To examine the possible degree of collinearity
among variables, we obtained the correlation
matrix of dependent and independent variables, as
shown in Table 6. It is noted that the new factors
extracted from factor analysis are employed in this matrix. The results indicated three issues. First,
different measures of leverage are highly
correlated with each other. The correlation is 0.966
between the debt ratio and short-term liabilities
ratio, 0.663 between the debt ratio and other shortterm
liabilities ratio, and 0.699 between the
short-term liabilities ratio and other short-term
liabilities ratio. All the above correlation
coefficients are significantly different from zero at
0.01 level. The reason for this is that most debt
held by SMEs are short-term liabilities.