Effectiveness of debt finance on performance of SMEs case of Bindura SMEs · Electronic Theses and Dissertations

Author

Mhako, Prudence

Title

Effectiveness of debt finance on performance of SMEs case of Bindura SMEs

Abstract

The ideal debt to equity ratio for what is known as capital structure is the subject of a sizable body of literature, empirical research, and theoretical formulations. Studies have shown that the best capital structure is one that balances debt and equity, uses more debt than equity, or uses a combination of the two to maximize shareholder wealth. Investigating the effects of debt financing on the financial performance of SMs in Bindura town was the primary goal of the study. The information was taken through financial reports published on the websites of some SMEs, and other SMEs were required to fill out a data collection form with information pertinent to the analysis and drawing of conclusions for this study. The data were gathered using primary and secondary data collection methods. There were 72 responders in all who gave the information needed for the study in a timely manner, which reflects an 85% response rate. The SPSS program version 20 was used to analyze the data, and the results were presented as graphs and tables. A negative but statistically insignificant correlation between debt financing and the financial performance of SMEs in Bindura town was found by the study. The summary of the regression model indicated a R Squared coefficient of determination of 0.042. The study was able to accept the null hypothesis that there is no link because the p value was more than the alpha value of 0.05 and the computed F value was lower than the crucial F value. The study additionally revealed that SMEs in Bindura financed their activities mostly with equity and with little debt. The majority of the debt funding secured was short-term debt, which is more expensive.
It is recommended that owners and managers of SMEs should not shy away in investing in projects with positive NPV by use of debt, since the correlation between debt financing and financial performance is insignificant. This would mean that increase of debt financing would only adversely affect financial performance by a percentage of 4%.

Date

May 2023

Publisher

BUSE

Keywords

Bindura SMEs

Debt finance

Performance of SMEs

Supervisor

N/A