How do we explain the capital structure of SMEs in sub‐Saharan Africa?

Abstract

PurposeThe purpose of this study is to examine the determinants of capital structure decisions of small and medium enterprises (SMEs) in Ghana. The issue is very relevant considering that SMEs have been noted as important contributors to the growth of the Ghanaian economy.Design/methodology/approachRegression model is used to estimate the relationship between the firm level characteristics and capital structure measured by long‐term debt and short‐term debt ratios.FindingsThe results of the study suggest that variables such as firm's age, size, asset structure, profitability, and growth affect the capital structure of Ghanaian SMEs. Short‐term debt is found to represent an important financing source for SMEs in Ghana.Originality/valueThe findings of this study have important implications for policy makers and entrepreneurs of SMEs in Ghana.