The Influential Factors on Capital Structure: A Study on Portuguese High Technology and Medium-High Technology Small and Medium-Sized Enterprises

Zelia Serrasqueiro,Yehui Tong

doi:10.5430/ijfr.v11n4p23

Abstract

Using the panel data model, this paper studies the influential factors on the capital structure of small and medium-sized enterprises (SMEs) in high and medium-high technology manufacturing sectors in Portugal. In particular, the total sample is further classified into young SME group and mature SME group for observing the similarities and differences. The research results show that firm size, profitability, firm age, and industry sector impact much on the capital structure and debt ratios; on the other hand, the impacts of tangible assets, intangible assets, and growth are not as strong as the previous factors. The differences of the impacts on young and mature SMEs are mainly shown by growth, intangible assets and industry sector. In particular, intangible assets show more statistical significance in young SMEs compared to mature SMEs, and intangible assets tend to be positively related to long-term debt especially in young SME group; this may reflect the positive attitude of financial institutions on the value of intangibles in generating future benefits for high and medium-high technology young firms. Besides, the findings tend to support the pecking order theory more than the trade-off theory regarding the high and medium-high technology manufacturing SMEs here.

Highlights

Financing process is of significance for company management, because this is closely related to financial continuity and the competitiveness of firms (Šarlija & Harc, 2012)
The results of this paper show that: firm size, profitability (ROA), and firm age are strong influential factors, as they show statistical significance in most regressions and tend to keep stable relationships with debt ratios; industry sector is a statistically significant variable; tangible assets, intangible assets, and especially growth are relatively weak influential factors, because they do not show statistical significance as frequently as the strong ones do
The results partially are in favour of the statement of La Rocca et al (2011) about the differences in firm’s capital structure drivers and financing strategies at the earlier stages and at other stages of their life cycles, which are caused by the different characteristics at different stages

Summary

Introduction

Financing process (including the form and sources of financing studied as capital structure) is of significance for company management, because this is closely related to financial continuity and the competitiveness of firms (Šarlija & Harc, 2012). This paper studies the influential factors on the capital structure of small and medium-sized enterprises (SMEs) in high and medium-high technology manufacturing sectors in Portugal. What is more, compared to small firms in general, high technology small firms may face more financing problems because of more risks (such as the uncertainty of the market for the product or service) and show higher default rates (Westhead & Storey, 1997); it is the research and development (R&D) projects of this kind of SMEs that generate many problems of information asymmetry between entrepreneurs and external investors, which further cause serious financial constraints (Pederzoli, Thoma, & Torricelli, 2013).

Results

Discussion

Conclusion