FINANCING PREFERENCES OF CROATIAN SMALL AND MEDIUM-SIZED COMPANIES

Capital structure theories which tried to explain composition of capital structure are not universal and not applicable on all companies. Since optimal capital structure does not exist, we have tried to determine how number of competition in industry and USP (unique selling proposition) of their products or services affect capital structure of small and medium-sized companies (SMEs). In order to find correlation between those determinants, a survey has been conducted on 103 Croatian SMEs (older than 12 months). Their financial data have been derived from their annual reports. The results of this research indicate that there is no relationship between leverage of SMEs and number of competitors in their industry, but USP of their products or services affects their leverage. The results of this research are in the line with pecking order theory. Research results are important for accountants but also for entrepreneurs and those that actively participate in the process of politics and laws creation that are focused on development of small and medium sized companies. Further research focused on influence of financial market (especially underdeveloped financial market) on financial preferences can clarify decision making process on capital structure and sources of financial growth and development of SMEs.