Theoretical analysis of the determinants of the financial structure of SMEs

Abstract

This article presents a systematic quantitative review of scientific work on the financial structure of companies between 2000 and 2018, with a particular interest in studies using the methodology based on panel data econometrics. The aim is to provide a comprehensive framework of past research while highlighting key theoretical indicators to explain the financial structure of companies. In principle, financial structure refers to the way companies allocate their resources between equity and debt. The article explores the main theories that explain the financing choice of small and medium-sized enterprises, namely: the trade-off theory and the pecking order theory. Indeed, this work highlights several specificities that distinguish the financial choice of SMEs from that of large companies. Due to their size and more flexible structure, this type of company often has limited access to financial markets and prefers self-financing to bank loans, rather than issuing shares. In addition, their financial risk management often differs from that of large companies, which directly influences their choice of financing. Thus, this study shows the importance of understanding the factors that push companies to prefer equity or the use of debt and how these decisions influence their strategy and survival. In conclusion, this research significantly enriches the theoretical debate on the determinants that explain the financial choice of companies and provides crucial insights into the impact of financing decisions on company performance. The results of this research can be particularly useful for managers and policy makers, as they highlight the practical implications of financing choices on the growth and sustainability of SMEs, since these companies constitute the core of the global economy.

Keywords: financing choice, determinant, systematic review, financial structure.

JEL Classification : D21, G32.

Paper type : Theoretical Research