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Abstract This paper investigates the determinants of capital structure and use of financing for small and medium sized enterprises. Hypotheses utilising static trade‐off and pecking order arguments are empirically examined using a series of firm characteristics including: size, asset structure, profitability, growth and risk. The hypotheses developed are tested using a large Australian nationwide panel survey. The results suggest that asset structure, profitability and growth are important determinants of capital structure and financing. For asset structure the direction of the influence is reliant upon the capital structure or financing measure employed. The results generally support static trade‐off and pecking order arguments proposed by theoretical models.
Cassar et al. (Wed,) studied this question.