Abstract
PurposeThe purpose of this research is to examine the effect of debt policy (capital structure) on the financial performance of small and medium‐sized enterprises (SMEs) in Ghana and South Africa. Previous studies, especially on large firms, have shown that capital structure affects firm performance. Though the issue has been widely studied, largely missing from this body of literature is the focus on SMEs.Design/methodology/approachPanel data analysis is used to investigate the relations between measures of capital structure and financial performance.FindingsUsing various measures of performance, the results of this study indicate that capital structure influences financial performance, although not exclusively. By and large, the results indicate that capital structure, especially long‐term and total debt ratios, negatively affect performance of SMEs. This suggests that agency issues may lead to SMEs pursuing very high debt policy, thus resulting in lower performance.Originality/valueThe main value of this paper is the analysis of the effect of debt policy on the performance of SMEs in Ghana and South Africa.
Reference35 articles.
1. Abor, J. (2005), “The effect of capital structure on profitability: empirical analysis of listed firms in Ghana”, Journal of Risk Finance, Vol. 6 No. 5, pp. 438‐45.
2. Baker, S.H. (1973), “Risk, leverage and profitability: an industry analysis”, Review of Economics and Statistics, Vol. 55, pp. 503‐7.
3. Baltagi, B.H. (1995), Econometric Analysis of Panel Data, Wiley, Chichester.
4. Chaganti, R., DeCarolis, D. and Deeds, D. (1995), “Predictors of capital structure in small ventures”, Entrepreneurship Theory and Practice, Winter, pp. 1042‐2587.
5. Champion, D. (1999), “Finance: the joy of leverage”, Harvard Business Review, Vol. 77 No. 4, pp. 19‐22.
Cited by
102 articles.
订阅此论文施引文献
订阅此论文施引文献，注册后可以免费订阅5篇论文的施引文献，订阅后可以查看论文全部施引文献