The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure: Evidence from Dutch Panel Data

H.A. Degryse, P. C. de Goeij, P. Kappert

Research output: Working paperDiscussion paperOther research output

Abstract

We investigate small firms’ capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. We find that the capital structure decision of Dutch SMEs is consistent with the pecking order theory: SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. Furthermore, we document that profits reduce in particular short term debt, whereas growth increases long term debt. This implies that when internal funds are depleted, long term debt is next in the pecking order. We also find evidence for the maturity matching principle in SME capital structure: long term assets are financed with long term debt, while short term assets are financed with short tem debt. This implies that the maturity structure of debt is an instrument for lenders to deal with problems of asymmetric information. Finally, we find that SME capital structure varies across industries but firm characteristics are more important than industry characteristics.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages34
Volume2009-009
Publication statusPublished - 2009

Publication series

NameTILEC Discussion Paper
Volume2009-009

Fingerprint

Small and medium-sized enterprises
Firm characteristics
Small firms
Industry characteristics
Panel data
Capital structure
Debt
Long-term debt
Maturity
Assets
Profit
Industry
Asymmetric information
Data base
Short-term debt
Pecking order theory
Financial statements

Keywords

  • Capital Structure
  • SMEs
  • pecking order theory
  • trade-off theory

Cite this

Degryse, H. A., de Goeij, P. C., & Kappert, P. (2009). The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure: Evidence from Dutch Panel Data. (TILEC Discussion Paper; Vol. 2009-009). Tilburg: TILEC.
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abstract = "We investigate small firms’ capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. We find that the capital structure decision of Dutch SMEs is consistent with the pecking order theory: SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. Furthermore, we document that profits reduce in particular short term debt, whereas growth increases long term debt. This implies that when internal funds are depleted, long term debt is next in the pecking order. We also find evidence for the maturity matching principle in SME capital structure: long term assets are financed with long term debt, while short term assets are financed with short tem debt. This implies that the maturity structure of debt is an instrument for lenders to deal with problems of asymmetric information. Finally, we find that SME capital structure varies across industries but firm characteristics are more important than industry characteristics.",
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Degryse, HA, de Goeij, PC & Kappert, P 2009 'The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure: Evidence from Dutch Panel Data' TILEC Discussion Paper, vol. 2009-009, TILEC, Tilburg.

The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure : Evidence from Dutch Panel Data. / Degryse, H.A.; de Goeij, P. C.; Kappert, P.

Tilburg : TILEC, 2009. (TILEC Discussion Paper; Vol. 2009-009).

Research output: Working paperDiscussion paperOther research output

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AB - We investigate small firms’ capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. We find that the capital structure decision of Dutch SMEs is consistent with the pecking order theory: SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. Furthermore, we document that profits reduce in particular short term debt, whereas growth increases long term debt. This implies that when internal funds are depleted, long term debt is next in the pecking order. We also find evidence for the maturity matching principle in SME capital structure: long term assets are financed with long term debt, while short term assets are financed with short tem debt. This implies that the maturity structure of debt is an instrument for lenders to deal with problems of asymmetric information. Finally, we find that SME capital structure varies across industries but firm characteristics are more important than industry characteristics.

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