Influence of Profitability and Capital Structure on the Value of Nascent SMEs: Evidence from a Developing Economy

What is it about?

The study examined how profitability and capital structure influence the value of nascent small and medium enterprises (SMEs) in Ghana. Profit is widely held as the oxygen of all businesses. Additionally, capital structure is thought in theory to impact the value of firms. Using data from 1106 nascent SMEs registered with the Ghana Enterprises Agency, the study employed regression analysis to test its hypotheses. The results indicate that the value of nascent SMEs increases up to a certain level of debt capital but declines if there is overleveraging, as per the trade-off theory. However, only Return on Equity (ROE) was found to have a significant, albeit negative, effect on nascent small firm value among the three profitability dimensions used in the study. These findings offer insights into how nascent SMEs can enhance their value, mitigate the liability of newness, and transition to maturity.

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