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The Debt Structure of SMEs: An Optimization Model

Author

Listed:
  • Andrea Moro

    (University of Leicester, UK)

  • Mike R. Lucas

    (The Open University Business School, UK)

  • Uwe G. Grimm

    (The Open University, UK)

Abstract

The existing finance literature is inadequate with respect to its coverage of the debt structure of small and medi-um sized enterprises (SMEs). In addition, the role of trust in accessing finance for such enterprises is under-investigated. This paper presents a mathematical model for optimizing the debt structure of SMEs that, since SMEs are often equity constrained, focuses on optimizing debt structure by minimizing its cost. The model is then extended by incorporating the level of trust that suppliers and bank managers have in the enterprise. The extended model, suggests that the higher the level of trust that bank managers and suppliers have in the SME, the more short-term finance an SME can obtain and should use.

Suggested Citation

  • Andrea Moro & Mike R. Lucas & Uwe G. Grimm, 2012. "The Debt Structure of SMEs: An Optimization Model," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 16(1), pages 87-108, Spring.
    • Handle: RePEc:pep:journl:v:16:y:2012:i:1:p:87-108
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    Cited by:

    1. Lakshmi, Geeta & Tilley, Simon, 2019. "The “power” of community renewable energy enterprises: The case of Sustainable Hockerton Ltd," Energy Policy, Elsevier, vol. 129(C), pages 787-795.

    More about this item

    Keywords

    SMEs; Capital Structure; Trade Credit; Bank Debt; Trust;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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