Dynamic Nexus Between Capital Structure Choice and the Continuity and Growth of Small, Medium and Micro Enterprises in an Emerging Economy Context

Abstract

Small, medium, and micro enterprises (SMMEs) play a critical role in supporting economic activity, particularly within emerging economies. They are often credited with contributing meaningfully to employment creation, innovation, and national income. Despite their importance, a concerning number of these enterprises struggle to survive beyond their early stages. Their high failure rate has become a recurring theme in academic and policy discussions. Ensuring the continuity and growth of SMMEs is not only necessary for local development but is also tied closely to broader economic progress. Among the many factors that influence business success, capital structure choices stand out as a key area of concern. This research examines how different capital structure decisions impact the survival and growth prospects of SMMEs operating in South Africa, in the Durban area of KwaZulu-Natal province. A total of 103 enterprises participated in the study, selected through a convenience sampling approach. The data were analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM), version 5.0. The results indicate that enterprises relying on internal sources of funding, such as retained profits, owner savings, supplier credit, and informal financial support, are more likely to sustain operations and experience growth. In contrast, financing through debt and external equity showed limited influence on performance outcomes. The findings point to the importance of internal financial strategies in supporting the resilience and development of SMMEs in developing economic settings.