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What Do We Know about the Capital Structure of Small Firms?

  • Karin Joeveer

There are no stylized facts about the capital structure of small firms. Therefore, in this paper I use firm data from 10 Western European countries to contrast the sources of leverage across small and large firms. Specifically, I jointly evaluate the explanatory power of firm-specific, country of incorporation institutional, and macroeconomic factors. Using data that is more comprehensive in coverage than that used in the existing research, I confirm the stylized facts of the capital structure literature for large and listed firms, but I obtain contrasting evidence for smaller companies: First, the country of incorporation carries much more information for small firms supporting the idea that small firms are more financially constrained and face non-firm-specific hurdles in their capital structure choice. Second, using two different leverage measures I show that the relationship of firm size and tangibility to leverage is robust to the measure used for listed, but not for unlisted, firms.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp283.

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Date of creation: Dec 2005
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Handle: RePEc:cer:papers:wp283
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