The Product Category Effects on Capital Structure: Evidence from the SMEs of British Manufacturing Industry

Abstract

This paper investigates into the determinants of capital structure for the small and medium sized enterprises (SMEs) in British manufacturing industry and the effects of product category on the determinants of capital structure. 220 SMEs from British manufacturing industry are selected for testing the six hypothesized relationships regarding the determinants of capital structure. Results suggest that profitability, tangibility and size are positively and growth is negatively related to the debt/equity ratio, and age is in inconsistent relationship with the debt/equity ratio of British manufacturing SMEs. Product category does exert effects through the determinants of capital structure and profitability is the most important determinant through which product category imposing effects on capital structure. The interactive effects of the determinants of capital structure are also the important discovery of this paper.