IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwrsa/ersa13p498.html
   My bibliography  Save this paper

Are Regional Institutional Factors Determinants Of The Capital Structure Of Smes?

Author

Listed:
  • MariaJosé Palacin-Sanchez
  • Filippo di Pietro

Abstract

This paper analyses the role that institutional factors play in explaining differences in the capital structure of small and medium-sized enterprises (SMEs) across regions belonging to a single country. Specifically, it studies the effect of the development of the financial sector and of the economic situation on leverage of firms. Furthermore, the standard firm-factor determinants of debt, such as firm size, asset structure, profitability, growth, business risk and age are also incorporated. For this empirical study, we use a sample of 638 SMEs representing every Spanish region for the period 1999-2007, and apply the panel data methodology. This study makes several contributions towards research on capital structure. First, it is one of the first studies worldwide to show the influence of regional institutional factors on capital structure decisions for small and medium-sized firms. Previous single-country studies have only considered firm factors, and have failed to consider institutional factors. There is only one study of this nature covering a European country (the work of La Rocca et al. 2010, in Italy). Second, the choice of Spain as the country under study also adds value to this research in several ways. On the one hand, SMEs are unquestionably the leading actors in Spanish business. On the other hand, Spain exhibits certain regional heterogeneity. Our results suggest that the capital structure depends on the regional financial sector and the regional economic situation which implies that institutional factors at regional level help to better explain financing decisions of SMEs. These results are highly significant and should help policymakers understand the institutional origin of these regional differences and aid in their elimination. It makes no sense for these differences to persist within a single country when working at a European level towards the convergence of SMEs by improving, among other aspects, access to finance.

Suggested Citation

  • MariaJosé Palacin-Sanchez & Filippo di Pietro, 2013. "Are Regional Institutional Factors Determinants Of The Capital Structure Of Smes?," ERSA conference papers ersa13p498, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa13p498
    as

    Download full text from publisher

    File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa13/ERSA2013_paper_00498.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Hans Degryse & Peter Goeij & Peter Kappert, 2012. "The impact of firm and industry characteristics on small firms’ capital structure," Small Business Economics, Springer, vol. 38(4), pages 431-447, May.
    2. 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.
    3. 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.
    4. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "Does Local Financial Development Matter?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 929-969.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. Degryse, H.A. & de Goeij, P. C. & Kappert, P., 2009. "The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure : Evidence from Dutch Panel Data," Discussion Paper 2009-21, Tilburg University, Center for Economic Research.
    10. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    11. Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, February.
    12. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
    13. Michaelas, Nicos & Chittenden, Francis & Poutziouris, Panikkos, 1999. "Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data," Small Business Economics, Springer, vol. 12(2), pages 113-130, March.
    14. 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.
    15. 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.
    16. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    17. Giannetti, Mariassunta, 2003. "Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 185-212, March.
    18. 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.
    19. van der Wijst, Nico & Thurik, Roy, 1993. "Determinants of Small Firm Debt Ratios: An Analysis of Retail Panel Data," Small Business Economics, Springer, vol. 5(1), pages 55-65, March.
    20. 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.
    21. Wald, John K. & Long, Michael S., 2007. "The effect of state laws on capital structure," Journal of Financial Economics, Elsevier, vol. 83(2), pages 297-319, February.
    22. Santiago Carbo Valverdie & David Humphrey & Francisco Rodriguez Fernandez, 2003. "Deregulation, Bank Competition and Regional Growth," Regional Studies, Taylor & Francis Journals, vol. 37(3), pages 227-237.
    23. Erik Lehmann & Doris Neuberger & Solvig R”thke, 2004. "Lending to Small and Medium-Sized Firms: Is There an East-West Gap in Germany?," Small Business Economics, Springer, vol. 23(1), pages 23-39, August.
    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. repec:bis:bisifc:45-12 is not listed on IDEAS

    More about this item

    Keywords

    capital structure; SME; regional financial sector;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - 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:wiw:wiwrsa:ersa13p498. 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: (Gunther Maier). General contact details of provider: http://www.ersa.org .

    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.