; Devi and Samujh, 2010). Although market issues are not legalised by statute, as accounting issues, Pineda et al. (1998) reported that SME owner/managers also see market issues as accounting issues. Therefore, they may engage professional accountants when they make marketing decisions (IFAC, 2010). However, evidence suggests that SME owner/managers seek specialised advisory and support services from an external accountant where needed (Sian and Roberts, 2009). Dyer and Ross (2008) found that complexity of marketing decisions is significantly associated with business advice. Thus, we hypothesise a positive association between the use of advisory services and complexity of marketing decisions as follows:

Hypothesis 3: There is a positive relationship between the use of external accountants' advisory services and complexity of the marketing decisions.

1.4.4. SME Performance

RBV argues that resources determine the firm performance (Gottschalk and Solli-Sæther, 2005). Bennett and Robson (1999) evidence an association between SMEs' utilisation of the external accountants' business advice and employment growth. Bennett and Robson (1999) categorized employment growth in three groups: (1) declining/stable, (2) medium growth, and (3) fast growth. They concluded that the external accountants' business advice is associated with employment growth. Furthermore, Robson and Bennet (2000) investigated the relationship between external accountants' business advice and SME performance. They categorized performance in three groups (1) change in number of staff, (2) percentage change in firm turnover and (3) change in profitability per employee. However, they did not find any association between business advice and SME performance.

Berry et al. (2006) examined the effect of four types of accountants' advisory services (e.g. business advice, emergency advice, financial management support and statutory advice) on SME growth. They report that "the degree of use of a range of external advice was positively related to the growth rate of SMEs" (p33). Similarly, Dyer and Ross (2008) investigated the use of business advice by the small business owner and its impact on firm performance. They measured performance based on perceptual with financial measures such as amount of profits, profit as percentage of sales, profit as percentage of investment, growth in sales and growth in profits. They concluded business advice is significantly positively associated with firm performance. Consequently, based on RBV and earlier discussions, we hypothesise the firm performance is associated with direct use of external accountants' advisory services as follows:

Hypothesis 4: There is a positive relationship between firm performance and utilisation of external accountants' advisory services.

Dyer and Ross (2008) examined that the mediating role of the business advice on the relationship between the complexity of marketing decisions and firm performance. They found a business advice has mediating role on the relationship between complexity of marketing decisions and performance. Although there is no empirical research that have attempted to analyse use of accountants' advisory services as the mediator, but regarding earlier argument and finding by Dyer and Ross (2008), we can assert that the interplay between owner/manager knowledge, competitive intensity and complexity of marketing decisions, and utlisation of accountants' advisory services will strengthen the ability of the company to perform better. In the other words, the owner/manager knowledge, competitive intensity and complexity of marketing decisions are expected to influence the use of external accountants' services, which, in turn, influences firm performance. Consequently, based on the discussion above, our hypotheses are proposed as follows:

H 5: Utilisation of external accountants' advisory services will mediate the relationship between owner/ manager knowledge and firm performance.

H 6: Utilisation of external accountants' advisory services will mediate the relationship between competitive intensity and firm performance.

H 7: Utilisation of external accountants' advisory services will mediate the relationship between complexity of marketing decisions and firm performance.

Based on earlier discussion, the research model is shown in Figure 1.

Figure 1: Research model

Competitive intensity

Accountants' advisory services

Performance

Complexity of marketing decisions

Owner/manager knowledge

2. Research Methodology

2.1. Data Collection

Consistent with SME definition in the context of Iran by UNIDO (2003), our survey population is limited to firms in terms of number of employees in the range of 10 to 250 employees. Indeed, the populations of this study include Iranian manufacturing SME sector because manufacturing SMEs are highly important in view of generating manufacturing value added and exports in the context of Iran (UNIDO, 2003). A questionnaire survey was designed and developed based on prior studies (see Gooderham et al., 2004; Sarapaivanich and Kotey, 2006; Rivard et al, 2006; Doran, 2006; Ismail and King, 2007; Dyer and Ross, 2008). In this context, a preliminary survey instrument was pre-tested by 50 SME owner- managers, and a minor correction was made based on their suggestions. Then, we selected a sample of 1750 manufacturing SMEs randomly, using a stratified random sampling method and the survey questionnaire was sent to each SME owner/manager by post mail. Accordingly, 770 questionnaires were collected. However, we finally had only 658 usable answers, representing an effective response rate of 38 percent. The response rate is very high in contrast to preceding research of SME context by Everaert et al., (2007) who obtained a low response rate (10 percent). In addition, in compliance with suggestion by Armstrong and Overton (1977), we compared early and late respondents (non-response bias test), but we did not find any significant difference between early and late respondents in terms of the number of employees. In addition, there is not any significance different between early and late respondent for the dependent variable or independent variables.

2.2. Variable Measurement

The dependent, mediating and independent variables were measured and rated on a seven point Likert-type scale and found adequately high Cronbach's alpha for all variables (above 70%). The details of the variable measurement are presented in Table 2.

Table 2: Variable measurement

Variables

Items

Source

Cronbach's alpha

Performance

1-Profitability

2-Growth in Sales

3-Return on Assets

4-Cash Flow

5-Lifestyle

6-Independence

7-Job Security

Sarapaivanich and Kotey ( 2006)

0.91

Advisory services

1-Tax consultancy

2-Business advice

3-Management consultancy (e.g. strategy formulation)

4-Financing advice e.g. banking or lending

5-Information technology (IT) consultancy

Items derived by Doran (2006)

Measurement based on Gooderham et al. (2004)

0.83

Owner/manager knowledge

1-Financial accounting techniques

2-Management accounting techniques

3-Word-processing package

4-Spreadsheet package

5-Database package

6-Accounting-based applications

7-Computer-assisted production management

8-E-mail

9-Internet searching

Ismail and King (2007)

0.90

Competitive intensity

1-Product characteristics

2- Promotional strategies among rivals

3-Access to distribution channels

4- Service strategies to customers

5-Product (Service) variety

Rivard et al.(2006)

and Lamminmaki (2008)

0.80

Complexity of marketing decisions

1-having a large number of customers

2-selling to numerous market segments

3-having broad geographical markets

4-innovative marketing techniques and developing innovative

Dyer and Ross (2008)

0.78

2.2.1. Dependent Variable

Performance: The Firm Performance measurement was previously tested and validated by Sarapaivanich and Kotey (2006). Thus, we first asked respondents to indicate the level of the importance attached to the seven financial and non-financial performance goals on a 7-point Likert type ranging from 1-not at all important to 7-very important. Then, respondents were asked to indicate their satisfaction with the seven financial and non-financial performance goals over the previous two financial years on a 7-point Likert type ranging from 1-strongly dissatisfied to 7-very satisfied.

2.2.2. Mediating Variable

After a comprehensive review of the professional accountant literature and following the suggestion by Dyer and Ross (2008), we believe that the use of accountants' advisory services can have direct effect, and also plays mediating role on the relationship three independent variables and dependent variable (firm performance). Accordingly, we selected five types of services provided by professional accountants to SME sector which are applicable in Iranian SMEs and these are similar to that derived from Doran (2006). Consequently, we utilised the measurement developed by Gooderham et al. (2004), asking participants to indicate to what extent they utilise an external accountant as advisor relating to each item using a 7-point Likert type, where 1 - not at all to 7 - very large degree.

2.2.3. Independent Variables

Owner/Manager Knowledge contained nine items that was developed by Ismail and King (2007). By using this measurement, we asked respondents to indicate the level of their knowledge of the accounting techniques and IT applications on 7-point Likert type from 1 = no knowledge to 7 = extensive knowledge.

Competitive Intensity included five items derived from Rivard et al. (2006) and Lamminmaki (2008). We utilised the measurement that applied by Rivard et al. (2006), asking respondents to record the intensity of their firm competition regarding each item on a 7-point Likert scale from 1- very weak competition to 7- very fierce competition.

Complexity of Marketing Decisions has four items was taken and measured by Dyer and Ross (2008). Accordingly, we asked participants to identify the factors that affect the success of their business on a 7-point Likert scale, 1 = not at all significant, 7 = extremely significant.

3. Results

3.1 Descriptive Statistics

Table 3 shows the demographic profile. Our sample included 78 percent male and 22 percent female. Most of the respondents were quite well educated, and the common level of managerial experience was high with nearly three-fourth of respondents having over five years of experience. The details are shown in Table 3.

Table 3: Demographic profile of respondents

Variable

Item

N

Percentage (%)

Gender

Male

516

78

Female

142

22

Education

University degree

604

92

Lower than university degree

54

8

Firm age

Less than 2 years

27

4

2-5 years

126

19

6-10 years

173

26

11-15 years

104

16

16-20 years

60

9

More than 20

168

26

Firm size

Less than 20 employees

148

22

20-30 employees

173

26

31-50 employees

129

20

51-100 employees

77

12

More than 100 employees

131

20

Experience

less than 5 years

142

22

5 -10 years

178

27

11-15 years

154

23

16-20 years

66

10

More than 20

118

18

Descriptive statistics are shown in Table 4. Descriptive statistics describe means and standard deviation (S.D) and correlations among the independent, dependent and mediating variables. The correlation between independent variables was such that multicollinearity is not a concern because we did not find correlation coefficients more than 70% between independent variables. For example, multicollinearity in the data will be created while results of the correlation coefficients are above 0.80 and to be considered "very high" (Burns and Bush, 2000).

Table 4: Descriptive statistics and correlations

Variables

Mean

S.D

1

2

3

4

5

1. Performance

73.55

15.42

1

2.advisory services

19.00

8.93

0.388**

1

3.Owner/ manager Knowledge

41.64

13.40

0.392**

0.443**

1

4.Competitive intensity

23.68

7.07

0.391**

0.429**

0.368**

1

5.Complexity of marketing decisions

18.94

6.44

0.305**

0.475**

0.297**

0.360**

1

**correlation is significant at the 0.01 level (2-tailed)

3.2. Hypotheses Testing

3.2.1. Testing for direct effects

Table 5 shows regression coefficients and standard error (S.E) for independent variables. The multiple linear regression analysis in Model 1of Table 5 shows a significant positive coefficient for owner/manager knowledge, suggesting that the utilisation of advisory services is significantly positively associated with the owner/manager knowledge, thereby confirming Hypothesis 1 (p<0.01). In addition, the Hypothesis 2 receiving support which posits a positive relationship between competitive intensity and utilisation of advisory services (p < 0.01). Support is also provided for Hypothesis 3 (p < 0.01) which indicates the complexity of marketing decisions is significantly positively associated with the use of the advisory services.

Table 5: Results of regression analyses for direct effect

Variables

Advisory Services

Performance

Model 1

Model 3

Coefficient(S.E)

Coefficient(S.E)

Owner/ manager Knowledge

0.169(0.026)***

-

Competitive intensity

0.264(0.051)***

-

Complexity of marketing decisions

0.417(0.056)***

-

Advisory Services

-

0.671(0.069)***

Constant

-2.253(1.385)

60.849(1.452)

0.347

.151

Adjusted

0.343

.149

F-value

84.398

94.213

DF-Model

3

1

Note: n=658. Unstandardized coefficients reported. Numbers in parentheses are Standard Errors (S.E).

** Significant at the 0.01 level

Besides, a linear regression analysis was conducted to examine the association between the utilisation of advisory services as the independent variable and performance as the dependent variable in Model 2 of Table 5. The Hypothesis 4 receiving support (p < 0.01) which posits a firm performance improves directly to the extent to which the external accountants' advisory services are used.

4.2.2 Testing for mediation effects

To test for the mediation effect of utilisation of advisory services on the relationship between three independent variables and firm performance, we performed the analyses under the three conditions suggested by Baron and Kenny (1986) for mediation effect as follows:

The independent variables must have a significant effect the mediating variable.

The independent variables should influence the dependent variable.

The mediating variable must affect the dependent variable in a regression of the independent variables and the mediating variable on the dependent variable.

If the above conditions hold in the direction, then the effect of the independent variables on the dependent variable in the third condition should be less than in the second condition to create a mediation effect. In fact, full mediation takes place if the independent variables have no significant effect on the dependant variable when the mediating variable is in the regression equation and partial mediation occurs if the effect of the independent variables reduce in strength but remain statistically significant upon controlling for the mediation effect (Lahiri and Kedia, 2009).

We perused the conditions suggested by Baron and Kenny (1986) and conducted multiple regression analyses shown in Table 6. Therefore, the results in Model 1 of Table 6 indicate a significant association between independent variables (owner/manager knowledge, competitive intensity and complexity of marketing decisions) and mediating variable (the utilisation of advisory services) (p<0.01, respectively), thereby confirming the first condition. Second condition is also satisfied as owner/manager knowledge, competitive intensity and complexity of marketing decisions are significantly associated with firm performance (Model 2of Table 6) (p<0.01, respectively). Model 3 shows a significant association (p<0.01) between utilisation of advisory services (mediator variable) and firm performance (dependent variable), confirming the third condition.

Table 6: Results of regression analyses for mediation effects

Variables

Advisory services

Performance

Model 1

Model 2

Model 3

Coefficient(S.E)

Coefficient(S.E)

Coefficient(S.E)

Owner/ manager Knowledge

0.169(0.026)***

0.320(0.048)***

0.277(0.051)***

Competitive intensity

0.264(0.051)***

0.525(0.094)***

0.482(0.099)***

Complexity of marketing decisions

0.417(0.056)***

0.336(0.104)***

0.245(0.112)**

Advisory Services

-

-

0.237(0.86)***

Constant

-2.253(1.385)

41.449(2.614)

41.387(2.671)

0.347

0.252

0.276

Adjusted

0.343

0.247

0.269

F-value

84.398

54.384

42.638

DF-Model

3

3

4

Note: n=658. Unstandardized coefficients reported. Numbers in parentheses are Standard Errors (S.E).

*** Significant at the 0.01 level and ** significant at the 0.05 level

However, the effects of independent variables when combined with the effect of mediator variable (utilisation of advisory services) in predicting firm performance (Model 3) shows mediation effect when compared to the results presented for model 2. Accordingly, the positive effects of owner/manager knowledge, competitive intensity and complexity of marketing decisions reduce in strength (0.320 to 0.277, 0.525 to 0.482 and 0.336 to 0.245, respectively) and remain statistically significant. Overall, the above results indicate that utilisation of advisory services partially mediate the relationship between owner/manager knowledge and performance followed by competitive intensity and performance or complexity of marketing decisions and performance. Hence, our Hypothesis 5, 6 and 7 are partially supported.

4. Discussion and Implications

In this paper, we have examined from an emerging economy's context, the factors that influence a firm's decision to obtain external accountants' advisory services and its impact on SME performance. Based on the resource-based perspective, we examined how external resources that are considered valuable by SMEs and utilised by them in fulfilling the internal resource gaps and influence SME performance. Consequently, our empirical analysis indicated that firms with owner/managers having high levels of knowledge in accounting will use external accountants′ advisory services more than those firms with owner/managers having low levels of knowledge. In this respect, our finding is similar to Audet and St-Jean (2007) who evidenced that when the SME owners know more about the external service providers, they will utilise their services more. Interestingly, we found that the utlisation of advisory services of an external accountant is positively associated with competitive intensity. However, our findings contradict a prior study conducted in Norway (Gooderham et al., 2004), which indicated that business advice of external accountant was not associated with the degree of competition. We believe the reasons could be threefold: Firstly, the previous study was undertaken in a more developed country, whereas current study was carried out in lesser developing country, Iran, hence emphasising the importance of the RBV theorization and its applicability in an emerging economy context; Secondly, the sample of this research comprised small and medium sized- enterprises whereas prior research (Gooderham et al., 2004) focused on micro and small enterprises (20 employees), hence suggesting an impact of size on the need for outsourcing of services; Finally, we examined five types of advisory services provided by external accountant, whereas prior research tested only external accountants' business advice, clearly this indicates the importance of variety of services for an emerging economy. Furthermore, this study also found complexity of the marketing decisions is statistically positively associated with external accountants′ advisory services. This finding indicates that SME owner/managers are willing to use external accountant when they face with complexity of marketplace decisions. These results provide empirical validation of other study finding obtained positive relationship between complexity of marketing decisions and business advice (Dyer and Ross, 2008).

More importantly, this study examined the relationship between the utilisation of advisory services and SME performance, and revealed that a firm performance improves directly to the extent to which the firm engages an external accountant as advisor. This is consistent with other findings on the subject advisory services (Bennett and Robson, 1999; Berry et al., 2006), but this result is contradictory with the research conducted UK by Robson and Bennet (2000) which indicated external accountants' business advice is not associated with SME performance. Therefore, we can speculate that this may caused by the context of the developed economy where the SME entrepreneurs could be sufficiently literate on financial and management issues. For example, in an emerging economy, most SMEs face difficulty in attracting and retaining skilled employee or qualified accountants (UNIDO, 2003; Jayabalan et al., 2009; Devi and Samujh, 2010).

Finally, we examined the mediating role of external accountants' advisory services on the relationship three independent variables (owner-manager knowledge, competitive intensity and complexity of marketing decisions) and dependent variable (firm performance). Hence, our analysis also suggested that utilisation of advisory services partially mediated on the association between three independent variables and firm performance. This is consistent with previous study (Dyer and Ross, 2008) which indicated that business advice had mediation effect on the relationship between complexity of marketing decisions and performance, but so far no empirical study examined the mediation effects of accountants' advisory services on the relationship owner-manager knowledge and performance or competitive intensity and firm performance.

This study revealed some research and practical implications. First, this study examined the effect of the utilisation of external accountants' services on SME performance and confirms previous research (Berry et al., 2006), and also extends by including owner/manager knowledge, competitive intensity and complexity as critical factors effecting a firm's decision to utilise external accountants' services, this makes a contribution to the literature on emerging economies. Second, this study analysed the effect of external accountants' services and SME performance from the Resource Based View, hence, providing some empirical evidence on the applicability of such theory in an emerging economy context. Third, this study also examined mediating role of accountants' advisory services, this was not done in prior studies. Fourth, this study is the first to analyse the external accountants' services in the Iranian context of an emerging economy and it also explicitly demonstrates the services currently provided by accountants to SME sector. Therefore, by identifying the broader range of services currently provided by external accountants to SMEs and the benefit attached to these services brings into focus the broader range of choices available to SME owner/managers. Fifth, majority of SMEs in developing countries are faced with internal resource gaps; they generally seek support and advisory services to fill up these gaps. Clearly, professional accountants are in a unique position to fulfill the needs of SMEs, but it is important that the advisory and support services are provided by professional accountants to SMEs are fit for purposes (e.g. relevant and high quality). Finally, if professional accountants are to expand their services to SMEs, this study emphasises that they should enhance their multidisciplinary and expertise base beyond traditional work and move to be knowledge professions. Whether or not professional accountants can be able to achieve this shift is arguable. This implies the accounting profession should explore avenues to improve the services offered by professional accountants.

6. Conclusion

This study examined the factors impact a firm's decision to engage external accountants' advisory services and its effect on SME performance by using a sample of manufacturing firms in Iranian SME context. Our findings indicate that owner/manager knowledge, competitive intensity and complexity of marketing decisions are critical factors affect a firm's decision to engage external accountants' services in Iranian SME context. Interestingly, our findings suggest the use of the external accountants' advisory services was significantly positively associated with SME performance. This study also found that use of advisory services has a partial mediating role on the relationship between three independent variables and SME performance. However, the results of this study may require to be interpreted in view of a few constraints. First, this research is limited to the manufacturing sector, so generalization to other sectors may be made with caution. Second, this study focused on quantitative method using questionnaire survey, thus future research should employ qualitative approach in order to investigate the effect of advisory services on SME performance. Finally, this research utilised subjective measures of SME performance, but it may be useful to examine objective measures of performance (i.e. percentage of profits) within a specific industry for future study.

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