The impact of firm and industry characteristics on small firms’ capital structure

By Hans Degryse, P. Goeij, P. Kappert. Small Business Economics, 2010

437 citations recorded by the source corpus.

We study the impact of firm and industry characteristics on small firms’ capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. The firm characteristics suggest that the capital structure decision is consistent with the pecking-order theory: Dutch SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. We further document that profits reduce in particular short-term debt, whereas growth increases long-term debt. We also find that inter- and intra-industry effects are important in explaining small firms’ capital structure. Industries exhibit different average debt levels, which is in line with the trade-off theory. Furthermore, there is substantial intra-industry heterogeneity, showing that the degree of industry competition, the degree of agency conflicts, and the heterogeneity in employed technology are also important drivers of capital structure.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/da8e9f05eed7e8ee48215207dcf66c1889e5a74f

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In Accounting

1. Satish Kumar
2. Purnima Rao
3. Z¨¦lia Serrasqueiro
4. Ana Caetano
5. Weng Marc Lim

In Economics and Econometrics

1. Purnima Rao
2. Satish Kumar
3. Z¨¦lia Serrasqueiro
4. Ana Caetano
5. Dong-hyun Oh
6. Fan Xia
7. Jintao Xu

Citations in the corpus

• Trade-Off Theory versus Pecking Order Theory: capital structure decisions in a peripheral region of Portugal (2014, background): “Aside from solving problems of bankruptcy costs inherent in the use of debt, the tangible assets may also be used to lessen agency problems (Degryse et al. 2010).”
• A conceptual framework for identifying financing preferences of SMEs (2015, background): “Empirical studies conducted exclusively on the determinants of the capital structure of SMEs show the dominance of pecking order theory (Beck et al., 2008; Daskalakis & Psillaki, 2008; Degryse et al., 2012; Hall et al., 2000; Mateeva et al., 2013; Serrasqueiro, 2011; Watson & Wilson, 2002).”