درباره عوامل تعیین کننده ساختار سرمایه در شرکت های کوچک و متوسط شرق و مرکز اروپا: یک تجزیه و تحلیل پویا

The purpose of this paper is to test how firm characteristics affect SMEs’ capital structure using a unique dataset of micro, small, and medium-sized firms (SMEs) in Central and Eastern Europe (CEE). We carry out a panel data analysis of 3175 SMEs from seven CEE countries during the period 2001–2005, modeling the leverage ratio as a function of firm specific characteristics hypothesized by capital structure theory. By using the cash flow as an explanatory variable, we test some of the predictions of the pecking order theory. According to this theory, firms with more available internal funds should use less external funding. We do find strong evidence in favor of the pecking order theory, given that there is a negative and significant correlation between profitability and leverage. When we control for other firm specific characteristics such as future growth opportunities, liquidity, sales growth, size and assets structure, the cash flow is found to be a strong determinant of firm leverage. We also argue that the determinants of firm leverage may be considerably different depending on firms’ size and age. The empirical results show that cash flow coefficient remains negative and statistically significant only for medium-sized firms, thus suggesting that larger firms with sufficient internal funds use less external funding than comparable smaller firms. We obtain similar results when we estimate the model by firm age; older firms demonstrate similar behavior as larger firms.

This paper explores the main determinants of capital structure in small and medium-sized enterprises in Central and Eastern Europe. An increasing body of literature indicates that small and medium-sized enterprises (SMEs) are of major importance for macroeconomic growth. During much of the past decade SMEs in Europe have seen an impressive growth. Between 2002 and 2008, SMEs in the EU-27 grew strongly and turned out to be the job engine for much of the European economy. The number of SMEs increased by 2.4 million (or 13 percent), whereas the number of large enterprise increased by only 2000 (or 5 percent).2 This growth was also reflected in employment figures; in absolute numbers, 9.4 million jobs were created in the SME-sector in the same period.3 There are regional differences in SME presence in Europe. The old Member States (EU-15) account for 80 percent of the total number of enterprises in EU-27 and the new Member States (EU-12) for 20 percent. In both regions, SMEs make up the vast majority of enterprises in the non-financial business economy. Differences in the employment share of SMEs and in average enterprise size are quite small. However, across individual countries there is a large diversity in average firm size, as well as in the employment share of SMEs (EC, 2010, p. 18). The determinants of this diversity include differences in per capita income, sector structure, outsourcing and off-shoring, and culturally or institutionally-based occupational preferences for self-employment.4 Although the average enterprise size is similar in the two regions, the discrepancy in average enterprise size across countries within both groups is large (varying between 3 and 12 occupied persons per enterprise in EU-15, and between 3 and 18 in EU-12). Despite the importance of SMEs for job creation and production, most of the SME literature points to the fact that small and medium firms face higher barriers to external financing than large firms, which limits their growth and development (Ardic et al., 2011). Numerous studies that use firm-level survey data demonstrate that access to finance and the cost of credit do not only pose barriers to SME financing, but also constrain SMEs more than large firms (Pissarides, 1999). Small firms find it difficult to obtain commercial bank financing, especially long-term loans, for a number of reasons, including lack of collateral, difficulties in proving creditworthiness, small cash flows, inadequate credit history, high risk premiums, underdeveloped bank–borrower relationships and high transaction costs (IFC, 2009). A recent study by Beck et al. (2008) finds that smaller firms and firms in countries with underdeveloped financial and legal systems use less external finance, based on data from a firm-level survey in 48 countries.5 A growing body of research literature deals with debt policy decisions of firms. Although there are many previous empirical studies on financing decisions of large and listed companies, much less attention is paid to the small firms sector, especially in transition economies, given that their growth and prosperity are potentially subjected to different constraints and contingencies, related to the specific economic conditions in these countries (see e.g., Hutchinson and Xavier, 2006 for Slovenia, Klapper et al., 2006 for Poland, and Gatti and Love, 2008 for Bulgaria). This paper, therefore, adds to the existing empirical literature by investigating the specific determinants of debt policy decisions of firms in transition economies. By doing so, we explain how firm characteristics affect SMEs’ capital structure. Previous research finds that whilst capital structures vary from country to country this might be due to variations in the determinants of capital structure that operate at the firm level, rather than real differences between countries. This is similar to the argument proposed by Myers (1984) that differences in capital structure between firms in different industries are likely to be due to firm-specific attributes rather than industry differences.6 The pecking-order theory, originally developed by Myers (1984) and Myers and Majluf (1984) says that, due to information asymmetries between firms and their (potential) investors regarding the firms’ current operations and future prospects, the investors will ask a return on the capital that is lent – in case of debt finance, or invested – in case of equity finance. As a result, firms find external finance (debt or equity) less attractive than internal finance (personal savings or retained earnings). And because information asymmetries are the highest for small and new firms, leading potential financiers to ask even greater returns on capital, the preference for internal finance is greatest among these firms.7 By using cash flow as an explanatory variable, we are able to test some of the predictions of this theory. We do find strong evidence in favor of the pecking order theory, given that there is a negative and significant relationship between cash flow and leverage. When we control for other firm specific characteristics such as future growth opportunities, liquidity, sales growth, size and assets structure, the cash flow coefficient remains negative and statistically significant only for firms that rely more on short-term debt financing. We also find that SMEs in transition economies seem to follow the maturity matching principle, as they try to finance their fixed assets with long-term debt and their current assets with short-term debt. The rest of the paper is organized as follows: Section 2 studies how the existing capital structure theories can be used to explain the financing decisions in small and medium-sized firms. Also, we present the empirical hypotheses extracted from the theoretical background that will be tested using a large sample of SMEs from Central and Eastern Europe. Section 3 presents the dataset and all the variables used in the econometric model. In Section 4 we discuss the empirical results of our study with their implications. Some concluding remarks are offered in the final section.

This paper investigates the main determinants of SMEs’ capital structure. In other words, we discuss whether the leverage of firms follows more closely the predictions of trade-off theory or pecking order theory. Using panel data analysis for a set of 3175 SMEs in Central and Eastern Europe, we find that firm leverage is determined not only by the availability of internally generated funds, but also depends on other firm specific characteristics such as liquidity, sales growth, size and assets structure. If cash flow is used as the only explanatory variable in the regressions, the results do support the pecking order theory according to which firms with more available funds use less external sources of financing than other comparable firms. However, this specification is clearly insufficient for more definite conclusions to be reached, given that several other firm characteristics are also likely to be important in explaining leverage ratios. Including future growth opportunities, liquidity, sales growth, firm size and assets structure as control variables provides evidence in support of our hypothesis that SMEs prefer internal sources of capital to external ones. If external funds are needed they will employ mainly short-term debt. In line with previous research (Sogorb-Mira, 2005) we find evidence that the relationship between leverage and firms’ assets structure significantly depends on the type of leverage employed. Specifically, long-term debt is positively correlated with assets structure, whereas this relationship becomes negative if firms employ short-term debt. Our results confirm the so-called maturity matching principle, according to which firms with more tangible assets (and hence with more collateral potentially available for credits) are also more indebted than other firms, as the trade-off theory predicts. Firm size seems to be extremely important in explaining capital structure as larger firms show much higher leverage ratios than smaller firms, other firm characteristics being controlled for. This is consistent with the view that larger firms tend to be more diversified and, hence, less volatile (Fama and French, 2002). Also, we find that larger firms seem to employ more debt independently of its maturity, perhaps because they can hold a greater bargaining power towards creditors. In line with Sogorb-Mira (2005) we find evidence for a significant correlation between future growth opportunities (as represented by the ratio of intangible assets to total assets) and leverage ratios only for firms that rely more on long-term debt to finance their investment activities. Finally, our results show that firms that keep higher liquidity levels use mainly long-term debt to support their growth, whereas firms with higher proportion of current liabilities in their capital structure use more short-term debt. The results we obtained suggest that the determinants of firm leverage may be considerably different depending on firms’ size and age. In order to better explore these possible differences, we estimated our model for different size and age samples. We observe that the estimated coefficients for cash flow ratio are negative and statistically significant only for larger and older firms. When we control for other firm specific characteristics we obtain similar results for both types of SMEs: sales growth, liquidity, size and assets structure are found to be significant determinants of capital structure for larger and older firms as compared to smaller (or younger) firms, for which the opposite holds. We also test our results for different industry sectors and find no significant differences in the estimated coefficients if compared with those obtained in our general model. Our results are relevant for policy makers and firm managers of SMEs in transition economies. The evidence shows that small and medium-sized firms in these countries still rely on internally generated funds to support their investment activities and growth, and find it very difficult to obtain external financing. There are significant differences in the way micro, small and medium-sized firms finance their activities. If micro and small firms need external capital they will use mainly short-term bank loans and trade credits. At the same time, banks are the main source of long-term debt for medium-size firms in Central and Eastern Europe, as access to capital markets is, to some extent, limited to larger firms. Governments in these countries should pay an increased attention to these differences with a strong emphasis on policy actions that will remove unnecessary administrative burdens for small and medium firms and will facilitate their access to external (bank) financing. Also, we observe that there are variations in the effects of the determinants on firms’ capital structure between countries. According to Hall et al. (2004) these variations are due to differences in attitudes to borrowing, disclosure requirements, relationships with banks, taxation and other national economic, social and cultural differences. Further research can provide more explanations by considering additional country-specific variables that determine SMEs capital structure. Furthermore, the analysis could be enriched by considering a broader time period in order to elucidate whether capital structure in this sort of companies changes during different economic cycles.