MSME Financing Behavior—Systematic Literature Review of MSME’s Capital Structure Financing

Avinash Kumar Jha () and Prakash Singh ()
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Avinash Kumar Jha: Indian Institute of Management Lucknow, Department of Finance
Prakash Singh: Indian Institute of Management Lucknow, Department of Finance

A chapter in Business and Sustainable Development in a Globalized and Digitalized Era, 2026, pp 245-276 from Springer

Abstract: Abstract The aim of this research paper is to examine the MSME’s capital structure financing patterns. To analyse the same we have first focused on famous capital structure theories and then we have analyzed total 54 papers spanning from 1999 till 2022 basis the Scopus Database and the literatures obtained on “Google Scholar” as per the Search Engine Optimization results. We have also detailed the most used “Dependent variables” and “Independent variables” as per our analysis. The analysis and rationale of expected sign (positive/negative) of the Independent variable’s basis the most relevant theories i.e. either PoT (Pecking order theory) or ToT (Trade off theory) has also been done. As per our analysis of the research papers we have come to a conclusion that debt is a significant source of funding for MSMEs and the ‘pecking order’ notion has frequently been validated by research findings. As the MSME firms lacks in collateral and in Indian scenario where trust factors between Lenders and Borrowers are not as much as in Developed countries and considering the fact that MSMEs are closely knitted firms with negligible difference between managers and Promoters, we expect that MSMEs would first try to manage the funds internally and then will look for Borrowing and as a last resort equity financing given the fact that due to large “Information Asymmetry” the cost of equity financing is higher than the Debt finance. So, it is likely that the “Pecking order theory” would be validated in Indian context.

Keywords: MSME; India; Capital Structure; Trade off Theory (ToT); Pecking order Theory (PoT); Financing pattern; Debt Finance; Leverage; Borrowers; Lenders (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-032-29346-6_13

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DOI: 10.1007/978-3-032-29346-6_13

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