IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v43y2017icp122-138.html
   My bibliography  Save this article

Countries lending infrastructure and capital structure determination: The case of European SMEs

Author

Listed:
  • Mc Namara, Andrea
  • Murro, Pierluigi
  • O'Donohoe, Sheila

Abstract

We test in a European context the impact of countries' lending infrastructure on SMEs (small and medium sized enterprises) capital structure. Devised from Berger and Udell (2006), this infrastructure is comprised of the information, legal, judicial, bankruptcy, social, tax and regulatory environments. We find that SME debt is higher in countries with more efficient bankruptcy environments in terms of debt recovery and in countries with less stringent regulatory environments by way of lower capital regulatory requirements for banks. Components of the lending infrastructure are found to differ with debt maturity. Long-term debt is synonymous with efficient bankruptcy environments, whilst the information and legal environments matter more for short-term debt. The regulatory environment is important for both long-term and short-term debt. Our results also lend support for the Pecking-Order, Trade-Off and Agency theories of capital structure.

Suggested Citation

  • Mc Namara, Andrea & Murro, Pierluigi & O'Donohoe, Sheila, 2017. "Countries lending infrastructure and capital structure determination: The case of European SMEs," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 122-138.
  • Handle: RePEc:eee:corfin:v:43:y:2017:i:c:p:122-138
    DOI: 10.1016/j.jcorpfin.2016.12.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S092911991630253X
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bartoli, Francesca & Ferri, Giovanni & Murro, Pierluigi & Rotondi, Zeno, 2013. "SME financing and the choice of lending technology in Italy: Complementarity or substitutability?," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5476-5485.
    2. Alves, Paulo & Francisco, Paulo, 2015. "The impact of institutional environment on the capital structure of firms during recent financial crises," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 129-146.
    3. Simeon Djankov & Oliver Hart & Caralee McLiesh & Andrei Shleifer, 2008. "Debt Enforcement around the World," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1105-1149, December.
    4. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    5. Gungoraydinoglu, Ali & Öztekin, Özde, 2011. "Firm- and country-level determinants of corporate leverage: Some new international evidence," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1457-1474.
    6. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    7. Rainer Haselmann & Paul Wachtel, 2010. "Institutions and Bank Behavior: Legal Environment, Legal Perception, and the Composition of Bank Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 965-984, August.
    8. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-878, July.
    9. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    10. Vikrant Vig, 2013. "Access to Collateral and Corporate Debt Structure: Evidence from a Natural Experiment," Journal of Finance, American Finance Association, vol. 68(3), pages 881-928, June.
    11. repec:hrv:faseco:30728041 is not listed on IDEAS
    12. de Jong, Abe & Kabir, Rezaul & Nguyen, Thuy Thu, 2008. "Capital structure around the world: The roles of firm- and country-specific determinants," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1954-1969, September.
    13. Acharya, Viral V. & Amihud, Yakov & Litov, Lubomir, 2011. "Creditor rights and corporate risk-taking," Journal of Financial Economics, Elsevier, vol. 102(1), pages 150-166, October.
    14. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1999. "Institutions, financial markets, and firm debt maturity," Journal of Financial Economics, Elsevier, vol. 54(3), pages 295-336, December.
    15. José López-Gracia & Francisco Sogorb-Mira, 2008. "Testing trade-off and pecking order theories financing SMEs," Small Business Economics, Springer, vol. 31(2), pages 117-136, August.
    16. Binks, Martin R & Ennew, Christine T, 1996. "Growing Firms and the Credit Constraint," Small Business Economics, Springer, vol. 8(1), pages 17-25, February.
    17. Douglas W. Diamond, 2004. "Presidential Address, Committing to Commit: Short-term Debt When Enforcement Is Costly," Journal of Finance, American Finance Association, vol. 59(4), pages 1447-1479, August.
    18. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    19. Maria Psillaki & Nikolaos Daskalakis, 2009. "Are the determinants of capital structure country or firm specific?," Small Business Economics, Springer, vol. 33(3), pages 319-333, October.
    20. Santiago Carbó-Valverde & Francisco Rodríguez-Fernández & Gregory F. Udell, 2009. "Bank Market Power and SME Financing Constraints," Review of Finance, European Finance Association, vol. 13(2), pages 309-340.
    21. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    22. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
    23. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    24. Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, February.
    25. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
    26. Ciarán mac an Bhaird & Brian Lucey, 2010. "Determinants of capital structure in Irish SMEs," Small Business Economics, Springer, vol. 35(3), pages 357-375, October.
    27. Popov, Alexander & Udell, Gregory F., 2012. "Cross-border banking, credit access, and the financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 147-161.
    28. Childs, Paul D. & Mauer, David C. & Ott, Steven H., 2005. "Interactions of corporate financing and investment decisions: The effects of agency conflicts," Journal of Financial Economics, Elsevier, vol. 76(3), pages 667-690, June.
    29. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    30. Francisco Sogorb-Mira, 2005. "How SME Uniqueness Affects Capital Structure: Evidence From A 1994–1998 Spanish Data Panel," Small Business Economics, Springer, vol. 25(5), pages 447-457, December.
    31. Marianna Succurro, 2012. "Bankruptcy systems and economic performance across countries: some empirical evidence," European Journal of Law and Economics, Springer, vol. 33(1), pages 101-126, February.
    32. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
    33. Kallberg, Jarl G. & Udell, Gregory F., 2003. "The value of private sector business credit information sharing: The US case," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 449-469, March.
    34. Rebel A. Cole, 2013. "What Do We Know about the Capital Structure of Privately Held US Firms? Evidence from the Surveys of Small Business Finance," Financial Management, Financial Management Association International, vol. 42(4), pages 777-813, December.
    35. Sam Langfield & Marco Pagano, 2016. "Bank bias in Europe: effects on systemic risk and growth," Economic Policy, CEPR;CES;MSH, vol. 31(85), pages 51-106.
    36. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, February.
    37. Franck Bancel & Usha R. Mittoo, 2004. "Cross-Country Determinants of Capital Structure Choice: A Survey of European Firms," Financial Management, Financial Management Association, vol. 33(4), Winter.
    38. Antoniou, Antonios & Guney, Yilmaz & Paudyal, Krishna, 2008. "The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(01), pages 59-92, March.
    39. Cho, Seong-Soon & El Ghoul, Sadok & Guedhami, Omrane & Suh, Jungwon, 2014. "Creditor rights and capital structure: Evidence from international data," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 40-60.
    40. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
    41. Fan, Joseph P. H. & Titman, Sheridan & Twite, Garry, 2012. "An International Comparison of Capital Structure and Debt Maturity Choices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(01), pages 23-56, April.
    42. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    43. Awartani, Basel & Belkhir, Mohamed & Boubaker, Sabri & Maghyereh, Aktham, 2016. "Corporate debt maturity in the MENA region: Does institutional quality matter?," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 309-325.
    44. Graham C. Hall & Patrick J. Hutchinson & Nicos Michaelas, 2004. "Determinants of the Capital Structures of European SMEs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5-6), pages 711-728.
    45. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
    46. Alves, Paulo F. Pereira & Ferreira, Miguel A., 2011. "Capital structure and law around the world," Journal of Multinational Financial Management, Elsevier, vol. 21(3), pages 119-150, July.
    47. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jeremie Bertrand & Pierluigi Murro, 2018. "Is trade credit a substitute for relationship lending credit?," CERBE Working Papers wpC25, CERBE Center for Relationship Banking and Economics.
    2. repec:eee:corfin:v:50:y:2018:i:c:p:609-625 is not listed on IDEAS

    More about this item

    Keywords

    SMEs; Capital structure; Lending infrastructure;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:43:y:2017:i:c:p:122-138. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.