Examining the determinants and consequences of financial constraints faced by Micro, Small and Medium Enterprises' owners

Abstract

PurposeThe Micro, Small and Medium Enterprises (MSMEs) counter numerous financial obstacles concerning business financing and cash flow management. The study, therefore, intends to examine the level of perceived severity of financial constraints on the business growth of enterprises, in terms of sales, profitability and asset growth. An attempt is made to study the influence of owner and firm attributes as the determinants of financial constraints faced by MSMEs.Design/methodology/approachThe data were collected from MSME owners of Northern India through a self-administered questionnaire. In total, 213 responses were analysed using partial least squares-structural equation modelling (PLS-SEM) technique through SmartPLSv2.FindingsThe findings advocate the role of owner and firm attributes in the severity of financial constraints experienced by the MSME owners. Most importantly, the study establishes a strong link between owner and firm attributes and cash flow constraints. Further, the paper confirms the negative influence of financing and cash flow problems on the growth of the firm.Research limitations/implicationsThe evaluation and categorisation of perceived financial challenges into meaningful dimensions generate value to the problematic area of MSME operations. Thus, the findings are useful for the policymakers and researchers to contemplate the financial vulnerability of MSMEs.Originality/valueThe empirical findings of the present study add worth to the limited evidence of the relationship between owner and firm attributes and severity of cash flow constraints faced by the Indian MSME owners.