Financial Capital, Constraints, Partners, and Performance: An Empirical Analysis of Indonesia SMEs

This paper examines the relationship between capital and financial performance of SMEs, and examines the moderating effect of financial constraints and financial partners on this relationship. During 2017-2019, their capital and financial performance fell, and there were indications that they were financially constrained.Meanwhile, the government and other stakeholders continue to seek to raise capital to boost their performance and development, including through financial partnerships.This study is different from others, in that it uses panel data from 4.36 million SMEs in Indonesia, and is the first to explore the role of financial partners in the relationship.The research design used existing statistics, with data obtained from the Central Statistics Agency (Indonesian: Badan Pusat Statistik / BPS). The population is all SMEs surveyed by BPS in 2017, 2018,and 2019. In 2017 the number of SMEs surveyed was 4.46 million, in 2018 it was 4.26 million, and in 2019 it was 4.38 million. The average number of SMEs surveyed by BPS for three years is 4.37 million. The sampling technique uses the total population sampling. Data analysis used panel regression model with geographic analysis unit. The results of the study found that capital was positively and significantly related to the financial performance of SMEs. Financial constraints act as a negative moderator in the relationship, while financial partners do not show a significant role.