Financial Leverage and SMEs Performance: Empirical Evidence from Donggala District, Indonesia

Abstract

Great role of SMEs in economic development in Donggala district is mainly because this sector absorbs quite lot of resources which if managed proportionally it will be able to provide a multiplier effect that encourages the development of regions in Donggala significantly. The multiplier effect of SME sector is mainly derived from the vast number of business units as well as outstanding contributions to the creation of employment and sources of income, especially in rural areas and for rural households. To create these SMEs as a sector with a competitive advantage necessarily to understand the limitations of SMEs on which in terms of size and funding policy and the ability of their working capital, this may result in lower production capabilities and financial performance as a whole. This study aimed to analyze the influence of Financing and Working Capital Policy Against Financial Performance of Micro, Small and Medium Enterprises in Donggala. The population in this study were 1,752 SMEs, sampling is done by using Taro Yamane formula or formula slovin followed by the proportional method. The number of samples studied 326 SMEs. By using multiple linear regressions as the analytical method this research found that the independent variables are funding and working capital policies that justify the initial hypothesis, which jointly states that funding policy and working capital variables have a positive and significant effect on the financial performance of SMEs in Donggala. Some suggestions are provided to strengthen those SMEs.

DOI: 10.5901/mjss.2016.v7n6p87