Capital Structure and Financial Performance of Moroccan Agricultural Small- and Medium-Sized Enterprises: Moderating Effects of Government Subsidies

Abstract

In the context of implementing the new agricultural strategy, “Generation Green 2020–2030”, Moroccan agricultural SMEs are benefiting from specific lines of credit and significant financial incentives. This study focuses on assessing how the capital structure influences the financial performance of these medium-sized enterprises, based on an analysis of a sample of 30 agricultural SMEs over a period of 4 years from 2019 to 2022. This examination delves into the effects of debt, government subsidies, and their combined impact on the return on equity and assets of these SMEs. The findings reveal a significant negative correlation between capital structure and the financial performance of agricultural SMEs. This underscores the importance of advocating for self-financing in line with the pecking order theory, as debt appears to significantly diminish asset returns. Additionally, although government subsidies alone do not significantly influence enterprise profitability, their interplay with capital structure—especially long-term debt—exhibits a detrimental moderating effect on asset returns. This suggests that subsidies play a significant role in moderating the relationship between capital structure and SME financial performance, albeit with an adverse effect.