Trade-Off Theory In The Management Of Economic And Financial Sustainability In Peruvian SMES

Abstract

The main objective of this research was to analyze the impact of capital structure and cost of capital on the profitability and economic sustainability of small and medium-sized enterprises (SMEs) in Peru, using Trade-Off Theory as a theoretical framework. This theory posits that companies seek an optimal balance between the use of debt and equity to maximize their value and minimize associated financial costs. To this end, we analyzed financial data extracted from the financial statements published in the repository of the Peruvian Securities Market Superintendency, which provided reliable and representative information for the Peruvian business sector. To measure the profitability and economic sustainability of SMEs, we used Economic Value Added (EVA), an indicator that reflects a company's ability to generate value above the cost of capital, thus integrating profitability with the efficient use of financial resources. The study's results showed that approximately 80% of the companies analyzed recorded negative EVA, indicating that these companies failed to cover their cost of capital, putting their long-term sustainability at risk. Only 20% of the companies managed to generate positive EVA, demonstrating adequate financial management and a balanced capital structure. In conclusion, the research highlights the urgent need for Peruvian SMEs to implement financial strategies that optimize their capital structure, effectively managing financing costs and balancing the use of debt and equity. Only then will they be able to improve their profitability and ensure their economic sustainability in a competitive environment. These findings offer valuable input for entrepreneurs, managers, and policymakers seeking to strengthen the SME sector in the country.

The main objective of this research was to analyze the impact of capital structure and cost of capital on the profitability and economic sustainability of small and medium-sized enterprises (SMEs) in Peru, using Trade-Off Theory as a theoretical framework. This theory posits that companies seek an optimal balance between the use of debt and equity to maximize their value and minimize associated financial costs. To this end, we analyzed financial data extracted from the financial statements published in the repository of the Peruvian Securities Market Superintendency, which provided reliable and representative information for the Peruvian business sector. To measure the profitability and economic sustainability of SMEs, we used Economic Value Added (EVA), an indicator that reflects a company's ability to generate value above the cost of capital, thus integrating profitability with the efficient use of financial resources. The study's results showed that approximately 80% of the companies analyzed recorded negative EVA, indicating that these companies failed to cover their cost of capital, putting their long-term sustainability at risk. Only 20% of the companies managed to generate positive EVA, demonstrating adequate financial management and a balanced capital structure. In conclusion, the research highlights the urgent need for Peruvian SMEs to implement financial strategies that optimize their capital structure, effectively managing financing costs and balancing the use of debt and equity. Only then will they be able to improve their profitability and ensure their economic sustainability in a competitive environment. These findings offer valuable input for entrepreneurs, managers, and policymakers seeking to strengthen the SME sector in the country.