IDEAS home Printed from https://ideas.repec.org/a/wsi/ijfexx/v08y2021i01ns2424786320500371.html
   My bibliography  Save this article

Does financing behavior of SME entrepreneurs of Bangladesh follow capital structure theory? An investigation into Pecking Order Theory

Author

Listed:
  • Md. Rostam Ali

    (Department of Accounting, Mawlana Bhashani Science and Technology University, Santosh, Tangail 1902, Bangladesh)

  • Rustom Ali Ahmed

    (#x2020;Department of Finance, University of Rajshahi, Rajshahi 6205, Bangladesh)

  • Rushafa Tasnim Tisha

    (#x2021;Master of Business Studies, Finance, Massey University, Auckland, New Zealand)

  • Md. Ashikul Islam

    (#x2020;Department of Finance, University of Rajshahi, Rajshahi 6205, Bangladesh)

Abstract

This study attempts to investigate whether the financing preferences of small and medium enterprises (SMEs)’ entrepreneurs of Bangladesh follow capital structure theory by investigating into Pecking Order Theory (POT). For this study, cross-sectional primary data have been collected through questionnaire. The answers of the questions have been measured through five points Likert Scale. The scores were analyzed using mean score. To analyze the data, some descriptive statistics have been used. Besides, one sample one tail t-test has been applied to test the hypotheses. The study finds that the entrepreneurs themselves do not believe that there is an information asymmetry in debt market. But their perception regarding debt market ascertained the presence of the information asymmetry between SME sector (entrepreneurs of SME) and the debt market (banks). The answers of respondents are statistically significant that they want to use the retained profits first, bank loan as second and want to issue external equity (taking partner/s) as a third option among these three alternatives of additional financing. This tendency of the respondents towards financing is consistent with POT. Therefore, Government policy for motivating SMEs to keep formal accounting should be introduced to reduce the information asymmetry in debt market along with taking proper initiatives to increase accessibility of SMEs to institutional credit.

Suggested Citation

  • Md. Rostam Ali & Rustom Ali Ahmed & Rushafa Tasnim Tisha & Md. Ashikul Islam, 2021. "Does financing behavior of SME entrepreneurs of Bangladesh follow capital structure theory? An investigation into Pecking Order Theory," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-16, March.
    • Handle: RePEc:wsi:ijfexx:v:08:y:2021:i:01:n:s2424786320500371
    DOI: 10.1142/S2424786320500371
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S2424786320500371
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S2424786320500371?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijfexx:v:08:y:2021:i:01:n:s2424786320500371. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscientific.com/worldscinet/ijfe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.