Capital Structure in Small Firms: A Conditional Approach Based on Accounting Variables

This study examines the accounting determinants of the capital structure of Portuguese firms in the textile, clothing, and leather sectors, based on a sample of 6469 firms over the period 2010–2022, using panel data models. The relevance of this study lies in its focus on specific industrial sectors characterized by a high predominance of small and medium-sized enterprises (SMEs) and a strong dependence on bank financing. In addition to the traditional analysis of leverage determinants, this study introduces a conditional approach to accounting variables based on firms’ structural characteristics, namely size and age. Robustness checks and data treatment procedures were conducted to mitigate the potential impact of outliers in the financial variables. The results show that profitability, liquidity, and risk negatively affect indebtedness, whereas asset structure and growth exert positive effects. The effective tax rate has a negative impact on debt. Firm size and age significantly condition the relationship between variables. SMEs’ financing decisions exhibit differentiated patterns depending on firm size and age. The findings support the predictions of the Pecking Order Theory and, to a lesser extent, the Trade-Off Theory. The study highlights the importance of considering firm heterogeneity when designing financing policies and strategies for Portuguese SMEs.