Financial bootstrapping of informal micro-entrepreneurs in the financial environment

Abstract

PurposeThis study first examines whether the capital structure served as a mediator between financing mix and firm performance. Furthermore, the authors investigate whether this mediation effect was moderated by the financial environment. Grounded in the pecking order theory (POT) and dynamic capability view (DCV), this study extends these concepts by configuring all links to a moderated mediation model.Design/methodology/approachThe study uses the structural equation modelling (SEM) approach and multiple regression analysis using “Hayes PROCESS macro” to empirically examine the model using data collected from 384 informal micro-firms operating in Bangladesh.FindingsIn the mediation analyses, results found that capital structure was a mediator in the link between financing mix and firm performance. In further moderated mediation analyses, outcomes confirmed that this mediation effect was moderated by the financial environment.Research limitations/implicationsThis investigation shows paths for future research including implications for theory advancement and intervention development.Originality/valueThis investigation offers the first step towards examining a moderated mediation effect, using POT and DCV, of the relationship between financial environment, financing mix, capital structure and firm performance.