Abstract:
This study examines the major determinants of the capital acquisition decision by the MSEs in Pakistan. The study sample consisted of MSEs in the administrative division of Multan in the southern region of province of Punjab. Adopting a postpositivist paradigm, mixed methods research design was employed to mitigate the constraints of data collection and access to the financials of MSEs in Pakistan. The researcher conducted a preliminary study comprising of the 30 in-depth interviews taken from the MSE owners/managers and bankers to develop and finalize the theoretical framework. In the main study, questionnaire survey was conducted by the researcher himself and the panel of facilitators who were graduates in the field of commerce and finance. Nine hundred usable questionnaires, out of 1350 administered, were included in the analysis based on the different regression models. Factors related to the owners/managers, their financing practices and allied strategies are identified as significant determinants of dependent variables of capitalization decisions, choice of debt, equity financing and financing preferences examined in respective models. Owners’ internal financing strategy and growth preferences were identified as important mediators of the hypothesized relationships between the dependent variables and their predictors. Both the qualitative and quantitative analysis evidenced the application of pecking order theory of financing. The moderating effects of economic and environmental factors are also examined. This study provides important insights about MSEs’ capitalization according to the traditional financial paradigm, as well as, from the modern strategic management perspective. The study concludes with vital implications for the academicians, researchers, businessmen, financiers and the policy makers. The study also suggests viable measures to create an enabling financing environment for increasing the rates of the formation as well as growth in the MSE sector.
