The Relationship Between Financing Decision of SMES and Their Performance

Access to finance is one of the most important determinants of success and even the survival of a business. Several theoretical and empirical studies argue that small and medium-sized enterprises usually face more problems in obtaining financing compared to larger enterprises. The same happens in the case of enterprises that are in the first years of existence on the market. Thus, through this paper we aim to examine the relationship between the way small and medium enterprises are financed in the first years of existence and their performance. Thus, we want to see if the debt structure of these enterprises plays an important role in obtaining performance. In order to achieve the purpose of the paper, we perform an econometric analysis by choosing a sample of small and medium enterprises from the CEE countries in their first years of existence. Given the fact that start-ups are considered enterprises in the first five years of life, the analysis period considered is 2015–2019. As a method of analysis we use the panel data technique considering as dependent variables a set of indicators that measure the performance of enterprises, and as independent variables indicators that express the degree of indebtedness of enterprises. The data for this analysis are obtained from the financial statements of the companies accessed through the AMADEUS Bureau van Djik database. The results of our research show that the way in which the SMEs financing decisions are based plays a significant role in achieving performance. The use of short and long-term debt can stimulate the performance of enterprises, but an increased gearing ratio hampers this performance. These results can be useful for decision-makers because they emphasize the need for them to focus on formulating policies that facilitate access to finance for SMEs in the first years of life, thus generating an increase in their performance with positive effects at the level of general economy.