Volume 11, Issue 8 (August 2024), Pages: 169-177

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 Original Research Paper

Capital structure determinants of small and medium enterprises in Mogadishu, Somalia

 Author(s): 

 Ikran Osman Ali, Ali Ibrahim Mohamed *

 Affiliation(s):

 Faculty of Accountancy, SIMAD University, Mogadishu, Somalia

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 * Corresponding Author. 

  Corresponding author's ORCID profile: https://orcid.org/0000-0002-1013-4008

 Digital Object Identifier (DOI)

 https://doi.org/10.21833/ijaas.2024.08.018

 Abstract

The aim of this study is to examine the factors influencing the capital structure of small and medium enterprises (SMEs) in Mogadishu, Somalia. The study applies the trade-off theory, which posits that several characteristics affect how firms finance themselves. According to this theory, firm size, which serves as a proxy for bankruptcy costs, positively influences capital structure—larger firms face lower bankruptcy risks. The research employed a descriptive correlation research design and utilized a stratified random sampling technique to gather data through questionnaires. Data analysis was conducted using the Statistical Package for Social Sciences (SPSS version 20). The study identifies three independent variables—profitability, cultural factors, and firm size—as crucial indicators of capital structure for SMEs in Mogadishu. These factors are pivotal as SMEs expand and initiate new operations. Interestingly, the perceptions or beliefs of owner-managers have little impact on capital structure decisions, while network linkages do not significantly influence SMEs' capital structure. It underscores the responsibility of SME owners and management to ensure their financial structures are optimally managed. The study highlights profitability as a significant factor affecting capital structure. In the absence of profits or insufficient profitability, businesses may struggle to survive as investors seek returns that ensure capital growth over time. Profitability thus plays a critical role in the long-term sustainability of a company.

 © 2024 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

 Keywords

 Capital structure, Small and medium-sized enterprises, Trade-off theory, Profitability, Firm size

 Article history

 Received 29 February 2024, Received in revised form 27 July 2024, Accepted 19 August 2024

 Acknowledgment 

No Acknowledgment.

 Compliance with ethical standards

 Ethical considerations

Informed consent was obtained from all participants before data collection. The participants' anonymity and confidentiality were strictly maintained, and they were informed of their right to withdraw from the study at any time. This study posed a minimal risk, and no personally identifiable information was collected.

 Conflict of interest: The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

 Citation:

 Ali IO and Mohamed AI (2024). Capital structure determinants of small and medium enterprises in Mogadishu, Somalia. International Journal of Advanced and Applied Sciences, 11(8): 169-177

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 Tables

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