The Effect of the Financial Crisis on the Capital Structure of Portuguese SMEs

Abstract

This work aims to identify the main determinants of the leverage of Portuguese SMEs, as well as their behavior to diverging economic periods, such as financial prosperity and recession. Through the methodology of unbalanced panel data, we analyze a sample of 1,444 small and medium companies in the period between 2004 and 2012. The evidence corroborates the existence of a significant relationship between all the explanatory variables and the level of debt. The results show a positive relationship between tangibility of assets, the firms’ size and growth rate of the asset, and the level of indebtedness of the company. The results also show a negative relationship between profitability, the tax advantages non resultant from debt and the cycle of life, and the level of indebtedness of the company. Contrary to our expectations, the results show the existence of a positive relationship between business risk and debt. Finally, the subprime financial crisis influences negatively the levels of indebtedness of Portuguese companies, a result of rationing and enhancement of bank credit.

The robustness test corroborates with conclusion obtained in general.