Taxes and Corporate Debt Policy: Evidence for Unlisted Firms of Sixteen European Countries
108 Pages Posted: 28 Feb 2008
Date Written: February 26, 2008
This paper investigates the capital structure choices for a sample of 19,752 unlisted firms for the period 1994-2004 using a rich data set of unlisted Western European firms. It is to the best of our knowledge the first large sample study to examine how a firm's characteristics and institutional factors affect corporate debt policy in small and medium sized enterprises (SMEs). We address the following questions. Is the capital structure of SMEs and large listed firms driven by similar factors? Can the existing knowledge in relation to large listed firms be used to describe SME behaviour? Alternatively, are these types of firm so different that we have to build a new theory to understand their behaviour of SMEs? The results demonstrate that the traditional financing theories, developed to apply to large listed firms, appear to hold for SMEs in an international setting. In addition, country specific factors help to explain leverage choices.
Keywords: Capital Structure, Debt, Trade-off Theory, Western Europe
JEL Classification: G3, G32
Suggested Citation: Suggested Citation