Capital Structure, Working Capital, and Governance Quality Affect the Financial Performance of Small and Medium Enterprises in Taiwan

Abstract

This study examines the impact of capital structure, working capital, and governance quality on the financial performance of small- and medium-sized enterprises in Taiwan using a sample of more than 2000 firms from the Taiwan Economic Journal (TEJ) during the 24-year period of 1995–2018. Panel data are used to create statistics for the regression model. The result shows that a firm’s capital structure, represented by the debt ratio, has a significantly negative impact on the firm’s financial measures (return on assets (ROA) and return on equity (ROE)), where the working capital, represented by the cash conversion cycle (CCC), has a negative impact and governance quality, represented by the board size, cash dividend distribution, and the percentage of directors, has different impacts.