THE IMPACT OF BORROWED CAPITAL ON ENTERPRISE PROFIT-THE CASE OF SMALL AND MEDIUM ENTERPRISES IN THE POLOG REGION
THE IMPACT OF BORROWED CAPITAL ON ENTERPRISE PROFIT-THE CASE OF SMALL AND MEDIUM ENTERPRISES IN THE POLOG REGION

Summary/Abstract: The capital structure of enterprises is an important research field of corporate finance and it remains at the center of studies of various academics. Determining the capital structure of enterprises consists of very difficult decisions, which often involve conflicting factors such as risk and profitability. Decisions become even more difficult at a time when the economic environment in which enterprises operate has lost its stability. Debt capital includes all long-term borrowings of the enterprise. Therefore, deciding on the ideal share of the debt and own wealth can affect the value and profitability of the enterprise. However, most studies have focused on listed firms in developed countries and little attention has been paid to unlisted firms in developing countries. Therefore, this study tries to fill the gap by analyzing the capital structure specifically the borrowed capital of small and medium enterprises in the Polog region. The sample includes 69 small and medium enterprises, the data of which are taken from the financial reports. So, the purpose of conducting this research is to analyze the impact of borrowed capital on the economic profit of the enterprise. The methodology to be used in this paper is based on the multivariate regression methodology, using secondary cross-sectional data. The results obtained suggest that borrowed capital has a positive relationship with net profit and is statistically significant. To increase the net profit for 1 unit the borrowed capital must increase by 0.001 units when the other factors are constant

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