Rebuilding Confidence: It's the Revenues, Stupid

by Manos Schizas, ACCA, 02 March 2012

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topics:
Metrics

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drivers of business confidence

As trusted business partners and advisers, accountants around the world had front-row seats to the downturn of 2008-09 and to the increasingly fragile recovery since. In many ways, the combined insights of our global membership have more to say about the state of the global economy than any econ-blogger, and their numbers are, as you no doubt realise, absolutely massive.

Realising that there’s a story to be told here, ACCA – the Association of Chartered Certified Accountants – has been surveying our members around the world every three months since early 2009. The poll, known as the Global Economic Conditions Survey (GECS), has now become the largest of its type in the world.

But the story that GECS was created to tell is still on-going. In fact, with Asia’s economies slowing down and Europe’s in the grip of a full blown sovereign wealth crisis that has so far resisted all attempts at a resolution, the need for better and clearer insights is arguably greater today than in 2009.

For the 12th edition of the GECS (2011 Q4), we’ve joined forces with IMA (the Institute of Management Accountants) to survey an incredible 3,775 professional accountants around the world. We won’t discuss the full findings of the report here; instead we’ve prepared a slightly different analysis, looking in detail at what factors influence our members’ confidence in the prospects of their organisations.

Analysing Confidence

So, what matters to businesses? What creates confidence?

It’s not a question one can ask directly in a survey; people often don’t know the answer themselves. Accountants are, of course, more familiar than most with the situation on the ground, but it’s hard to say how facts translate into sentiment.

At the end of the day, business confidence is as much about that nagging feeling that something is wrong, or the sense that everything will be all right, than about rigorous analysis.

What we’ve done in this case is to ask indirectly. GECS follows 38 different indicators of trading conditions and firms’ responses to them, as well as an index of business confidence.

On this occasion, we’ve used one of our favourite types of inductive statistics – ordinal regression analysis – in order to tease out the individual effect of each aspect of the business environments on reported business confidence, and control for business and respondent characteristics.

The statistically significant confidence drivers we found are as follows:

revenues
state of the global economy
new orders
effective government policy
perceived business opportunities
fall in government spending
business sector
perception of government incompetence
availability of capital for investment
business size
financially weak customers

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