The capital structure of small scale enterprises and its determinants: The case of metal works and fabrication subsection in Rubaga Division of Kampala District, Uganda.

Abstract

This study examined the relationship between the study variables determinants of capital structure for small sized enterprises. Various theories and studies have been discussed as a prelude to the study. The study made use of a very large and reliable database of Uganda’s small scale enterprises in order to determine the determinants of capital structure. The capital structure aspects covered were total debt and equity and the possible determinants were: Business Characteristics, Information Asymmetries, Product/Market Interactions, and Capital Market Developments.

The study adopted models regression models, with several independent variables to analyze the important determinants of capital structures of the traditional industries..

Respondents comprised of 40 firms identified by the public of businesses operated within metal and fabrication workshops located in Rubaga division on small scale activity. Using these, samples of 31 firms were selected using random sampling. Self administered questionnaires were used in the survey and cross tabulations were used to describe the sample characteristics.

The results of the study showed that the determinants of capital structure of the small scale industry in Uganda are different from that of the industries in developed countries. In the regression models, the variance-component model had the smallest root for SSE. These indicated that time-series and cross-sectional variations are very important in analyzing the determinants of capital structure in this industry.