The effect of competitiveness on the equity value of SMEs: evidence from a Central European country

Purpose The purpose of this study is to examine how small- and mediumsized enterprises’ competitiveness and its components influence their equity value. While business valuation methods provide a framework for evaluating businesses based on financial data, they do not address how to increase the equity value of the business. In contrast, research on business competitiveness tends to focus on improving competencies, yet the relationship and impact on business value remain understudied, especially in the small business sector. The authors integrated these two lines of research. Design/methodology/approach Using a unique competitiveness measure developed within the Global Competitiveness Project and a corresponding financial data set of 1,023 Hungarian small- and medium-sized enterprises (SMEs), the authors empirically analysed the effect of overall competitiveness and its ten components on equity value through ordinary least squares regression analysis. Findings The authors recognise a significant positive relationship between competitiveness and value even after controlling for firm size and industry. The effect is stronger in the service and retail sectors than in manufacturing. Four components of competitiveness – international markets, decision-making, domestic market and online presence – are found to be significant determinants of equity value. Originality/value This study is among the first to empirically link firm-level competitiveness, measured through a multidimensional index, with equity valuation in the SME sector. By combining a novel, multidimensional competitiveness framework with dual-method equity valuation based on financial data from over a thousand Hungarian SMEs, the study offers a unique theoretical contribution by linking firm-level strategic capabilities with financial value creation. In doing so, it bridges a significant gap between the resource-based view and SME valuation literature, particularly in contexts where intangible drivers are central yet often unaccounted for in standard valuation models. The findings provide clear managerial implications for entrepreneurs and investors seeking to enhance firm value through targeted improvements in competitiveness, especially in emerging and transitional economies.