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

Anh-Huyen Vu Thi,The-Dong Phung

doi:10.3390/jrfm14080381

Anh-Huyen Vu Thi, The-Dong Phung

Open Access

https://doi.org/10.3390/jrfm14080381

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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.

Highlights

In a market economy, small and medium enterprises (SMEs) always play an important role and are among the economic sectors that contribute most significantly to economic growth, job creation, and the social welfare of a nation
The research data were extracted from the Taiwan Economic Journal (TEJ) software, collected from the financial statements of more than 2000 small and medium enterprises in Taiwan in 1995–2018, and the sample size included 28,898 observations
As such, determining the impact of capital structure, floating capital, and governance quality on the efficiency of financial management is very important for businesses in order to have the right direction in a competitive market

Summary

Introduction

Small and medium enterprises (SMEs) always play an important role and are among the economic sectors that contribute most significantly to economic growth, job creation, and the social welfare of a nation. White Paper on Small and Medium Enterprises (Hsueh et al 2000), SMEs accounted for. One issue being debated is how the financial performance of SMEs is affected by the capital structure and working capital of enterprises. This comes from the theoretical aspect that the effectiveness of financial management can be positively or negatively affected by the capital structure

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