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On the adjustment speed of SMEs to their optimal capital structure


  • Cristina Aybar-Arias


  • Alejandro Casino-Martínez


  • José López-Gracia



The aim of this paper is to analyse the speed of adjustment of small and medium-sized enterprises (SMEs) to the target leverage. By applying a system GMM technique to Spanish panel data collected during the period 1995–2005, we estimate a partial adjustment model in which both target leverage and speed of adjustment are simultaneously endogenized. We provide empirical evidence on the determinants of target leverage and the speed of adjustment. More specifically, the rate of financial flexibility, growth opportunities and size are positively related to the speed of adjustment, whereas the distance to the optimal ratio of debt shows a negative impact. Our findings demonstrate that, in terms of sample mean, a high percentage of Spanish SMEs adjust rationally to their target. Additionally, the SMEs analysed appeared to be over-levered and fairly motivated to adjust (annual adjustment speed: 26%). Copyright Springer Science+Business Media, LLC. 2012

Suggested Citation

  • Cristina Aybar-Arias & Alejandro Casino-Martínez & José López-Gracia, 2012. "On the adjustment speed of SMEs to their optimal capital structure," Small Business Economics, Springer, vol. 39(4), pages 977-996, November.
  • Handle: RePEc:kap:sbusec:v:39:y:2012:i:4:p:977-996
    DOI: 10.1007/s11187-011-9327-6

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    References listed on IDEAS

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    Cited by:

    1. M. E. Bontempi & L. Bottazzi & R. Golinelli, 2015. "Dynamic corporate capital structure behavior: empirical assessment in the light of heterogeneity and non stationarity," Working Papers wp988, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Maté-Sánchez-Val, Mariluz & López-Hernandez, Fernando & Mur-Lacambra, Jesús, 2017. "How do neighboring peer companies influence SMEs’ financial behavior?," Economic Modelling, Elsevier, vol. 63(C), pages 104-114.

    More about this item


    Small and medium-sized enterprise; Capital structure; Target leverage; Speed of adjustment; System GMM; C23; G32; L26;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship


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