The influence of managerial factors on the capital structure of small and medium‐sized enterprises in emerging economies

Daniel Borgia (University of Nottingham, Ningbo, China)
Alexander Newman (University of Nottingham, Ningbo, China)

Journal of Chinese Entrepreneurship

ISSN: 1756-1396

Publication date: 7 September 2012



The purpose of this paper is to explore the importance of owner/manager characteristics in explaining the capital structure decisions of entrepreneurial enterprises in emerging economies using a sample of Chinese small and medium‐sized enterprises (SMEs). Although mainstream theories from the finance literature are useful in explaining capital structure decisions for large firms in developed economies, they do not adequately explain the financing behaviour of SMEs in developing economies.


The authors' mixed methods approach utilized both quantitative and qualitative methods to understand how managerial factors influence the capital structure of Chinese SMEs.


The findings suggest that the capital structure of SMEs in China is primarily influenced by aversion to external control and propensity to take risk. It was also found that owners with better networking ties generally require less debt financing because they can access adequate external resources through informal channels.

Research limitations/implications

The main limitation concerns the extent to which the paper's findings can be generalised to outside of the specific location in which the research was undertaken. Future research might be extended to other emerging economies to determine whether the findings of this research are unique to China or robust across emerging economies, given different institutional contexts.

Practical implications

Given the critical importance of fostering growth of private enterprise in China, policy makers should be aware of how the attitudes of owner/managers impact on the development of SMEs when developing mechanisms to support them.

Social implications

Citizens in economies which provide sufficient financing and support to entrepreneurial enterprises generally enjoy a higher standard of living than societies which do not.


This paper fulfils an identified need for studying how entrepreneurial firms in emerging economies make the financing decisions necessary to expand and grow.



Borgia, D. and Newman, A. (2012), "The influence of managerial factors on the capital structure of small and medium‐sized enterprises in emerging economies", Journal of Chinese Entrepreneurship, Vol. 4 No. 3, pp. 180-205.

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