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2018•IIMB Management ReviewOpen access

A study on factors driving the capital structure decisions of small and medium enterprises (SMEs) in India

Rao Ps, Satish Kumar, Vinodh Madhavan

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Abstract

The prime focus of the study is to empirically examine the factors affecting the capital structure decisions of small and medium enterprises (SMEs) in India. The sample consists of 174 non-financial firms. Generalised method of moments (GMM) has been applied to find out the firm specific factors affecting financing decisions of SMEs in India. The study specifically examines the effect of firm's profitability, tangibility, size, age, growth, liquidity, non-debt tax shield, cash flow ratio, and return on equity on the leverage of the firm. It confirms the applicability of the pecking order theory for SMEs in India.

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What this paper is about

The prime focus of the study is to empirically examine the factors affecting the capital structure decisions of small and medium enterprises (SMEs) in India. The sample consists of 174 non-financial firms. Generalised method of moments (GMM) has been applied to find out the firm specific factors affecting financing decisions of SMEs in India. The study specifically examines the effect of firm's profitability, tangibility, size, age, growth, liquidity, non-debt tax shield, cash flow ratio, and return on equity on the leverage of the firm. It confirms the applicability of the pecking order theory for SMEs in India.

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OpenAlex reports 99 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

The prime focus of the study is to empirically examine the factors affecting the capital structure decisions of small and medium enterprises (SMEs) in India. The sample consists of 174 non-financial firms. Generalised method of moments (GMM) has been applied to find out the firm specific factors affecting financing decisions of SMEs in India. The study specifically examines the effect of firm's profitability, tangibility, size, age, growth, liquidity, non-debt tax shield, cash flow ratio, and return on equity on the leverage of the firm. It confirms the applicability of the pecking order theory for SMEs in India.

Key concepts: Pecking order theory, Capital structure, Profitability index, Small and medium-sized enterprises, Business, Market liquidity, Leverage (statistics), Tax shield

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