Internal retention, shareholding structure, and equity financing capacity of innovative small and medium-sized enterprises

Huaguo Liang, Wanran Huang, Weijie Zhao and Jin Zhou

Finance Research Letters, 2025, vol. 77, issue C

Abstract: This study investigates the relationship between internal retention and equity financing ability of innovative small and medium-sized enterprises (SMEs) using data from the National Small and Medium-sized Enterprise Stock Transfer System (NSSE) spanning from 2011 to 2022. The findings reveal a significant negative correlation between internal retention and equity financing ability, suggesting that as internal retention increases, firms tend to rely less on external equity financing. Furthermore, the study finds that the gearing ratio positively moderates this relationship, indicating that a higher gearing ratio may help mitigate the adverse impact of internal retention on equity financing. Additional analyses show that the retained earnings ratio is positively associated with firm profitability, and an increase in retained earnings enhances profitability, thereby reducing the need for external equity financing.

Keywords: Innovative enterprises; Internal retention; Equity financing capacity (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325002703

DOI: 10.1016/j.frl.2025.107006

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