Does capital structure affect the differences in the financial performance of small enterprises?

Abstract

Capital structure refers to the combination of debt and equity that the company uses to finance overall operations and growth. One of the most common problems of small enterprises is difficult access to various sources of financing, which is certainly reflected in their capital structure. Deciding on capital structure is one of the most important activities in the company, given that it significantly determines the performance of the company, but also the competitiveness and sustainability of the business. The aim of the study was to investigate whether there is a significant difference in financial performance between enterprises belonging to different leverage levels. Financial leverage was calculated by dividing total debts to total assets and based on leverage the companies are divided into 3 groups. Using ANOVA analysis, we found that the only difference in financial performance indicators was observed with NPM (but with a small effect size: eta square = 0.0470), whereas no statistically significant difference was observed between the groups in the ROE and ROA indicators.

The Impact of Capital Structure on the Performance of Serbian Manufacturing Companies: Application of Agency Cost Theory

“…The average total leverage of the analyzed companies is 0.56, varying widely from 0.03 to 4.63. The average value of total leverage is comparable to the leverage values obtained in other studies conducted in developing countries, where it is significant to point out that high values of total leverage are due to very high levels of short-term leverage, while on the other hand, these companies have a very low level of long-term leverage [53,72]. Since the sample consisted of companies that were in operation for all years of the observed period, the above also influenced the average age of the analyzed companies to be relatively high.…”

“…One of the limitations of this research refers to the use of total leverage as a proxy for capital structure. Companies in developing countries have a very high degree of participation of short-term financing sources in the capital structure [53,72]. Not all forms of debt are equally likely to curtail overinvestment.…”

Social Capital, Financial Capital, and Entrepreneurial Orientation: Keys to Performance in Indonesia’s MSME Clothing Industry

“…By and large, empirical studies indicate that financing, capital structure, especially long-term and total debt ratios, negatively affect the performance of small and medium enterprises (SMEs) (Harash et al, n.d.) However, the relationship between capital structure and financial performance can vary depending on the country and the type of debt (Stephen Wagana & of Nairobi, 2014). Financial capital also can enable MSMEs to engage in financial investments, which can help them grow (Stoiljković et al, 2021).…”

The financial performance of selected REITs from S&P500

“…According to findings, a certain level of liquidity is negatively related to the debt and financial performances (Zainudin, 2019). In addition, the impact of leverage on the financial performance of companies in the Autonomous Province of Vojvodina, Republic of Serbia, showed that the level of leverage does not have a significant impact on the financial performance of the company and that the most significant results were indicated in the net profit margin, which shows the decrease in net profit margin when leverage is higher (Stoiljković, Tomić & Uzelac 2021).…”