Industry classification and the capital structure of Ghanaian SMEs

Purpose – This study seeks to examine the effect of industry classification on the capital structure of SMEs in Ghana. Design/methodology/approach – The analytical technique employed is regression framework with various capital structure measures as dependent variables, and with industry as the independent variable. Analysis of variance (ANOVA) and other non-parametric tests were also used to examine the differences in the capital structure of the SMEs across industries. Findings – The results of this study indicate that SMEs in the agricultural sector exhibit the highest capital structure and asset structure or collateral value, while the wholesale and retail trade industry have the lowest debt ratio and asset structure. The regression results indicate that agriculture and pharmaceutical and medical industries depend more on long-term and short-term debt than does the manufacturing sector. Information and communication, and wholesale and retail trade sectors are more likely to use short-term credit than the manufacturing sector. The results also show that the construction and mining industry is less likely to depend on short-term debt, while hotel and hospitality depend more on long-term debt and less on short-term finance. The results clearly indicate that industry effect is important in explaining the capital structure of SMEs and that there are variations in capital structure across the various industries. Originality/value – The main value of this paper is the analysis of the effect of industry classification on SMEs' capital structure from the Ghanaian perspective. The study provides insights on the financing behaviour of SMEs across various industries in Ghana.