The impact of notional interest deduction on the capital structure of SME in Belgium

Abstract

The intent of this dissertation is to analyze the effect of the introduction in 2006 of notional interest deductions (NID) on the capital structure of Belgian small and medium companies. It deepens the existing literature by analyzing the heterogeneity of the effect on 16 different economic sectors and by trying to isolate what type of increase in assets or decrease in liabilities was responsible for the change in capital structure. Additionally, this paper investigates if Belgian firms might have optimized their balance sheets in order to benefit from more notional interest deductions. To perform this, accounting data from 2001 to 2007 is gathered on an average of 255,596 non-financial Belgian companies through the BACH database, which is based on the National Bank of Belgium database. Empirical results conclude that Belgian SMEs decreased their leverage ratio by 2.8%, from which 0.2% were caused by the account ‘other non-financial creditors’. Additionally, the decrease in leverage ratio was similar for the majority of the sectors analyzed, except for the Mining and Quarrying sector and the Electricity, gas, steam and air conditioning supply sector, for which the ratio increased. For the other sectors, results show that the decrease in leverage ratio was influenced by an increase in assets and not a decrease in liabilities.

Date of Award	5 Feb 2021
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)