The behaviour of SMEs' capital structure determinants in different macroeconomic states

Abstract

The recent global financial crisis has triggered questions in the scientific area of capital structure dynamic determination regarding how “quickly” companies tend to adjust their capital structure to their long-term targets, in different macroeconomic states. We broaden the scope of the debate by focusing on SMEs and by discussing the relative importance of firm-specific and macroeconomic variables, when macroeconomic conditions change. Based on a partial adjustment model, we find that short-term and long-term debt ratios follow different patterns regarding their adjustment speeds; the adjustment speed for long-term debt slows down during the crisis, while the respective of the short-term debt is not affected. We also find clear differentiations of the effects and the contribution of the firm-specific and the macroeconomic variables between short-term debt and long-term debt ratios, when macroeconomic states change. We thus conclude that the nature and maturity of borrowing affect the persistence and endurance of the relationship between determinants and borrowing, across different macroeconomic states.