How Much Does Growth Determine SMEs' Capital Structure?

The purpose of this paper is to examine the extent to which growth determines the capital structure of small and medium-sized enterprises (SMEs). This is done by considering some theories of capital structure in relation to SMEs and then testing the resulting ideas empirically. This, in turn involves identifying the likely determinants of SME capital structure, in addition to growth, in order to assess the relative contribution of growth. Also, since it has been argued that the determinants of capital structure vary in certain circumstances, the relative contribution of growth is assessed for SMEs in different industries, for SMEs that have access to the capital market, or not, and for different size classifications namely micro, small and medium-sized SMEs. A key feature of the empirical studies reported in this paper is that they utilize the samedatabase of SMEs. The data were analysed using ordinary least squares regression. The results show that growth is not consistently a major determinant of SMEs' capital structure but is more important in some circumstances than others.