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

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

Research output: Contribution to journalArticleScientificpeer-review

Abstract

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.
Original languageEnglish
Pages (from-to)431-447
JournalSmall Business Economics: An International Journal
Volume38
Issue number4
DOIs
Publication statusPublished - 2012

Fingerprint

Firm characteristics
Small firms
Industry characteristics
Capital structure
Industry
Debt
Small and medium-sized enterprises
Profit
Industry competition
Data base
Long-term debt
Short-term debt
Industry effects
Trade-off theory
Pecking order theory
Agency conflict
Financial statements

Cite this

@article{a6f97bc4d6d745aea9d7ee6a70cacbba,
title = "The impact of firm and industry characteristics on small firms' capital structure",
abstract = "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.",
author = "H.A. Degryse and {de Goeij}, {P. C.} and P. Kappert",
note = "Appeared earlier as CentER DP 2009-21",
year = "2012",
doi = "10.1007/s11187-010-9281-8",
language = "English",
volume = "38",
pages = "431--447",
journal = "Small Business Economics: An International Journal",
issn = "0921-898x",
publisher = "Springer Netherlands",
number = "4",

}

The impact of firm and industry characteristics on small firms' capital structure. / Degryse, H.A.; de Goeij, P. C.; Kappert, P.

In: Small Business Economics: An International Journal, Vol. 38, No. 4, 2012, p. 431-447.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - The impact of firm and industry characteristics on small firms' capital structure

AU - Degryse, H.A.

AU - de Goeij, P. C.

AU - Kappert, P.

N1 - Appeared earlier as CentER DP 2009-21

PY - 2012

Y1 - 2012

N2 - 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.

AB - 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.

U2 - 10.1007/s11187-010-9281-8

DO - 10.1007/s11187-010-9281-8

M3 - Article

VL - 38

SP - 431

EP - 447

JO - Small Business Economics: An International Journal

JF - Small Business Economics: An International Journal

SN - 0921-898x

IS - 4

ER -