Abstract
The aim of this paper is to analyze whether some of the empirical implications of the financial growth cycle hold in a sample of Spanish SMEs. We use a sample of 5,944 observations for the year 2007 and test several hypotheses using MANOVA analysis. The results show that companies tend to have different financing structures depending on their age and size. Hypotheses about trade credit, short term debt and risk are confirmed with respect to age, as the younger companies tend to use proportionally more trade credit and short term debt, and are riskier. Size is also associated in the expected way with trade credit, relative trade credit and relative short-term financial debt. On the other hand hypotheses about equity and the financing deficit are not confirmed. The effect of a pecking order behaviour over a long period of time may provide an explanation of why these two hypotheses are not confirmed.
Highlights
Capital structure is a recurrent topic in the financial literature
This paper contributes to the growing number of country-specific studies on determinants of capital structure and financial growth cycle in SMEs by providing original empirical evidence from the Spanish case
As the factors condition firms’ capital structures we can conclude, as indicated by Gregory et al (2005), that enterprises have different capital structures depending on age and size
Summary
After the seminal work by Modigliani and Miller (1958), which argued that under perfect market conditions the decision about financing would be irrelevant, many studies have analysed the influence of tax considerations (Modigliani, Miller 1963; Miller 1977, among others) and financial distress (Baxter 1977; Warner 1977, among others) on the financial structure of companies. Following Jensen and Meckling (1976), many other studies considered the influence of information asymmetry and agency costs on firms’ financial structures. A prime contribution on information asymmetry in capital structure theory is the Myers and Majluf (1984) model. Myers and Majluf argued that the empirical evidence is not consistent with the idea that companies adopt a financial
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