A study on factors driving the capital structure decisions of small and medium enterprises (SMEs) in India

Rao‐Melacini, Purnima; Kumar, Satish; Madhavan, Vinodh

doi:10.1016/j.iimb.2018.08.010

Cited by 69 publications

(69 citation statements)

References 56 publications

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“…PRFT is found to be a weak predictor of long-term borrowings but it has significant negative impact on short term debt for the whole sample data. The findings confirm the conclusion of Bauer (2004), Iqbal et al (2019) whereas contradicts the results of Dakua (2018) and Rao et al (2019). The results can be justified as firms with higher profits can have accumulated reserves which can be plough back into the business for financing activities.…”

Section: Profitabilitysupporting

confidence: 80%

Moderating Effect of Firm Size on Capital Structure Determinants: Evidence From Indian Food Processing Industry

Desai¹,

Desai

2021

CJFA

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Present research paper examines the determinants of capital structure decision of Indian food processing industry and assesses the moderating effect of firm size on this relationship. Using financial data of 40 firms for 10 years (2009-10 to 2018-19), panel least square regression analysis has been performed for data analysis. Based on regression results, the study concludes tangibility, tax rate, and cash flow as significant determinants of long-term borrowing for overall sample firms. On the other hand, tangibility, liquidity and profitability are significant factors affecting short-term borrowings of selected companies. Further, the study confirms that size of the firm moderates the effect of selected determinants on debt ratio of different categories of firms. It is, further, found that small size firms employ more debt with increasing profitability whereas medium and large size firms tend to reduce their debt levels with increasing profitability. The research findings will enhance understanding of capital structure determinants by probing the moderating impact of company size on it. The findings will be helpful to corporate managers in forming their borrowing strategies based on the relative size. Further, they can identify important factors to be considered while choosing debt or equity or in case of debt either short term or long term.

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Section: Profitabilitysupporting

confidence: 80%

Moderating Effect of Firm Size on Capital Structure Determinants: Evidence From Indian Food Processing Industry

Desai¹,

Desai

2021

CJFA

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“…The profit earned is used to pay dividends so that retained earnings as a source of internal funds are reduced. Profitability had a positive effect on CS, supported by research results from Hadianto and Tayana (2010), Margaretha and Ramadhan (2010), Culata and Gunarsih (2012), and Rao, Kumar, & Madhavan (2019). Based on this description, the following hypothesis could be formulated.…”

Section: Hypothesis Developmentmentioning

confidence: 63%

Non-Mutually Exclusive Trade-off and Pecking Order Theories: A Study in Indonesia

Pamungkas

Surwanti

2021

MABIS

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Research aim: This study aimed to strengthen empirical evidence that the trade-off (TOT) and pecking order (POT) theories in Indonesia are non-mutually exclusive.Design/methodology/approach: This study employed a sample of 636 manufacturing companies from 2014 to 2018.Research finding: The results revealed that companies in Indonesia used a Capital Structure consistent (CS) with the TOT and POT, or in other words, the TOT and POT theories are non-mutually exclusive.Theoretical contribution/originality: This study is different from previous research on data analysis strengthened by separating underleveraged and overleveraged companies.Practitioner/Policy implication: CS in Indonesia is following the TOT if it is underleveraged and according to POT if it is overleveraged.Research limitation/implication: This study has the limitation of only using a sample of manufacturing companies in Indonesia. Subsequent research can provide comprehensive results by increasing the sample of all companies excludes the financial sector.

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“…The trade-off theory refers to balancing the benefits of debt through tax shields and the cost of debt (Serrasqueiro, Nunes, & Armada, 2016). Empirical research conducted on financing decision initiates from the capital structure theories, with a huge number of empirical studies focusing on large firms in contract to small firms (Rao, Kumar, & Madhavan, 2019).…”

Section: Capital Structurementioning

confidence: 99%

Interplay between capital structure choice and survival and growth of small, medium, and micro enterprises: A South African context

Nyide

Zunckel

2019

Problems and Perspectives in Management

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It is essential for small, medium, and micro enterprises (SMMEs) to become established, be sustainable and grow. These firms play a vital role in the economy of both developed and developing countries. Empirical studies have acknowledged the contribution of SMMEs to the economy, as well as to the gross domestic product. However, the failure rate of these firms has also been emphasized in the same studies. SMME survival is critical for economic growth, which is measured by increases in profits. Capital structure decisions are significant to the survival and growth of these entities. This study was conducted to examine the interplay between capital structure and SMMEs` survival and growth in a developing economy. A sample size of 103 SMMEs was chosen on a non-probability basis using convenience sampling within the eThekwini area, KwaZulu-Natal, South Africa. The statistical tool used for analysis in this study was the Partial Least Squares Structural Equation Modelling (PLS-SEM) 5.0 software. Capital structure was found to have a significant influence on the growth and survival of small, medium, and micro enterprises. The study concludes that utilizing retained earnings, personal savings, trade credit and funds from friends and family has a significant influence on the growth and survival of the firm. Debt and external equity financing, on the other hand, have an insignificant influence on the growth the firm.

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A study on factors driving the capital structure decisions of small and medium enterprises (SMEs) in India

Cited by 69 publications

References 56 publications

Moderating Effect of Firm Size on Capital Structure Determinants: Evidence From Indian Food Processing Industry

Moderating Effect of Firm Size on Capital Structure Determinants: Evidence From Indian Food Processing Industry

Non-Mutually Exclusive Trade-off and Pecking Order Theories: A Study in Indonesia

Interplay between capital structure choice and survival and growth of small, medium, and micro enterprises: A South African context

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