The effects of capital structure on the operational efficiency of Small and Medium-Sized manufacturing enterprises (SMSME) in Pietermaritzburg, South Africa

Abstract

The study examined the effects of capital structure on the operational efficiency of SMSME (SMSME) in Pietermaritzburg, Kwa-Zulu Natal, South Africa (SA). The objective of the research work was to evaluate the difficulties that SMSME in PMB face in accessing financial aid from financial institutions. Furthermore, to examine the factors that influence the operational efficiency of SMSME in PMB. Finally, to determine the impacts of capital structure on the operational efficiency of SMSME in PMB. The study was cross-sectional and utilized a quantitative research method. The primary data gathering instrument was a survey questionnaire. The researcher used an adjusted sampling procedure that yielded a sample size of 107, but the researcher decided to employ the whole target population of 148, which resulted in 141 responses. The information was gathered by survey questionnaires and analyzed with the Statistical Package for the Social Sciences (SPSS). According to the findings of this research work, most manufacturing SMEs could not access funding because of the information gap. Some of the most notable findings suggested that SMEs lack the requirements to access the loan. Internal sources of funding are preferred by most SMEs since they are easier to get and less expensive. The findings show that the capital structure of the organization is influenced by the business size, its age, its profitability, and its assets. The longer a business has been around and the larger it is, the more it indicates that it can withstand difficult economic times. Instead of making decisions on capital structure based on broad overviews, the study advised that businesses should examine closely and compare the cost of capital to the value that may be gained from it when deciding on the capital structure composition. This will assist managers in ensuring a profit at the end of the day. This finding contradicts the findings of most research done in developed countries, which suggest that capital structure and the performance of a firm (operational efficiency) possess a positive relationship. The findings of this study reveal that, even though some government funding and support groups have been there for a long time, small firms are still uninformed of them, and those that are aware are underutilizing them. The findings of the research work supported the pecking order theory which suggests that a firm should utilize internal sources to keep away from asymmetric information costs. However, if the sources internally are not sufficient to finance the operations of the business, they can look at the external sources to finance.