Knowledge Bank

The focus of this study is the capital structure of non-farm manufacturing enterprises in low income countries. The study examined the importance of different sources of financing, internal and external, in the capital structure of the firm and the factors explaining entrepreneurial behavior in using different financial contracts. The capital structure was modeled by considering a one-period world within a deterministic approach. A set of testable hypotheses derived from this model was applied to a sample of 153 micro, small and medium scale manufacturing enterprises in The Gambia. The findings of this study support the hypotheses that the characteristics of the enterprise, attributes of the entrepreneur, rates of return, interest rates, transaction costs of alternative sources of financing and the respective shares of these securities simultaneously determine the capital structure of the enterprise.