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

134 Citations (Scopus)


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
Issue number4
Publication statusPublished - 2012


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