Abstract
This quantitative study examines the reasons for changes in the leverage levels of the firms in GIPSI countries (Greece, Ireland, Portugal, Spain, and Italy), following the development of the sovereign debt crisis that began in 2009. This research belongs to the empirical literature studying the effects on firm leverage of reduced bank credit supply caused by that crisis. For all the sample firms and for each firm typology, that is, unlisted, listed, unlisted family, unlisted nonfamily, listed family and listed nonfamily, and for the entire period being analysed, the sample means of the debt-to-assets ratio in each year were calculated. The results show that owing to the lack of bank credit, unlisted firms reduced their leverage, whereas listed companies generally maintained their indebtedness, thanks to their access to financial markets. In spite of their orientation to socio-emotional wealth and its protection, unlisted family firms could not decrease their debt-to-assets ratio significantly less than unlisted nonfamily firms, due to the restriction of capital offered by banks. In contrast, the inclination toward the consolidation of socio-emotional wealth possibly enabled listed family firms to take advantage of the scarcity in bank capital to increase their leverage via bond issues, while listed nonfamily firms reduced the proportion of debt they employed, as the perpetuation of the business for future generations is not an issue for them. Key words: Sovereign debt, capital structure, socio-emotional wealth, family and nonfamily firms, listed and unlisted firms.
Highlights
GIPSI countries (Greece, Ireland, Portugal, Spain, and Italy) are generally characterized by bank-oriented financial systems (Bijlsma and Zwart, 2013)
Listed firms are very few; they prevail in Greece (40) and, on the whole, represent less than 1% of the firms being studied, demonstrating the low development of capital markets, which is a specific feature of the bank-oriented financial systems of the GIPSI countries
That leads me to conclude that probably the need to maintain control of the family business can be ensured even when these companies obtain the listing on financial markets, thanks to the use of pyramidal structures, cross-holdings, and dual-class shares (Faccio and Lang, 2002)
Summary
GIPSI countries (Greece, Ireland, Portugal, Spain, and Italy) are generally characterized by bank-oriented financial systems (Bijlsma and Zwart, 2013). This implies that unexpected and sudden events weakening bank credit availability, such as the recent sovereign debt crisis in the euro zone of the European Union, have a sizeable impact on the capital structure of firms in GIPSI countries. Raising capital from depositors became difficult for banks, as the perceived risk by investors considerably increased
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