Are the Determinants of Capital Structure Country or Firm Specific? Evidence from SMEs
26 Pages Posted: 12 Feb 2009 Last revised: 27 Sep 2010
Date Written: 2008
Abstract
In this paper we investigate the capital structure determinants of Greek, French, Italian and Portuguese small and medium sized enterprises (SMEs). We compare the capital structure of SMEs across countries and consider if differences in country characteristics such as financial development and institutional features may impact on capital structure choices. We assess the extent to which the debt ratio depends upon their asset structure, size, profitability, risk and growth. The results show that SMEs in these countries seem to determine their capital structure in similar ways as it is evident by the signs of the statistically significant regression coefficients. We find that, size is positively related to leverage, while the relationship between leverage and asset structure, profitability and risk is negative. Growth is not a statistically significant determinant of leverage for any of the four countries. We attribute these similarities to the country institutional and financial characteristics and the commonality of their civil law systems. However, structural differences do arise due to differences in the size of the coefficients in the country regressions. We find that these differences are due to firm-specific effects. Our main conclusion is that firm specific rather than country factors explain differences in capital structure choices of SMEs in these countries.
Keywords: SMEs, Capital Structure, Country comparison
JEL Classification: G23, G32
Suggested Citation: Suggested Citation
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