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 structures of SMEs across countries and differences in country characteristics, asset structure, size, profitability, risk, and growth and how these may impact capital structure choices. The results show that SMEs in these countries determine their capital structure in similar ways. We attribute these similarities to the country institutional and financial characteristics and the commonality of their civil law systems. However, structural differences arise due to firm specific effects. 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. Our main conclusion is that firm-specific rather than country facts explain differences in capital structure choices of SMEs.

Are the determinants of capital structure country or firm specific

A dynamic adjustment model and panel methodology are used to investigate the determinants of a time varying target capital structure. Because firms may temporarily deviate from their target capital structure in the presence of adjustment costs, the adjustment process is also endogenized. Specifically, we analyse the impact of firm-specific characteristics as well as macroeconomic factors on the speed of adjustment to the target debt ratio. The sample comprises a panel of 90 Swiss firms over the years from 1991 to 2001. We document that faster growing firms and those that are further away from their optimal capital structure adjust more readily. The results also reveal interesting interrelations between the adjustment speed and well-known business cycle variables. Most important, the speed of adjustment is higher when the term spread is higher and when economic prospects are good.

/pdf/what-determines-the-speed-of-adjustment-to-the-target-p08554j4py.pdf

What determines the speed of adjustment to the target capital structure

Capital structure in an emerging stock market: The case of India

Purpose – The purpose of this paper is to investigate the factors affecting capital structure decisions of Istanbul Stock Exchange (ISE) lodging companies.Design/methodology/approach – A model based on the trade‐off and pecking order theories is specified and implications of both theories are empirically tested. The model is estimated using a dynamic panel data approach for five ISE companies for the period of 1994‐2006.Findings – The findings suggest that effective tax rates, tangibility of assets, and return on assets are related negatively to the debt ratio, while free cash flow, non‐debt tax shields, growth opportunities, net commercial credit position, and firm size do not appear to be related to the debt ratio. Although the findings partially support the pecking order theory, neither the trade‐off nor the pecking order theory exactly seem to explain the capital structure of Turkish lodging companies.Research limitations/implications – The data used in this paper are limited to five companies traded ...

Determinants of capital structure: evidence from Turkish lodging companies.

We investigate the capital structure determinants of small and medium sized enterprises (SMEs) using a sample of Greek and French firms. We address the following questions: Are the capital structure determinants of SMEs in the two countries driven by similar factors? Are potential differences driven by country-specific or firm-specific factors? Are the size and structure of their financial markets important factors to explain any cross-country differences on SME capital structure? To answer these questions we apply panel data methods to the sample of firms for the period 1998 to 2002. We assess the extent to which the debt to assets ratio of firms depends upon their asset structure, size, profitability and growth rate. The results show that the SMEs in both countries exhibit similarities in their capital structure choices. Asset structure and profitability have a negative relationship with leverage, whereas firm size is positively related to their debt to assets ratio. Growth is statistically significant only for France and is positively related to debt. We attribute these similarities to their institutional characteristics and in particular the commonality of their civil law systems. We find differences in the intensity of the capital structure relationship between the two countries. We provide evidence that these differences are due to firm-specific rather than country factors.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1341883_code364338.pdf?abstractid=1341883&mirid=1&type=2

Do Country or Firm Factors Explain Capital Structure? Evidence from SMEs in France and Greece

In this paper, we analyse the determinants of the capital structure for a panel of 104 Swiss companies listed in the Swiss stock exchange. Dynamic tests are performed for the period 1991–2000. It is found that the size of companies and the importance of tangible assets are positively related to leverage, while growth and profitability are negatively associated with leverage. The sign of these relations suggest that both the pecking order and trade-off theories are at work in explaining the capital structure of Swiss companies, although more evidence exists to validate the latter theory. Our analysis also shows that Swiss firms adjust toward a target debt ratio, but the adjustment process is much slower than in most other countries. It is argued that reasons for this can be found in the institutional context.

The capital structure of Swiss companies: an empirical analysis using dynamic panel data

In this paper, we analyze the determinants of the capital structure for a panel of 106 Swiss companies listed in the Swiss stock exchange. Both static and dynamic tests are performed for the period 1991-2000. It is found that the size of companies, the importance of tangible assets and business risk are positively related to leverage, while growth and profitability are negatively associated with leverage. The sign of these relations suggest that both the pecking order theory and trade off hypothesis are at work in explaining the capital structure of Swiss companies, although more evidence exists to validate the latter theory. Our analysis also shows that Swiss firms adjust toward a target debt ratio, but the adjustment process is much slower than in most other countries. It is argued that reasons for this can be found in the institutional context.

The Capital Structure of Swiss Companies: An Empirical Analysis Using Dynamic Panel Data

Debt-equity choice in Europe

Using a sample of over 5,000 European firms, we document the driving factors of capital structure policies in Europe. Controlling for dynamic patterns and national environments, we show how these policies cannot be reduced to a simple trade-off or pecking order model. Both corporate governance and market timing impact upon capital structure. European firms limit themselves to an upper barrier to leverage, but not to a lower one. Debt constrains managers to payout cash, and equity may become cheap during windows of opportunity. Internal financing, when available, is preferred over external financing, but companies limit future excess of slack as it constitutes a potential source of conflict.

Debt Equity Choice in Europe

Cet article analyse les determinants de la structure du capital d'un echantillon d'entreprises cotees suisse a la lumiere des differentes theories financieres Les tests bases sur des modeles statiques et dynamiques confirment que des elements de la theorie du financement hierarchique et de la theorie du niveau de financement optimale sont empiriquement presents Au total, les resultats confirment l'existence d'un processus d'ajustement mais ce dernier se revele etre lent

/pdf/determinants-et-dynamique-de-la-structure-du-capital-des-3ibh1uxmjm.pdf

Philippe Gaud

Papers

The capital structure of Swiss companies: an empirical analysis using dynamic panel data

The Capital Structure of Swiss Companies: An Empirical Analysis Using Dynamic Panel Data

Debt-equity choice in Europe

Debt Equity Choice in Europe

Déterminants et dynamique de la structure du capital des entreprises suisses : une étudie empirique