The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure: Evidence from Dutch Panel Data

34 Pages Posted: 17 Mar 2009 Last revised: 22 Oct 2009

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Peter de Goeij

Tilburg University

Peter Kappert

Rabobank International, New York

Date Written: March 17, 2009

Abstract

We investigate small firms' capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. We find that the capital structure decision of Dutch SMEs is consistent with the pecking order theory: SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. Furthermore, we document that profits reduce in particular short term debt, whereas growth increases long term debt. This implies that when internal funds are depleted, long term debt is next in the pecking order. We also find evidence for the maturity matching principle in SME capital structure: long term assets are financed with long term debt, while short term assets are financed with short tem debt. This implies that the maturity structure of debt is an instrument for lenders to deal with problems of asymmetric information. Finally, we find that SME capital structure varies across industries but firm characteristics are more important than industry characteristics.

Keywords: Capital Structure, SMEs, pecking order theory, trade-off theory

JEL Classification: G32, G30

Suggested Citation

Degryse, Hans and de Goeij, Peter and Kappert, Peter, The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure: Evidence from Dutch Panel Data (March 17, 2009). CentER Discussion Paper Series No. 2009-21; European Banking Center Discussion Paper No. 2009-03. Available at SSRN: https://ssrn.com/abstract=1361498 or http://dx.doi.org/10.2139/ssrn.1361498

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Peter De Goeij

Tilburg University ( email )

P.O. Box 90153
Room I607
Tilburg, Noord-Brabant 5000 LE
Netherlands
+31134662083 (Phone)

Peter Kappert

Rabobank International, New York ( email )

New York, NY
United States

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