The Dynamics of SMEs' Capital Structure and Performance: Evidence From a Panel VAR
BSFA Working Paper Series No. 8
28 Pages Posted: 23 Oct 2018
Date Written: September 28, 2018
We study the relationship between the capital structure and the performance of unlisted small and medium-sized firms in Germany. We employ a panel vector autoregressive model that allows to consider this relationship in a dynamic sense and accounts for potential endogeneity. While our results show that there is a strongly positive association between leverage and performance for medium-sized firms, we find no relation for small firms. This may be taken as evidence that small firms are unable to seize the performance-enhancing effects of higher leverage, thus refuting the tradeoff theory for this entrepreneurial size bracket.
Keywords: SMEs, Panel VAR, Dynamic Panel Data, Capital Structure, Corporate Finance
JEL Classification: G32
Suggested Citation: Suggested Citation