The Effect Of Financial Structure On Growth Of SMEs

In recent years, small and medium-sized enterprises(SMEs) are developing rapidly, and their growth is becoming the focus of the researchers. However, the financing difficulty and unreasonable financial structure greatly restrict their development. Moreover, the subprime crisis, the European debt crisis and the domestic economic downward pressure, cause great threat to the survival and development of SMEs. As we know, SMEs play more and more important role in the economic development in Zhejiang province, and this paper thinks that research focusing on SMEs in one region will make the research more accurate and targeted. Therefore, this paper takes the SMEs in Zhejiang Province for example, to study the relationship between the financing structure and SMEs’ growth, which I think has theoretical and practical value.This paper firstly reviews the theoretical basis and correlative literature of this subject. Secondly, it gives a description of financing modes and financing structure of SMEs in Zhejiang Province. In the empirical part, I choose the SMEs listed on the SME board and the GEM board as sample enterprises. The company growth is measured by principal component analysis method. Then I do a research about the relation between the financing structure(including the proportion of debt financing, the proportion of short-term debt and the proportion of commercial credit in short-term debt)and the company growth using multivariate regression analysis method after introducing several relevant control variables. Furthermore, I divide the sample enterprises with different financing risks into two groups, to study whether the financing structure has different effect on the company growth. It comes to the conclusion that there is extremely significant negative relationship between the ratio of debt financing and company growth, but this relationship is not found in the group with low financing risks. The negative correlation between the ratio of short-term debt and growth is very significant in the group with high financing risks. There is no correlation between commercial credit and growth in the whole sample, but weak positive relationship is found in the group with low financing risks. The regression results of two groups are different. The final part explains the results, puts forward some suggestions to optimize the financing structure of SMEs, and promote healthy and rapid development of SMEs.