Big business is often big news.
But while the global corporate giants often make a grab for media headlines, the smaller for-profit private firms – or SMEs (small medium enterprises) – also play a crucial role in the prosperity of most of the world’s economies.
Professor Peter Carey – head of Deakin Business School’s Department of Accounting – says that despite this importance, academic research tends to focus on the ‘big end of town’ rather than on the SME environment.
A widely-published researcher, Professor Carey is increasingly directing his teaching and research interests towards private and non-profit businesses.
He says that within Deakin Business School, the Department of Accounting plays a key role in contributing impactful research into for-profit private and not-for-profit firms.
‘Our department has a number of research and teaching strengths which is evidenced by the research grants we’ve received and partnerships developed. We’re also very proud of our strong industry focus which aligns with the mission of making an impact on the communities we serve.’
In 2013, the Institute of Public Accountants (IPA) teamed with Deakin Business School to form an Australian-first, the IPA Deakin University SME Research Partnership
The partnership’s two-year study led to the 2015 publication of the Small Business White Paper Policy – Options for Australia which Professor Carey co-authored with Deakin colleague Professor George Tanewski, Director of Research in the Department of Accounting.
The aim of the research was to advise government on options for increasing productivity in Australia’s private and non-for-profit business sector.
‘Lifting the productivity of small and medium-sized businesses in Australia is crucial to avoiding recession and increasing Australia’s economic prosperity so it was a very important study,’ explains Professor Carey.
In the wake of the Australia’s mineral boom, the paper predicts a gloomy economic outlook for the nations unless there’s a pick-up in productivity among SMEs.
The report flags a number of concerns across small businesses including a slowdown in profits, products, exports, training, and IT infrastructure and warns: ‘In the coming decade, we will have to become significantly more reliant on local businesses producing goods and services faster, smarter and cheaper than rivals.’
Offering a raft of policy recommendations, the researchers developed three key ‘pillars’ to boost the small business sector says Professor Carey.
‘By looking at impediments to productivity we focused on the key elements which we believe government and small business need to focus on if Australia is to build a more dynamic business sector.’
The three pillars revolve around people (human capital), investment (financial capital) and innovation (technological change).
Professor Carey says they discovered that one of the major impediments for small business growth was accessing finance.
‘In Australia we have poorly-developed finance system for small businesses so we’ve recommended the introduction of a government-backed loan guarantee scheme. This is where a small business can get a loan from the bank at the mortgage rate of five per cent – rather than 18 per cent – and any additional risk premium is covered by the government. It’s a really simple policy that we think is a good way to encourage banks and other lenders to increase loan finance.’
He says addressing shortfalls in human capital is another way of pushing productivity.
‘These businesses need people with the right skills – skills that are currently overlooked in education. For example, we don’t teach financial literacy in schools and that seems very strange,’ he observes.
The paper also suggests that governments include business training through all levels of the education system and introduce integrated entrepreneurships programs into the national secondary school curriculum.
Addressing the issue of innovation, the researchers propose a range of recommendations including support by the government for businesses to undertake research and development, and building stronger links between research-focused universities and industry.
‘Of course these are our own findings with our take on recommendations, but it’s interesting that the government is starting to talk in terms of some of the issues we’ve raised in the White Paper. While the federal government has focused on cutting red tape, it’s probably time to broaden policy options to enhance SME productivity,’ he says.
Professor Carey has also published research around the role of external accountants in small and medium size businesses and how they help enterprises prosper.
With data collected from almost 400 Australian firms with up to 200 employees, his research found that business performance was enhanced when an external accountant was engaged for advice.
‘This supports the accounting profession’s strategy that it needs to broaden its service base. There’s clear evidence that small businesses do benefit from their accountant’s financial advice,’ he says.
Professor Carey and Professor Tanewski were also commissioned by the Australian Government to write a paper on the reporting practices of private and not-for-private companies who had lodge financial statement with the Australian Securities and Investments Commission (ASIC).
They reviewed the financial statements of over 1500 unlisted corporations law entities and 1100 state entities results and their research raised questions around a number of issues including the lodgement and compliance.
An article using data from the report was recently published in ABACUS (an A-level academic journal) and Professor Carey says it highlighted concerns about the application of the reporting entity concept.
‘If you’re a large unlisted private company, company limited by guarantee or foreign company – and there's 20,000 of them – you have to lodge your accounts with ASIC and they are publically available for a fee. But there are a further 2000 companies who are what we call ‘grandfathered’ and are able they keep their information hidden – and that is simply unfair.’
Currently, the government is debating whether to allow all larger private and foreign-owned companies to hide the reporting of their affairs from the public but Professor Carey says that public disclosure of financial information increases accountability.
‘It makes no sense to reduce accountability. For example, companies may have greater incentive to engage in aggressive tax-minimisation strategies if they are no longer in the public gaze’.
With a strong interest in corporate governance for private and non-for-profit businesses, Professor Carey says more research needs to be undertaken in this area.
‘There’s been very little written about what’s appropriate in terms of governance but in my view it’s a really important issue and needs more investigation.’
Meanwhile, he says that the Department of Accounting will continue encourage research that is relevant and important.
‘We have a role here that brings data and information to life – and producing impactful research is something that sits very highly in our strategy in the private and not-for-profit space.’