The Impact of Government Policies and Strategic Orientation on the Performance of Small and Medium-Sized Enterprises (SMEs) in Iran

Abstract

Abstract: The purpose of this study is to examine the impact of government policies and macroeconomic strategic orientation on the performance of small and medium-sized enterprises (SMEs) in Iran. Given the crucial role of SMEs in employment generation and economic growth, this research investigates how government credit and tax policies, as well as broader macroeconomic orientation, influence key performance indicators of firms. Data for this study were obtained from the statistical databases of the Ministry of Industry, Mine and Trade, the Central Bank of the Islamic Republic of Iran, and a survey of 432 active SMEs across the provinces of Tehran, Isfahan, Fars, and Khorasan Razavi for the period 2011–2023. The methodological framework is based on panel data regression models with fixed and random effects, and the Generalized Method of Moments (GMM) was employed to address potential endogeneity concerns.

The four main hypotheses propose that:

(1) Facilitating government credit policies positively and significantly affect SME sales growth.

(2) Tax incentives enhance firm profitability and investment.

(3) Expansionary macroeconomic orientation increases SME employment.

(4) Economic instability and abrupt policy shifts negatively influence financial performance.

The estimation results indicate that credit policies and tax incentives exert positive and significant effects on sales growth (β = 0.27, p < 0.01) and profitability (β = 0.21, p < 0.05), respectively. Conversely, economic volatility and sudden policy changes have a substantial negative impact on overall firm performance (β = −0.33, p < 0.01). Moreover, expansionary macroeconomic orientation is associated with higher levels of SME employment (β = 0.18, p < 0.05).Overall, the findings emphasize that policy stability, improved access to financial resources, and tax system reform are essential for enhancing SME performance in Iran. Therefore, policymakers should prioritize long-term strategies, reduce administrative barriers, and strengthen financial infrastructure.