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Comparing Financial Debt Choices of Existing and New SMEs in Indian Manufacturing Sector

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Abstract

The study examines the differences in financial debt choices of SME and Non-SME firms in India. Being SMEs, firms enjoy special grants and packages that non-SMEs firms do not, and very often, the SMEs do not want to let go of the SME status. This brings in the information asymmetry and agency problem among the market participants and this may result in differences in the debt choices of the firms. We found that the existing SMEs use more unsecured debt, the newly added SMEs use more long-term debt and secured debt reflecting firm-specific growth opportunities. This shows the difference in capital structure decisions of SMEs operated under different policy environments sourced because of the conflict of interests among the participants.

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Author information

Authors and Affiliations

  1. ICFAI Business School (IBS), Hyderabad, India

    KG Suresh

  2. Indian Institute of Management (IIM), Rohtak, India

    Akanksha Saxena

  3. Centre for Entrepreneurship Development & Financial Inclusion (CEDFI), National Institute of Rural Development & Panchayati Raj, Hyderabad, India

    M. Srikanth

Authors
  1. KG Suresh
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  2. Akanksha Saxena
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  3. M. Srikanth
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Correspondence to KG Suresh.

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Appendix table 1

Appendix table 1

Pairwise correlations between the variables

Variables

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(1) Long term debt

1.000

            

(2) Short term debt

0.010

1.000

           

(3) Unsecured debt

0.036

-0.025

1.000

          

(4) Secured debt

0.481

0.753

-0.075

1.000

         

(5) exports status

-0.064

-0.035

-0.100

-0.052

1.000

        

(6) SME status

-0.076

-0.010

0.079

-0.061

-0.200

1.000

       

(7) Size of the firm

-0.097

0.010

0.037

-0.051

-0.158

0.973

1.000

      

(8) profitability

0.031

-0.072

-0.127

-0.041

0.189

-0.642

-0.630

1.000

     

(9) Non-debt tax shield

0.164

-0.041

0.012

0.046

0.002

-0.207

-0.247

0.227

1.000

    

(10) longterm collateral

0.214

-0.078

0.084

0.046

0.014

-0.301

-0.362

0.212

0.434

1.000

   

(11) short term collateral

-0.054

0.324

0.052

0.237

0.007

0.127

0.135

-0.064

-0.183

-0.203

1.000

  

(12) Effective tax rate

-0.072

-0.093

-0.090

-0.124

0.066

0.010

0.016

0.116

-0.061

-0.051

-0.006

1.000

 

(13) Age of the firm

-0.114

-0.045

-0.097

-0.086

0.096

-0.068

-0.044

0.047

-0.146

0.058

-0.014

0.026

1.000

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Suresh, K., Saxena, A. & Srikanth, M. Comparing Financial Debt Choices of Existing and New SMEs in Indian Manufacturing Sector. Asia-Pac Financ Markets 30, 445–456 (2023). https://doi.org/10.1007/s10690-022-09382-8

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  • DOI: https://doi.org/10.1007/s10690-022-09382-8

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