Abstract
The present study has investigated the moderating effect of the European Financial Stability Facility (EFSF) / European Stability Mechanism (ESM) support to the firms’ indebtness. Using dynamic panel data, three models were estimated and aimed at the determination of the way that EFSF/ESM financial assistance programs could influence the impact of five firm-specific characteristics, namely growth, profitability, size, tangibility and non-debt tax shield on the capital structure of European firms. Data from 2,086 firms for the period 2003 – 2016 were used, and two dummy variables; one for the EFSF/ESM support period and one for any kind of economic crisis period were formed. The results indicated that pecking order prevailed over trade-off theory. Economic crises did not affect severely the firm-characteristics’ effects, but the EFSF/ESM programs influence appeared in three cases. During the period of EFSF/ESM assistance, profitability’s negative effect on long-term debt ratio disappeared and on total debt ratio strengthened, growth’s positive impact on total debt ratio diminished and non-debt tax shield acquired positive influence on total debt ratio. These changes might be explained by the increased levels of tax rates and decreased levels of uncertainty that the EFSF/ ESM programs caused, as well as by the reluctance of lenders to provide new funds.
Highlights
The capital structure of firms is affected by economic conditions as indicated by the majority of recent researches that investigated the impact of the international financial crisis of 2007-2009 on the financial leverage of firms (Harisson & Widjaja, 2014; DemirgucKunt et al, 2015; Banerjee, 2017; Chatzinas & Papadopoulos, 2018)
To address the above problem, the present study has focused on the impact of the European Financial Stability Facility (EFSF)/European Stability Mechanism (ESM) support on the effect that firm-specific characteristics have on firms’ capital structure
These variables have already been discussed above, except for two cases. These two variables refer to the two dummy variables that were formed to distinguish between the effects of a general economic crisis and the economic conditions that might be attributed to the EFSF/ESM financial support
Summary
The capital structure of firms is affected by economic conditions as indicated by the majority of recent researches that investigated the impact of the international financial crisis of 2007-2009 on the financial leverage of firms (Harisson & Widjaja, 2014; DemirgucKunt et al, 2015; Banerjee, 2017; Chatzinas & Papadopoulos, 2018). Dealing with the consequences of the crisis led to the establishment of the European Financial Stability Facility (EFSF) and its successor, the European Stability Mechanism (ESM). These two mechanisms were aimed at providing financial support to country-members which were facing high fiscal deficits and high debt ratios. At least according to the present available knowledge, previous studies which examined the firms’ capital structure of the countries supported by these facilities, were in the same context with the rest of the firms which had been ignoring a possible facilities’ impact
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