Capital structure adjustments in hospitality SMEs after the covid-19 crisis

: the case of Portugal

Abstract

The COVID-19 pandemic caused an unprecedented economic shock due to the rapid spread of the SARS-CoV-2 virus and the subsequent implementation of containment measures worldwide. This disruption severely impacted business operations and demand, especially within the hospitality sector. In this sense, this study investigates the impact of the COVID-19 pandemic on the capital structure of firms operating in the Portuguese hospitality sector. The analysis employs panel data of Portuguese hospitality firms between 2018 and 2023, sourced from the SABI database. A fixed effects regression model is used to estimate the effects of the pandemic, including a dummy variable to capture the pandemic years, alongside firm-specific determinants traditionally associated with capital structure. Contrary to initial expectations based on the precautionary motive for liquidity needs, the findings reveal that firms’ leverage ratios declined during the pandemic. This behavior suggests that heightened uncertainty, fear of debt overhang, and limited access to external financing led firms to reduce their debt levels rather than take on additional borrowing. The results are robust across multiple checks, including Generalized Method of Moments (GMM) estimation. This research contributes to the existing literature on capital structure by addressing a gap concerning the debt management behavior of small and medium-sized enterprises (SMEs) within the sector during systemic crises such as the COVID-19 pandemic. Hence, it offers new insights into financial resilience and capital structure dynamics during times of uncertainty.

Date of Award	31 Oct 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Aviner Manoel (Supervisor)