Abhijit Chirputkar

Impact of SME Listing on Capital Structure Decisions

Abstract So far, the capital structure of Indian small and medium scale enterprises has been typical. There have been constraints on the amount of total funds that can be raised including equity the owners can privately raise. Funding has come mainly from banks or owned funds. The long term debt has been limited by debt equity ratio and assets available as securities; while the short term funding has been subject to “maximum permissible bank finance” (MPBF). While the sector has shown promise, inability to raise adequate funds from banks especially for growth and expansion, incapability to recruit and retain professional talent, lack of professional management and consequent financial sickness, have been major impediments in the realisation of its full potential. SME listing has been allowed in a few other countries, but in India, the sector was so far deprived of direct access to public funding through capital markets. Now, SMEs are allowed to raise funds in the equity market through SME stock exchange platform (BSE & NSE). Equity shares of small and medium scale companies are now allowed to be listed. The listing of SMEs will help this sector to raise funds, enabling expansion, growth, and to achieve its objectives. The value of these firms will increase, leading to more investor benefits, more tax collection, employment generation, wider distribution of wealth, and economic growth as well as development. SME listing will definitely help entrepreneurs and their development. Thus it will help in bringing a positive change and shaping the business of SMEs in the days to come. In this background, the article attempts to review the implications of SME listing on SMEs and its impact on their capital structure, cost of capital and the objectives of financial management ‘profit maximisation and wealth maximisation’. The authors also make recommendations to foster this platform.