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- Title
How SME Uniqueness Affects Capital Structure: Evidence from Central and Eastern Europe Panel Data.
- Authors
Mateev, Miroslav; Ivanov, Konstantin
- Abstract
The purpose of this paper is to empirically test how firm and country-specific characteristics affect SMEs' capital structure using a unique dataset of micro, small, and medium-sized firms in Central and Eastern Europe. We investigate whether the leverage of firms follows more closely the predictions of the trade-off theory or the pecking order theory. We do find strong evidence in favour 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, we obtain similar results: the relationship between cash flow and leverage remains negative and significant. Country-specific factors such as credit volume, foreign direct investment and corporate tax rate have a strong and positive effect on SMEs' capital structure. The results do not change when we control for differences in age, size, industry and growth characteristics of the sample.
- Subjects
CENTRAL Europe; EASTERN Europe; SMALL business; CAPITAL structure; PANEL analysis; PROFITABILITY; FINANCIAL leverage
- Publication
Quarterly Journal of Finance & Accounting, 2011, Vol 50, Issue 1, p115
- ISSN
1939-8123
- Publication type
Article