On Capital Structure in the Small and Medium Enterprises: The Spanish Case

Abstract

The principal aim of this paper is to test the relevance of the different financing theories for explaining capital structure choice in the Small and Medium Enterprises (SMEs) sector. One of the areas of financial theory that has worried much to academicians and professionals is debt policy decisions in companies. Although there are many previous empirical studies about financing decisions of large and listed companies, the scientific community has only started to pay attention to the small firm sector much more recently. Investigations such as Van der Wijst (1989) or Michaelas et al. (1999) have set up the basis for the development of a line of research on capital structure in SMEs. In the Spanish context the research is still at its initial phases although some work has been done recently in this sense like Ocana et al. (1994), Boedo and Calvo (1997) and Lopez and Aybar (2000). In order to shed more light over this issue we carry out an empirical analysis over a panel data of 3962 non-financial Spanish SMEs for the period 1994-1998. The panel data methodology that we use controls for firm heterogeneity and reduces collinearity among the variables that are considered. Our results show that the financing decision in this sort of companies can be explained by the main capital structure theories: Fiscal Theory, Trade-Off Theory and Pecking Order Theory. Among all these theories, some caveats are worth to be stressed and the hierarchically theory seems to fit completely in the explanation of SMEs debt policy.

Keywords: Financing, capital structure, trade-off theory, pecking order theory, SME, panel data

JEL Classification: C23, G32, G33