Interplay between capital structure choice and survival and growth of small, medium, and micro enterprises : a South African context

Abstract

It is essential for small, medium, and micro enterprises (SMMEs) to become established, be sustainable and grow. These firms play a vital role in the economy of both developed and developing countries. Empirical studies have acknowledged the contribution of SMMEs to the economy, as well as to the gross domestic product. However, the failure rate of these firms has also been emphasized in the same studies. SMME survival is critical for economic growth, which is measured by increases in profits. Capital structure decisions are significant to the survival and growth of these entities. This study was conducted to examine the interplay between capital structure and SMMEs` survival and growth in a developing economy. A sample size of 103 SMMEs was chosen on a non-probability basis using convenience sampling within the eThekwini area, KwaZulu-Natal, South Africa. The statistical tool used for analysis in this study was the Partial Least Squares Structural Equation Modelling (PLS-SEM) 5.0 software. Capital structure was found to have a significant influence on the growth and survival of small, medium, and micro enterprises. The study concludes that utilizing retained earnings, personal savings, trade credit and funds from friends and family has a significant influence on the growth and survival of the firm. Debt and external equity financing, on the other hand, have an insignificant influence on the growth the firm.