An Assessment of Capital Structure Decisions by Small and Medium Enterprises in Kenya

Abstract

Many theories and empirical research that explain the determinants of capital structure, originated in the developed economies. These studies focus on large firms that issue complex financial securities for both debt and equity. Very little research has been carried out to establish the determinants of capital structure in emerging and the less developed countries. This research was done to establish whether the determinants of capital structure identified in the developed world are the same determinants of capital structures of Small and Medium Enterprises in developing countries. The study establishes that age, profitability, size, growth opportunities and tangible assets of the business greatly determine the leverage of the business. The study’s significance lies in the provision of newevidence on the determinants of capital structure of small and medium enterprises in developing countries with a special focus on Kenyan firms. Keywords: Capital structure, Small and Medium Enterprises, Kenya