The influence of governance on the capital structure of SMEs in the local apparel productive arrangement

Purpose This study examines how governance mechanisms influence the capital structure of small- and medium-sized enterprises (SMEs) within the Local Apparel Productive Arrangement of the Hinterlands of Pernambuco. Design/methodology/approach By analyzing the governance in mitigating informational asymmetry, this study investigates its impact on credit access. A non-parametric Mann–Whitney test was employed to compare report production between companies that obtained bank loans and those that did not. Additionally, a structural equation model is applied to assess the relationship between governance adoption and credit accessibility. Findings The results indicate that firms with bank loans produce more reports, suggesting a positive link between transparency and financial credibility. Moreover, governance adoption reduces informational asymmetry and facilitates credit approval. Originality/value This study contributes to literature by providing empirical evidence on the effects of governance mechanisms on SMEs’ capital structure of SMEs. The findings offer practical insights for entrepreneurs, enabling them to evaluate appropriate governance structures to enhance their financing decisions. Furthermore, the results support policymakers in designing strategies for improving SMEs’ access to debt financing. By emphasizing the role of governance in SMEs, this study underscores its importance in strengthening management quality and financial decision-making. Increased transparency can enhance the trust between companies and financial institutions, ultimately fostering sustainable business growth.