What is the impact of the access to external finance on the capital structure of SMEs in Europe?

Abstract

Previous literature has focused on firms’ characteristics to explain changes in capital structure choices. Nevertheless, external capital availability is also an important factor when determining the amount of leverage. Exploring this idea, and using the Survey on Access to Finance of Small and Medium Enterprises (SAFE) as our database, this dissertation examines how the access to external finance impacts changes in the capital structure of SMEs in Europe. The empirical results using a probit model suggest that (i) improvements in firms’ own capital and credit history lead to decreases and increases in leverage levels, respectively, when considering demand conditions. When focusing on supply factors (ii) increases in fees and commissions lead to decreases in leverage, while increases in loan size and loan maturity increase firms’ leverage. Financial constraints have also been analyzed. Considering the failure in external finance applications as a constraint, (i) improvements in own capital have a significant negative impact on unconstrained firms’ leverage, while (ii) increases in loan size and loan maturity has a major positive impact on constrained firms’ leverage.

Date of Award	15 Feb 2017
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)