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Capital structure of small and medium enterprises

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  • V. Grinchenko

Abstract

The article analyzes the results of a research on the capital structure of small and medium business and identifies the financing peculiarities of Ukrainian and European enterprises. The author calculates the financial leverage of Ukrainian companies and shows that Ukrainian SMEs have higher level of financial leverage and risk compared with large enterprises. Structure of equity and debt financing was analyzed. It was determined that small and medium enterprises have a higher proportion of authorized capital in the structure of financial resources due to the lower possibility of attracting debt financing. The high level of retained losses of Ukrainian small and medium enterprises demonstrates the failure to finance their activities from internal sources, as well as a higher probability of bankruptcy. The author analyzed the debt structure of Ukrainian firms and revealed a significant prevalence of short-term debt in the debt structure of enterprises of all sizes due to intensive usage of trade credit. At the same time, it was found that a high level of financial leverage of European SMEs was mainly caused by intensive usage of bank lending, but not accounts payable. It was identified that the capital structure of SMEs in Italy, Portugal and Slovakia are similar to Ukrainian enterprises.

Suggested Citation

  • V. Grinchenko, 2016. "Capital structure of small and medium enterprises," Economy and Forecasting, Valeriy Heyets, issue 1, pages 142-156.
    • Handle: RePEc:eip:journl:y:2016:i:1:p:142-156
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    File URL: http://eip.org.ua/docs/EP_16_1_142_uk.pdf
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    References listed on IDEAS

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    1. Lemmon, Michael L. & Zender, Jaime F., 2010. "Debt Capacity and Tests of Capital Structure Theories," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(5), pages 1161-1187, October.
    2. Graham C. Hall & Patrick J. Hutchinson & Nicos Michaelas, 2004. "Determinants of the Capital Structures of European SMEs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5‐6), pages 711-728, June.
    3. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    4. Graham C. Hall & Patrick J. Hutchinson & Nicos Michaelas, 2004. "Determinants of the Capital Structures of European SMEs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5-6), pages 711-728.
    5. Gavin Cassar & Scott Holmes, 2003. "Capital structure and financing of SMEs: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 43(2), pages 123-147, July.
    6. Giovanni Trovato & Marco Alfó, 2006. "Credit rationing and the financial structure of Italian small and medium enterprises," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 167-184, May.
    7. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    8. Chandra S. Mishra & Daniel L. Mcconaughy, 1999. "Founding Family Control and Capital Structure: The Risk of Loss of Control and the Aversion to Debt," Entrepreneurship Theory and Practice, , vol. 23(4), pages 53-64, July.
    9. Giovanni Trovato & Marco Alfò, 2006. "Credit Rationing and the Financial Structure of Italian Small and Medium Enterprises," Journal of Applied Economics, Taylor & Francis Journals, vol. 9(1), pages 167-184, May.
    10. Gavin Cassar & Scott Holmes, 2003. "Capital structure and financing of SMEs: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 43(2), pages 123-147.
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