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The aim of the study was to assess the impact of capital structure on SMEs performancein Tanzania particularly in Dodoma Municipality. Specifically, the study examinedcapital structure composition of SMEs, measured the performance of SMEs, examine therelationship between the capital structure and performance of SMEs based onprofitability and liquidity and found out the factors affecting SMEs capital structuredecisions. A case study design was used in this study. Dodoma Municipality was thecase of the study findings.
The sample size selected was 100 SMEs stratified into textile shops, food
vending, hardware and general supplies and secretarial and stationery. Primary data was
collected from the SMEs Owners/Operators through structured personal interviewquestions. Secondary data was collected from financial records of SMEs. Documentaryguide aided in data collection. Simple Regression Analysis and Karl Pearson Coefficient
of Correlation were used to determine the relationship between the independent and
dependent variables in determining the impact of the capital structure and SMEs
performance, Simple Regression Analysis and Karl Pearson Coefficient of Correlationused to determine the relationship between variables. Descriptive analysis was used tocompare and contrast between variables.
The findings revealed that capital structure had negative impact on SMEsprofitability. However, capital structure had positive and significant impact on SMEsliquidity. Based on the study findings, increased debt finance on capital structure, firm‟sprofitability decreases. Increased debt financing, liquidity increases. Moreover, firms
should avoid situations where they are highly leveraged since this may lead to
bankruptcy if they are unable to make payment on their debts and SME owners should
also make good investment decisions in order to increase profitability. Finally, the initialcapital found to be the major factor affecting capital structure decision among SMEsunder study.
Keywords: SMEs performance, Capital structure, Liquidity, and Profitability |
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