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EFFECT OF FINANCIAL STRUCTURE ON FINANCIAL PERFORMANCE OF SMES IN LAGOS STATE, NIGERIA
Abstract: Despite the great entrepreneurial spirit, there is still a high mortality rate of Small and Mediumsized Entrepreneurs (SMEs) in Nigeria which is particularly associated to the financial structure. This research therefore sought to analyze the effect of financial structure on financial performance of SMEs in Lagos State, Nigeria. The study adopted Modigliani-Miller, trade-off and pecking order theories. A descriptive research design was adopted with a target of 340 owners of in Lagos State, Nigeria. 181 SMEs were sampled of which 87% responded to the questionnaires. Data was collected using a questionnaire and analyzed using both descriptive and inferential statistics. Multiple regression analysis was used to draw inferences from the findings. All factors were found to be statistically significant (p,0.05) except data on borrowings and increase in cash to pay off liabilities. From the findings, owners’ savings, contributions from loved ones, retained earnings, and borrowings have a positive but weak impact on financial performance of SMEs in Lagos State, Nigeria. The study recommended for; maintenance of reserve levels for business continuity, the use of either long-term or short-term borrowings in addition to the use of cash, and hands-on training for entrepreneurs in financial matters such as credit management.
Keywords: Financial performance, Financial Structure, SMEs