The Capital Structure Dynamics of SMEs in Kosovo: Evidence Using Panel Data

Qerimi Argjentë (), Balaj Driton () and Krasniqi Besnik A. ()
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Qerimi Argjentë: Argjentë Qerimi, MSc in Economics, PhD Candidate in Economics, Faculty of Economics, University of Prishtina “Hasan Prishtina”, Republic of Kosovo
Balaj Driton: Driton Balaj, PhD in Economics, Professor of Economics, Dean at Faculty of Economics, Faculty of Economics, University of Prishtina “Hasan Prishtina”, Str. Agim Ramadani, n.n., Prishtina 10000, Republic of Kosovo
Krasniqi Besnik A.: Besnik A. Krasniqi, PhD in Economics Professor of Economics, Faculty of Economics, University of Prishtina “Hasan Prishtina”, Republic of Kosovo

South East European Journal of Economics and Business, 2024, vol. 19, issue 2, 82-102

Abstract: This paper evaluates the applicability of capital structure theories in assessing the financial choices made by SMEs in Kosovo. Additionally, it examines whether previously studied determinants of capital structure, such as firm age and size, liquidity, profitability, firm growth, asset structure, effective tax rate, and non-debt tax shield, can explain the capital structure choices of SMEs in Kosovo. Utilizing annual firm-level data, a panel data methodology is employed to test empirical hypotheses on a sample of 90 SMEs in Kosovo from 2013 to 2018. Dynamic panel model findings reveal that the financial behavior of Kosovo’s SMEs is influenced not only by internally generated funds but also by various specific firm characteristics, including liquidity, effective tax rate, non-debt tax shield, size, asset structure and growth. Finding aligns with the pecking order theory, which suggests that more profitable SMEs tend to rely less on debt financing. The study offers implications and recommendations for both firms’ managers and policymakers.

Keywords: Capital structure; trade-off theory; pecking order theory; SMEs (search for similar items in EconPapers)
JEL-codes: E22 G32 M21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:seejeb:v:19:y:2024:i:2:p:82-102:n:1006

DOI: 10.2478/jeb-2024-0017

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