The use of external accountants advisory services by SMEs

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ABSTRACT: This paper examines the factors influencing Iranian Small Medium Enterprises (SMEs) to obtain advisory services provided by external accountants and the association between the use of such external accountants' advisory services and SME performance. The study utilises the resource-based view (RBV) theorization model and conducts a questionnaire survey of 658 Iranian manufacturing SMEs. The results of linear regression analysis suggest that the use of external accountants′ advisory services are positively associated with the knowledge of owner/manager, technical competence of an external accountant, competitive intensity and complexity of market decisions. In addition, the study evidences that the use of advisory services have a positive effect on SME performance. Furthermore, after controlling for age and size of the firm, all four independent variables (knowledge, technical competence, competitive intensity and complexity of market decisions) were found significant.

The use of external accountants' advisory services by small and medium enterprises (SMEs) and its impact on SME performance: A resource- based view

Introduction

In this globalised era, as competitive pressures intensify, smaller firms are forced to lessen their costs and create new opportunities through optimized utilization of external resources (Mahmoodzadeh et al., 2009). Evidently, the new competitive environment is more complex (Espino Rodríguez and Padrón-Robaina, 2004), and furthermore, Small Medium Enterprises (SMEs) cannot control the markets in which they operate (Bennett, 2008). Consequently, the majority of SMEs tend to fail because of the lack of planning, marketing knowledge, or absence of managerial skills and competencies (Dyer and Ross, 2008). Therefore, SMEs are seen as most needy recipients of business support and advice as a result of both their economic contribution and their vulnerability to market imperfections (Lowe and Talbot, 2000). In this context, many claim a transformation in professional accountants' services to their small business clients. External accountants can assist SMEs operating in a competitive environment, to integrate operational considerations within long-term plans (Mitchell et al., 2000; Ismail and King, 2005) to enhance their sustainability.

Given that SMEs operate within uncertain environments (Mole, 2004), the idea behind the business links was that they must be the entry point for SMEs to seek advisory services and support (Lowe and Talbot, 2000). In this context, external accountants can seize 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). Hence, increasing 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; Samujh and Devi, 2008; IFAC, 2010). Specialization is a key to success, with many smaller accounting service providers concentrating on particular services (Martin, 2005). One form of specialization can be the provision of integrated solutions for SMEs, 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). Furthermore, in more complex conditions, external 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).

Empirical studies examined the effect of the use of accountants' advisory services on SME performance (Berry et al., 2006; Robson and Bennet, 2000; Bennett and Robson, 1999). However, these are conducted in more developed economies wherein the effect of advisory services on SME performance is examined. Moreover, the results are inconclusive. 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 relationship between external accountants' services and SME performance has not been examined in an emerging economy context. It is also argued that empirical evidence from the most developed economies may not be as applicable to economies such as Malaysia or 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). For example, there are several reasons that Iranian SME environment differs from that of developed economies: (1) inadequate accounting and management, (2) high cost of access to information, (3) barriers to sources of finance, (4) public policy shortcomings, (5) poor management and (6) unskilled workers (UNIDO, 2003).

Given that, the nature of accountants' services is people-intensive and SMEs lack people and capability, it is timely to examine whether there is an association between the provision of external accountants' advisory services and SME performance in an emerging economy. Hence, this paper aims to identify the factors that influence Iranian SMEs to obtain advisory services from external accountants and to explore the link between the advisory services and firm performance by utilising the resource-based View (RBV) theorisation in the Iranian manufacturing sector.

The rest of the discussion is organised as follows: Section 1 provides the review of literature and develops hypotheses utilising the resource based view (RBV) as a theoretical framework to investigate the use of advisory services. Section 2 explains the research methodology. Section 3 presents the findings. Section 4 discusses the implications. Section 5 concludes with suggestions for future research.

1. Review of Literature

1.1. The Role of External Accountants in SMEs

As a result of the privatisation programme in 1991, financial reporting has gained importance in Iranian companies fuelled by international pressures from the World Bank and the International Monetary Fund (Mashayekhi and Mashayekh, 2008). Thus, the requirement for financial reporting has increased in connection with privatisation of economic entities (Salehi and Azary, 2008). To meet with this requirement, the Iranian Association of Certified Public Accountants (IACPA) was established in 2001 as an independent professional body (non-government association) (Mirshekary and Saudagaran, 2005). Professional accountants play an important role in Iranian SMEs which comprise about ninety percent of companies of Iran (Mirshekary and Saudagaran, 2005). Based on IACPA (2003) and interviews [3] with selected Iranian professional accountants and SME owner/mangers, it is revealed that the accounting, audit and advisory services are critical in the Iranian SMEs.

Although smaller companies' access to a wide variety of advisory services, such as banks, is available, it is expected that the external accountant would play a key role in assisting SME owner/managers to manage their firms effectively (Mole, 2002). External accountants are perceived to be of significant support to the owner/managers in running the firm specifically when it comes to the introduction and implementation of changes (Gooderham et al., 2004). The role of the external accountant is primarily perceived by SME owner/managers as helping them to cope with tax requirements, even though empirical evidence suggests that services provided by the external accountants extends beyond traditional work (Marriott and Marriott, 2000). Evidently, external accountants perform a number of roles in the SME community: they not only provide accounting and auditing services with regard to compliance issues but also provide advisory services on a range of broader business-management issues (Marlow and Carter, 2005). External accountants are main advisers to most businesses on all aspects of doing business (Leung et al., 2008). Indeed, 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).

1.2. External Accountants' Advisory Services

In New Zealand, Lewis et al. (2005) revealed that, of a range of advisors, external accountants were ranked first by SME owner/managers in terms of frequency, usefulness and significance of advice obtained. In the UK, Berry et al. (2006) found 85 percent of small enterprises used their external accountant as a source of advisory services. In addition, Berry et al. (2006) report that 69 percent of small firms utilise their external accountant for statutory advice, 33 percent as business management advice and 31 percent for financial management support work. In the UK and Canada, Blackburn et al. (2006) claim that external accountants are main source of support and advice to SME sector in contrast to other source of business advisors such as banks and solicitors. In Australia, Leung et al. (2008) reports that external accountants have provided much of the financial management and taxation support for the SME sector and have long been seen as the preferred professional adviser to SMEs.

In the UK, Kirby et al. (1998) distinguish statutory services from non-statutory services in the SME environment. They concluded that SMEs utilised external accountants as source of "non statutory services". In Norway, a study of utilisation of external accountants as a source of support and advice to small companies conducted by Gooderham et al. (2004) indicated that external accountants are a reliable deliverer of advisory services and support in small companies. In Australia, Carey et al. (2005) examines the role of accountants in providing business advice to SMEs. They found that 67 percent of SMEs utilise external accountants as a source of business advice and also indicate that there is room for external accountants to increase the amount of business advice they provide to SMEs. In the UK, Scott and Irwin (2009) revealed that external accountants were the main sources of advice in the SME environment. In summary, whilst this research was undertaken in more developed economies, literature on role of professional accountants in developing countries such as Iran is missing except for the limited studies conducted in Malaysia (Devi and Samujh, 2010; Jayabalan 2009). Given that the above studies are conducted in the more developed economies, it will be useful to examine what factors impact decision to engage external accountants' services and whether in the Iranian context, there is an association between the use of accountants' advisory services and firm performance.

1. 3. Theoretical Framework and Hypotheses

Resource-based view (RBV) of the firm is defined as a unique bundle of assets and resources or capabilities that if a company utilises it in distinctive ways, can produce competitive benefit (Barney, 1991). For instance, 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. Therefore, activities or services in which the company lacks the indispensable resources or capabilities internally can obtain from external service providers (McIvor, 2009). Furthermore, Gottschalk and Solli-Sæther (2005) argue that RBV concentrates on two important points: "First, that resources are the determinants of firm performance and second, that resources must be rare, valuable, difficult to imitate and non-substitutable by other rare resources" (p. 657). However, in accounting context, resources and capabilities are defined as knowledge and expertise (Jayabalan et al., 2009; Everaert et al., 2006). Hence, one key distinguishing factor in the emerging economies' context is the lack of resources in terms of expertise (Jayabalan et al., 2009; UNIDO, 2003; Ismail, 2002). Consequently, the RBV explicates that a firm seeks knowledge and advice from external sources to achieve competitive benefits (Johnson et al., 2007). Evidently, knowledge and information are important for SMEs and they should obtain them from external sources to attain a competitive advantage in their competitive environment (Johnson et al., 2007). However, SMEs suffer from the absence of managerial knowledge, which can be complemented by external sources, particularly external accountants (Gabrielsson et al., 2004). 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 (IFAC, 2010; Marriott et al 2008; Gooderham et al., 2004). Hence, RBV explains successfully a number of respects of accounting for differences in the provision of advisory services by external accountants (Doving and Gooderham, 2005). For example, the RBV indicates what factors influence decision of a firm to engage external accountants as a source of advice and support services in SME context (Marriott et al, 2008; Everaert et al., 2006; Doving and Gooderham, 2005; Gooderham et al, 2004; Bennett and Robson 2003). As a result, the RBV is imperative to the study of utilisation of external resources and enhancing performance. It suggests that firm performance can be increased via improving the strategic and information skills of SMEs (McIvor, 2009; Bennett and Robson, 2004). The inference of RBV is that if firms are to grow, they need to become more skillful at seeking expert knowledge from external service providers and then embed the knowledge they acquire into their firms (Worrall, 2007).

1.3.1. Owner/ Manager Knowledge

RBV explains that majority of SMEs cannot carry out the accounting tasks(services) in-house because they are faced with inadequate knowledge and unqualified employees or resource constraints(Jayabalan et al., 2009; Everaert et al., 2006). For example, it is claimed that SMEs lack the necessary skills and resources (i.e. experience, knowledge and expertise or people) to perform accounting functions internally. Furthermore, access to relevant expertise and knowledge was clearly the most important reason to engage professional accountants (Jayabalan et al., 2009; Everaert et al., 2007; Ismail, 2002; Marriott and Marriott, 2000; Holmes and Nicholls, 1988). Hence, external accountants are in a unique position to provide professional and support services to SMEs (Breen et al, 2003). However, many reported that SME owner/managers are often not aware of the range of support services and advice available to them (Ismail and Zin, 2009; Ismail and King, 2007; Liddicoat and Stringer, 2005) 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 understand the benefits of compensating their own inadequate knowledge or skills by utilising external service provider (Ismail and King, 2007; Watson, 2003). For example, Audet and St-Jean (2007) found that the SME owner/managers, who knew more about the external services, utilised 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 advice and support, believing they can perform it all themselves (Watson, 2003). Therefore, the predicted relationship is examined by means of the following hypothesis.

Hypothesis 1: Firms with owner/managers having high levels of knowledge in accounting will utilise external accountants′ advisory services more than those firms that with owner/managers having low levels of knowledge.

1.3.2. Technical Competence

The RBV postulates that owner/managers must understand why competences should be acquired as valuable resources to improve firm performance (Caldeira and Ward, 2003). From a RBV perspective, functions which are not significant to the core competencies must be obtained from external service providers (Gilley et al., 2004). For instance, SMEs should acquire the activities that are not core competences to improve firm performance (Gilley et al., 2004; Espino Rodríguez and Padrón-Robaina, 2004). For most part, majority of SME owner/managers have no professional, management and other formal qualifications (Stanworth and Gray, 1992). One possible way for a smaller firm to obtain competencies is to engage services of qualified persons (Gooderham et al, 2004). Therefore, by relying on external sources, smaller firms can get the competence they need from external service providers (Carey et al., 2006; Gilley et al., 2004). Moreover, the reliance by SMEs on external accountants is perceived to be a result of the perceptions of SMEs that external accountants are competent and can provide a value-for-money advisory and support services (Leung et al, 2008). Evidently, empirical research shows that technical competence of the external accountant is positively associated with the use of accountants' advisory services (Gooderham et al., 2004; Carey et al. 2005). Consequently, the earlier arguments are summarised in the following hypothesis:

Hypothesis 2: The higher the perception that an external accountant has high technical competence in offering accounting tasks, the greater the propensity to use external accountants' advisory services.

1.3.3. Competitive Intensity

Competitive pressures force SMEs to source for significant competencies to ensure survival and development (Gooderham et al, 2004). For example, SMEs are unable to continue when they face intense competitive pressure because their limited resources do not permit them to adapt their product (Gooderham et al, 2004). Consistent with RBV, the firm that faces intense competition needs more resources and support than the firm that does not face competitive pressure (Worrall, 2007; Gooderham et al, 2004). For example, Devi and Samujh (2010) argue "Understanding business needs provides opportunities for firms in the financial management services sector to identify more accurately the services needed by smaller businesses in general, and thus meet these needs more efficiently" (Devi and Samujh, 2010, p. 7).

In the competitive situation, SME owner / managers should learn how to exploit external resources to help their companies to become more productive and competitive (Worrall, 2007). Referring to earlier discussion, one possible way to reduce competitive pressure and gain sufficient competence and 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 advice and support services (Berry et al. 2006; Devi and Samujh, 2010) as advice and support services comprise a range of competencies and knowledge that are much significant for the firm survival and gaining competitive advantage (Gooderham et al, 2004). For instance, Gooderham et al. (2004) argue that when a smaller company is faced with vulnerable competition, they refer to an external accountant as a source of support and advice to acquire competitive advantage. Consequently, our third hypothesis based on the earlier discussion is as follows:

Hypothesis 3: The firms that face more intense competition will utilise more external accountants' advisory services.

1.3.4. Complexity of Marketing Decisions

Consistent with RBV, smaller companies need to acquire advice and support services to broaden their market for achieving competitive advantage (Marriott et al 2008). Further, Johnson et al. (2007) argue the need of company owner/manager to acquire external advisory services and support is dependent on the nature of the market within which the company is operating. For example, when a company is operating in the local market, they might be able to drive the business based on its internal resource and may only need limited external support (Johnson et al., 2007). In addition, while SME owner/managers may be proficient in the product (services) markets within which they work, they may not be proficient in accounting, operational and financial management issues, or may lack other important skills and expertise (Devi and Samujh, 2010; Collis and Jarvis, 2002; Marriott and Marriott, 2000). 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. Thus, SME owner/managers may treat this area of expertise in the same way as they perceive accounting issues or financial management issues; they may engage advice and information when they make marketing decisions on product quality, product lines and pricing (Pineda et al., 1998; IFAC, 2010).

Mcgee and Sawyerr (2003) explain complex marketing decisions involve significant amount of uncertainty, and that the company owner/manager should obtain external resource to reduce this uncertainty. Based on the earlier argument, we can expect that the SME managers who are facing more complex marketing decisions would seek advice and support (Dyer and Ross, 2008). Consequently, they may refer to external accountants for financial management advice and perhaps wider assistance (Berry et al. 2006). Evidence suggests that SME owner/managers seek specialised advice and support services where needed (Sian and Roberts, 2009). For example, Sian and Roberts (2009) reported that SME owner/managers use external accountants on a variety of business advisory services beyond traditional services. Dyer and Ross (2008) found that complexity of marketing decisions is significantly associated with business advice. Therefore, we hypothesise an association between the use of advisory services and complexity of marketing decisions as follows:

Hypothesis 4: The higher the complexity of the marketing decisions facing the SMEs, the higher the use of external accountants' advisory services.

1.3.5. SME Performance

Bennett and Robson (1999) evidence an association between SMEs' utilisation of the advisory services of an external accountant and employment growth. Bennett and Robson (1999) categorized three growth categories: (i) declining/stable, (ii) medium growth, and (iii) fast growth. They found that the advisory services of an external accountant are associated with SME growth. Additionally, Robson and Bennet (2000) examined the relationship between business advice provided by an external accountant and SME performance. However, they did not find a positive relationship between business advice and SME performance. They categorized performance in three groups (1) change in number [of staff] employed by client, (2) percentage change in firm turnover and (3) change in profitability per employee.

Berry et al. (2006) examined the effect of four types of accountants' advisory services (business advice, emergency advice, financial management support and statutory advice) on SME performance (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) examined the use of business advice by the small business owner and its impact on business success. Measure of business success in their study was perceptual, based on satisfaction 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). Dyer and Ross (2008) found business advice positively impact business success. It is accepted that most of SMEs in lesser emerging economy such as Iran are facing inadequate resources (Zanjani et al., 2008; UNIDO, 2003). Consequently, in an emerging economy context where there is more need for external expertise, the use of external accountants' services should enhance performance. Hence, we hypothesise the firm performance is associated with direct use of external accountants' advisory services as follows:

Hypothesis 5: There is a positive relationship between firm performance and utilisation of external accountants' advisory services.

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

Figure 1: Research model

Owner/manager knowledge

Competitive intensity

Accountants' advisory services

Firm performance

Complexity of market decisions

Technical competence

2. Research Methodology

2.1. Data Collection

According to the definition of SMEs in the context of Iran by UNIDO (2003), we limited our survey population to companies in terms of number of employees in the range of less than 250 employees, while excluding micro-firms with fewer than 10 employees. Thus, the populations of this paper comprise Iranian manufacturing SMEs because manufacturing SMEs are highly significant in view of producing both manufacturing value added and exports in the context of Iran (UNIDO, 2003). We designed and developed a questionnaire survey based on prior research (see Dyer and Ross, 2008; Ismail and King, 2007; Sarapaivanich and Kotey, 2006; Rivard et al, 2006; Carey et al., 2006; Doran, 2006; Gooderham et al., 2004). A pilot test was conducted with 50 SME owner/managers, and then a sample of 1750 SMEs was selected randomly, using a stratified random sampling approach and the survey questionnaire was sent to each SME owner/manager by post mail. We selected the owner/managers of SMEs because they would have to gain external advisory services to manage their businesses. We received 770 questionnaires. However, we finally had only 658 usable answers, representing an effectual response rate of 38 percent. The response rate is very high in contrast to previous study of SME context by Everaert et al., (2007) who had a low response rate (10 percent).

Based on the suggestion by Armstrong and Overton (1977), we compared early and late respondents (non-response bias test), but we did not find any significant differences between early and late respondents in terms of the number of employees and as well dependent and independent variables, which is in line with prior research done by Everaert et al. (2008).

2.2. Variable Measurement

We measured each variable based on prior studies. The details of the variable measurement are presented in Table 1. We found adequately high Cronbach's alpha for all variables (above 70%).

2.2.1. Dependent and Independent Variables

In this study, we measured Performance similar to the measure used by Sarapaivanich and Kotey (2006), first asking respondents to indicate the level of the importance attached to the seven performance goals (see Table 1) 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 performance goals over the previous two financial years on a 7-point Likert type ranging from 1-strongly dissatisfied to 7-very satisfied.

Based on IACPA (2003) and interviews with selected Iranian professional accountants and SME owner/mangers, we identify five types of Advisory Services (see Table 1) which are applicable in Iranian SMEs and these are similar to that derived by Doran (2006). Consequently, we utilised the measurement developed by Gooderham et al. (2004), asking respondents to indicate to what extent they use external accountant as advisor relating to each item using a 7-point Likert type, where 1 - not at all to 7 - very large degree.

We measured Knowledge of SME owner/manager with nine items derived from Ismail and King (2007), asking respondents to indicate the level of their knowledge of the accounting techniques and IT applications, using a 7-point Likert type from 1 = no knowledge to 7 = extensive knowledge.

Technical Competence was measured with six items developed by Carey et al. (2006), asking respondents to specify the degree to which the firm perceives its external accountant as a technical competent source of accounting and advisory services, using 7-point Likert scale where 1-lowest score and 7 - highest score.

Competitive Intensity is measured with five items based on Rivard et al. (2006) and Lamminmaki (2008). Hence, respondents were asked to record the intensity of their firm competition relating to each item on a 7-point Likert scale from 1- very weak competition to 7- very fierce competition.

We measured Complexity of Market Decisions with four items in line with Dyer and Ross (2008), asking respondents 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.

2.2.2. Control Variables

RBV indicated that the use of external support and professional services interacts with the size and age of the firm (Bennett and Robson, 2003). Empirical studies indicate that utilisation of business services and advice by SMEs is positively related to firm size and firm age (Dyer and Ross, 2008; Robson and Bennett, 2000; Bennett and Robson, 1999). As a result, we chose these variables in our study as control variables. Therefore, we measured Firm Size, consistent with the measure that was used by Audet and St-Jean (2007), asking respondents to indicate the number of employees working in the business. In addition, we measured Firm Age similar to the approach utilised by Doran (2006); asking respondents to identify the year in which their business was first registered.

3. Results

3.1 Descriptive Statistics

Table 2 shows the demographic profile. Our sample included 78 percent male and 22 percent female. Most of the respondents were quite well educated, and the general level of managerial experience was high with nearly three-fourth of respondents having over five years of experience.

Descriptive statistics are shown in Table 3. Descriptive statistics describe means and standard deviation (S.D) and correlations among the independent, dependent and control variables. It is observed that all independent variables significantly correlated with the dependent. Hence, we didn't find correlations more than 70% between independent variables, so the correlation between independent variables was such that multicollinearity is not a concern (Lamminmaki, 2008).

3.2. Hypotheses Testing

3.2.1. Testing for direct effects: advisory services

Table 4 shows regression coefficients and standard error (S.E) for each of the predictor and control variables. The multiple linear regression analysis in Model 1of Table 4 shows a significant positive coefficient for owner/manager knowledge (Knowledge), suggesting that the use of advisory services provided by an external accountant is positively related to the owner/manager knowledge, thereby confirming Hypothesis 1 (p<0.01). It also indicates that the use of advisory services also is significantly positively associated with the technical competence (Competence) of the external accountant, which provides support for Hypothesis 2 (p<0.01). In addition, the Hypothesis 3 receiving support which posits a positive relationship between competitive intensity (Competition) and use of advisory services (p < 0.01). Support is also provided for Hypothesis 4 (p < 0.01) which posits the more the complexity of the marketing decisions facing the firm, the more the use the external accountants' advisory services. In other words, the complexity of marketing decisions is significantly positively associated with the use of the advisory services provided by external accountants ( MktDecision).

3.2.2. Testing for control variables effects: advisory services

We suggested that firm size and firm age may affect the use of external accountants' advisory services. Model 2 in Table 4 shows results of the multiple linear regression analysis with owner/manager knowledge, technical competence, competitive intensity and complexity of market decisions as the independent variables and the use of advisory services as dependent variable, controlling for the effects of the size and age of the firm. The results suggest that all independent variables (owner/manager knowledge, technical competence, competitive intensity and complexity of market decisions) have a positive significant impact on the use of advisory services (p<0.01 respectively). Therefore, Hypotheses 1, 2, 3 and 4 are also supported. It noted that the use of advisory services is not associated with firm size and firm age.

3.2.3. Regression analysis: performance

We noted the extent to which a firm uses external accountants' advisory services might have an improvement on its performance. Therefore, for achieving this objective, a linear regression analysis was undertaken to test the association between the utilization of advisory services as the independent variable and performance as the dependent variable in Model 3 of Table 4. Support is also provided for Hypothesis 5 (p < 0.01) which posits a firm performance improves directly to the extent to which the external accountants' advisory services are utilised. In addition, we also controlled for the impact of age and size of the firm in Model 4 of Table 4, and found that the use of advisory services statistically positively associated with firm performance (p<0.01), and negatively associated with firm size(p<0.05), but it was unrelated to firm age.

4. Discussion and Implications

In this paper, we have examined the factors that influence a firm's propensity to use external accountants' advisory services and whether SMEs which obtain those services improve their performance. Drawing on the resource-based view (RBV), a series of hypotheses were generated and tested on data concerning the utilisation of advisory services by SMEs in the context of Iran.

As hypothesized earlier, owner/manager knowledge has significant positive impact on the use of external accountants' advisory services. In the other words, firms with owner/managers having high levels of knowledge in accounting will use external accountants′ advisory services more than those firms that with owner/managers having low levels of knowledge. Therefore, our finding corroborates prior studies conducted by Audet and St-Jean (2007), indicated when the SME owners know more about the external service providers, they will utilise higher their services, and Ismail and King (2007), found the use of accounting information system was associated with SME owner/manager knowledge of accounting techniques.

We also found a positive association between the utilisation of advisory services and technical competence of an external accountant. This finding is consistent with the results of the previous research undertaken by Gooderham et al. (2004), suggesting that the professional accountant's competence has a significant positive impact on the decision to use the external accountant as business advisor, and by Carey et al., 2006), that the technical competence of an external accountant is positively associated with outsourcing of internal auditing services.

More importantly, our results also revealed that an SME operating in a competitive environment turns to the external accountant for support and advice. In other words, the use of advisory services of an external accountant is positively associated with competitive intensity. This result is consistent with preceding research conducted by Chenhall (2003) which showed that the competition intensity positively associated with the use of formal controls, but this result is contradictory with a prior study conducted in Norway (Gooderham et al., 2004), which indicated that business advice of external accountant was not related to the degree of competition. We believe the reasons could be threefold: Firstly, the prior research was undertaken in a more developed country, whereas present study was conducted in lesser developing country such as Iran, hence emphasising the importance of the RBV theorization and its applicability in an emerging economy context; Secondly, the sample of this study included 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 study tested only business advice of an external accountant, clearly this indicates the importance of variety of services for an emerging economy.

This study also examined the association between complexity of marketing decisions and the use of external accountants' advisory services, and found the higher the complexity of the marketing decisions facing the firm, the higher the utilisation of the external accountants' advisory services. Hence, the usage of the external accountants' advisory services is positively related to the complexity of marketing decisions. This finding indicates that owner/managers are willing to use external accountant when the firm has many different products, market segments, and customers. Our finding is in line with prior research (Dyer and Ross, 2008) which demonstrated that the more complex the marketing decision, the more the small business owner/manager is likely to seek business advice.

We also introduced the size and age of the firm as control variables in our regression equation. Accordingly, the relationship between the use of advisory services and four independent variables (owner/manager knowledge, technical competence of the external accountant, competitive intensity and complexity of market decisions) remained positively significant, but the use of advisory services was not associated with the size and age of the firm. This finding is similar to Gooderham et al. (2004) who found that the sourcing of business advice from external accountants was not associated with firm size, and Mohan-Neill (1995), indicated that younger and smaller firms use less market information when they make decisions.

More importantly, this study examined the relationship between the use of advisory services and SME performance, and found that a firm performance improves directly to the extent to which the firm engages an external accountant as advisor. In other words, the use of advisory services is positively associated with SME performance. Our finding is consistent with prior studies that indicated the usage of advisory services from an external accountant had a significant positive influence on firm performance (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 due to the context of the developed economy where the SME entrepreneurs could be sufficiently literate on financial and management issues. For instance, in emerging economy, most SMEs face difficulty in attracting and retaining skilled employee (UNIDO, 2003; Ismail, 2002; Devi and Samujh, 2010). This is as a result of fewer experts and insufficient knowledgeable accounting support to carry out accounting tasks (Jayabalan et al., 2009; UNIDO, 2003; Ismail, 2002).Thus, SMEs in the emerging economy may experience greater need to utilise external accountants relative to more developed economy to get benefit from their services (Devi and Samujh, 2010; Jayabalan et al., 2009). Furthermore, the link between the utilisation of advisory services and performance remained significant after including control variables in our regression equation.

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 (Bennett and Robson, 1999; Berry et al., 2006), and also extends by including knowledge of owner/manager, technical competence, market decisions and competitive intensity 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 RBV, this provides some empirical findings not shown in previous studies. Third, this work is the first to analyse the external accountants' services in the Iranian context of an emerging economy and it also explicitly discusses the services currently provided by accountants to SME sector and examines the role that accountants play in Iranian context. 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. Fourth, SMEs constitute over ninety percent enterprises in developing economies. Nevertheless, majority of SMEs faced with limited capacity and expertise in-house, they normally seek support services and advice because of their necessity. In fact, external accountants are in a unique position to fulfill the needs of SMEs, but it is important that the support services and advice are provided by them to SMEs are fit for purposes (i.e. relevant and high quality). Finally, if professional accountants are to expand their services to SMEs, this study emphasises that they should increase their multidisciplinary and skills base beyond traditional work and move to be knowledge professions. Whether or not professional accountants can be able to attain this shift is arguable. This implies the accounting profession should explore avenues to enhance the services offered by professional accountants.

5. Limitations and Suggestions for Future Research

Generalizability of this research is limited because all of the enterprises in the sample were manufacturing, generalizing the findings of this research to service sector is not advisable. In addition, we examined only Iranian SMEs, so our findings may not be generalized to SMEs in other countries. However, the results of this study may require to be interpreted in light of a few constraints. First, this research 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.

6. Conclusion

This study examined the factors impact 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, technical competence, competitive intensity and complexity of marketing decisions are critical factors affect a firm's decision to engage external accountants' services in Iranian SME context. More importantly, our results suggest the use of the external accountants' advisory services was significantly positively associated with SME performance. Although we did not conduct the mediation effects of the use of advisory services on the relationship between four independent variables and performance, more intensive investigation may provide a promising avenue for future research.

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