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Introduction
In small- and medium-sized enterprises (SMEs), financial decisions are mostly governed by owner-managers attitude. The dominant role of owner-managers’ in firms depicts that SMEs’ decision making and owner managers’ decision making coincide while taking financial decisions of their firms (Rasheed and Rahman, 2016). The attitude of owner-managers toward taking financial decision is influenced by several environmental, social and psychological factors; however, the importance of firm and personal characteristics of owner-managers also cannot be denied in this decision-making process. Specifically, in emerging economies, the capital structure theories could not explain the capital structure decisions of SMEs adequately (Wong et al., 2018). The reason is the violation of many assumptions underlying these financial theories by SMEs because of market constraints faced by firms in developing countries. As a result, for better explanation of owner-manager characteristics that influence their financial decision making, alternative “managerial” theories of capital structure have been forwarded (Rao and Kumar, 2018; Ruan et al., 2011).
Moreover, in SME financing, research toward supply side finance has been done appropriately as compared to SMEs demand of finance. Wong et al. (2018) and Auken (2005) investigated the dynamics of SMEs financial decision making and explained the influence of owner-managers attitude and personal characteristics. Auken study includes several factors such as owner-manager experience, growth intention, preference and relationships. Grunert and Norden (2012) also explained that characteristics and managerial skills strongly influence the lenders. Moreover, the owner-managers skills and characteristics have a strong impact on the loan-taking ability of borrower. The greater risk propensity also drives managers to use more debt as stated by Borgia and Newman (2012), who also explained the owner-manager personal and firm characteristics relationship with their attitude. Similarly, Abor (2008) revealed risk propensity as a significant owner-manager determinant toward taking financial decision. SMEs served as a breeding ground for entrepreneurs, and also provide solutions to address problems of unemployment and poverty alleviation. Therefore, a growing and flourishing SME sector is associated with a rapid growth of any economy. Despite a prodigious role, SMEs face several constraints in emerging economies. Similarly, in Pakistan, 90 to 95 percent of enterprises are SMEs that face both demand and supply side issues, which prevent them to evolve as self-sustaining enterprises and realize its potential (Rossi et...