Overcoming the liability of newness: The interplay of debt, equity, and profitability in nascent SMEs

Karikari Amoa-Gyarteng and Shepherd Dhliwayo

Journal of the International Council for Small Business, 2024, vol. 5, issue 3, 246-258

Abstract: Small and medium-sized enterprises (SMEs) in their early stages face the liability of newness that can undermine their survival. This study investigates the impact of strategic financing decisions and profitability on the solvency of 1,106 Ghanaian SMEs during their first 5 years. Leveraging the pecking order theory, the study examines how internal equity and debt, in conjunction with net profit after tax, as well as returns on equity and assets, influences the liability of newness. Regression analysis highlights a positive association between equity financing and return on equity with solvency, while return on assets shows no significant relationship. The study emphasizes the importance of internal equity in mitigating the liability of newness. Considering this study’s findings regarding the significance of equity ratio, debt-to-equity ratio, return on equity, and net profit after tax in mitigating the liability of newness, SME owners are advised to take specific measures to boost these metrics.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/26437015.2024.2336454 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:ucsbxx:v:5:y:2024:i:3:p:246-258

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/ucsb20

DOI: 10.1080/26437015.2024.2336454

Access Statistics for this article

Journal of the International Council for Small Business is currently edited by Eric Liguori

More articles in Journal of the International Council for Small Business from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().