Abstract
This paper aimed to empirically test the influence of major determinants of capital structure of the small firms of the Marche Region (Italy) on the debt-to-equity ratio. On the whole, the research clearly shows the importance of the pecking order theory; does not suggest the presence of agency costs of debt; and does not indicate a strong support for the trade-off theory, even if the signs of the relationships between effective tax rate, non-debt tax shields and default risk, on the one hand, and debt-to-equity ratio, on the other, together with the importance of the tax burden and non-debt tax shields of the firms observed would notexclude their convergence towards a long-term optimal debt level, to trade-off the costs of financial distress against the tax benefits associated with debt financing. The comparative empirical analysis also highlights that, on the whole, the same determinants have similar effects, in terms of signs, on the capital structure of the manufacturing and trade firms, even if, in this latter case, none of the relationships being considered is statistically significant.
References
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Ang J. S. (1992). “On the Theory of Finance for Privately Held Firms”, in The Journal of Small Business Finance, 1(3), 185–203.
Berger G. and G. F. Udell (1998). “The Economics of Small Business Finance: the Roles of Private Equity and Debt Markets in the Financial Growth Cycle ”, in Journal of Banking &
Finance, 22, 613–673.
Berk J. and P. DeMarzo (2008). “Finanza Aziendale 1”, Pearson Paravia Bruno Mondadori S.p.a., Milano.
Bontempi M. E. (2002). “The dynamic specification of the modified pecking order theory: its relevance to Italy”, in Empirical Economics, 27, 1-22.
Cassar G. and S. Holmes (2003). “Capital structure and financing of SMEs: Australian evidence”, in Accounting and Finance, 43, 123-147.
Chittenden F., G. Hall and P. Hutchinson (1996). “Small Firm Growth, Access to Capital Markets and Financial Structure: Review of Issues and an Empirical Investigation”, in Small
Business Economics, 8, 59–67.
Cooley T.F. and V. Quandrini (2001). “Financial markets and firm dynamics”, in The American Economic Review, 91(5), 286-310.
Cosh A. D. and A. Hughes (1994). “Size, Financial Structure and Profitability”, in A. Hughes and D. J. Storey (eds.), Finance and the Small Firm, Routledge, London.
Cressy R. and C. Olofsson (1997). “European SME Financing: An Overview”, in Small Business Economics, 9, 87-96.
Dammon R. M. and L. W. Senbet (1988). “The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage”, in The Journal of Finance, 43(2), 353–373.
DeAngelo H. and R. Masulis (1980). “Optimal Capital Structure Under Corporate and Personal Taxation”, in Journal of Financial Economics, 8, 3–29.
Eurostat (2008). “Statistics in focus – Industry, trade and service”, 31, 1-8. Fabbrini A. and G. Micucci (2003). La struttura finanziaria delle imprese marchigiane: un’analisi su dati di bilancio e una discussione delle soft information, in Venanzi D. (a cura di) “Le decisioni di struttura finanziaria delle imprese italiane. Evidenza empirica”, Morlacchi Editore, Perugina, 75-109.
Fama E. F. and M. H. Miller (1972). “The Theory of Finance”, Holt, Rinehart and Winston, New York.
Faulkender M. and M.A. Petersen (2006). “Does the source of capital affect capital structure?”, in The Review of Financial Studies, 19(1), 45-79.
Frank M. Z. and V. K. Goyal (2009). “Capital Structure Decisions: Which Factors Are Reliably Important?”, in Financial Management, Spring, 1-37.
Gibson B. (1992). “Financial Information for Decision-Making: An Alternative Small Firm Perspective”, in Journal of Small Business Finance, 1(3), 221–232.
Gibson B. (2002). “A Cluster Analysis Approach to Financial Structure in Small Firms in the United States”, University of Castle, working paper.
Graham J.R. (2000). “How big are the tax benefits of debt?”, in The Journal of Finance, 55, 1901-41.
Gregory B. T., M. W. Rutherford, S. Oswald and L. Gardiner (2005). “An Empirical Investigation of the Growth Cycle Theory of Small Firm Financing”, in Journal of Small Business Management, 43(4), 382-392.
Hall G. and P. Hutchinson (1993). “A Profit Analysis of the Changes in the Financial Characteristics of Newly Quoted Small Firms, 1970-73 y 1980–83”, in Small Business
Economics, 5, 207–214.
Hamilton R. T. and M. A. Fox (1998). “The Financing Preferences of Small Firm Owners”, in International Journal of Entrepreneurial Behaviour & Research, 4(3), 239–248.
Harris M. and A. Raviv (1991). “The theory of capital structure”, in Journal of Finance, 46, 297-355.
Haugen R. A. and L. W. Senbet (1986). “Corporate finance and taxes: A review”, in Financial Management, 15(3), 5–21.
Holmes S. and P. Kent (1991). “An Empirical Analysis of the Financial Structure of Small and Large Australian Manufacturing Enterprises”, in Journal of Small Business Finance, 1(2), 141–154.
Hughes A. (1997). “Finance for SMEs: A U.K. Perspective”, in Small Business Economics, 9, 151-166.
Jensen M. C and W. H. Meckling (1976). “Theory of the firm: managerial behavior, agency costs and ownership structure”, in Journal of Financial Management, 3(4), 305-360.
Jensen M. C. (1986). “Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers”, in American Economic Review, 76, 323–339.
Jordan J., J. Lowe and P. Taylor (1998). “Strategy and Financial Policy in U.K. Small Firms”, in Journal of Business Finance & Accounting, 25(1), 1–27.
Kraus A. and R. H. Litzenberger (1973). “A State-preference Model of Optimal Financial Leverage”, in The Journal of Finance, 33, 911–922.
La Rocca M., T. La Rocca and A. Cariola (2009). “Capital Structure Decisions During a Firm’s Life Cycle”, in Small Business Economics, published on line: 25 August.
Lemmon M. and J. Zender (2002). “Debt Capacity and Tests of Capital Structure Theories”, University of Utah, working paper.
Lopez-Grazia J. and C. Aybar-Arias (2000). “An Empirical Approach to the Financial Behaviour of Small and Medium Sized Companies”, in Small Business Economics, 14, 55-63.
Lopez-Gracia J. and F. Sogorb-Mira (2008). “Testing trade-off and pecking order theories financing SMEs”, in Small Business Economics, 31, 117-136.
Mackie-Mason J. K. (1990). “Do Taxes Affect Corporate Financing Decisions?”, in The Journal of Finance, 45(5), 1471–1493.
Michaelas N., F. Chittenden and P. Poutziouris (1999). “Financial policy and capital structure choice in UK SME: Empirical evidence from company panel data”, in Small Business Economics, 12, 113–130.
Modigliani F. and M. H. Miller (1958). “The Cost of Capital, Corporation Finance and the Theory of Investment”, in American Economic Review, 48(3), 261-297.
Modigliani F. and M. H. Miller (1963). “Corporate Income Taxes and the Cost of Capital: a Correction”, in American Economic Review, 53(3), 443-453.
Monteforte D. and M. La Rocca (2003). “Le scelte di struttura finanziaria delle PMI calabresi”, in Venanzi D. - Le decisioni di struttura finanziaria delle imprese italiane. Evidenza empirica, Morlacchi Editore, Perugina, 111-192.
Murray Z. F. and V. K. Goyal (2007). “Trade-off and Pecking Order Theories of Debt”, Center for Corporate Governance – Tuck School of Business at Dartmouth, working paper.
Myers S. C. (1977). “Determinants of Corporate Borrowing”, in Journal of Financial Economics, 5, 147-175.
Myers S. C. (1984). “The Capital Structure Puzzle”, in Journal of Finance, 39, July, 575-592.
Myers S. C and N. S. Majluf (1984). “Corporate Financing and
Investment Decisions When Firms Have Information That Investors Do Not Have”, in Journal of Financial
Economics, 13, 187-221.
Petersen M. A. and R. G. Rajan (1994). “The Benefits of Lending Relationships: Evidence from Small Business Data”, in The Journal of Finance, 49(1), 3–37.
Ross S. A. (1977). “The determination of financial structure: the incentive-signalling approach”, in The Bell Journal of Economics, 8, 23-40.
Sànchez-Vidal J. and J. F. Martìn-Ugedo (2005). “Financing Preferences of Spanish Firms: Evidence on the Pecking Order Theory”, in Review of Quantitative Finance and Accounting,
25, 341–355.
Scherr F., T. Sugrue and J. Ward (1990). “Financing the small firm startup: determinants of debt use”, in Proceedings Second Annual Small Firm Finance Research Symposium.
Stiglitz J. E. and A. Weiss (1981). “Credit Rationing in Markets with Imperfect Information”, in American Economic Review, 71(3), 393–410.
Titman S. and R. Wessels (1988). “The determinants of capital structure choice”, in Journal of Finance, 43(1), 1–19.
Venanzi D. (2005). “Specificità finanziarie delle medie imprese italiane: un’analisi del campione Mediobanca-Unioncamere”, in Argomenti, 13.
Venanzi D. (2010). “Il puzzle della struttura finanziaria”, Pearson Italia – Milano, Torino.
Wald J. K. (1999). “How Firm Characteristics Affect Capital Structure: An International Comparison”, in The Journal of Financial Research, 22(2),161–187.
Watson R. and N. Wilson (2002). “Small and Medium Size Enterprise Financing: A Note on Some of the Empirical Implications of a Pecking Order”, in Journal of Business Finance &
Accounting, 29(3/4), 557–578.
Ang J. S. (1992). “On the Theory of Finance for Privately Held Firms”, in The Journal of Small Business Finance, 1(3), 185–203.
Berger G. and G. F. Udell (1998). “The Economics of Small Business Finance: the Roles of Private Equity and Debt Markets in the Financial Growth Cycle ”, in Journal of Banking &
Finance, 22, 613–673.
Berk J. and P. DeMarzo (2008). “Finanza Aziendale 1”, Pearson Paravia Bruno Mondadori S.p.a., Milano.
Bontempi M. E. (2002). “The dynamic specification of the modified pecking order theory: its relevance to Italy”, in Empirical Economics, 27, 1-22.
Cassar G. and S. Holmes (2003). “Capital structure and financing of SMEs: Australian evidence”, in Accounting and Finance, 43, 123-147.
Chittenden F., G. Hall and P. Hutchinson (1996). “Small Firm Growth, Access to Capital Markets and Financial Structure: Review of Issues and an Empirical Investigation”, in Small
Business Economics, 8, 59–67.
Cooley T.F. and V. Quandrini (2001). “Financial markets and firm dynamics”, in The American Economic Review, 91(5), 286-310.
Cosh A. D. and A. Hughes (1994). “Size, Financial Structure and Profitability”, in A. Hughes and D. J. Storey (eds.), Finance and the Small Firm, Routledge, London.
Cressy R. and C. Olofsson (1997). “European SME Financing: An Overview”, in Small Business Economics, 9, 87-96.
Dammon R. M. and L. W. Senbet (1988). “The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage”, in The Journal of Finance, 43(2), 353–373.
DeAngelo H. and R. Masulis (1980). “Optimal Capital Structure Under Corporate and Personal Taxation”, in Journal of Financial Economics, 8, 3–29.
Eurostat (2008). “Statistics in focus – Industry, trade and service”, 31, 1-8. Fabbrini A. and G. Micucci (2003). La struttura finanziaria delle imprese marchigiane: un’analisi su dati di bilancio e una discussione delle soft information, in Venanzi D. (a cura di) “Le decisioni di struttura finanziaria delle imprese italiane. Evidenza empirica”, Morlacchi Editore, Perugina, 75-109.
Fama E. F. and M. H. Miller (1972). “The Theory of Finance”, Holt, Rinehart and Winston, New York.
Faulkender M. and M.A. Petersen (2006). “Does the source of capital affect capital structure?”, in The Review of Financial Studies, 19(1), 45-79.
Frank M. Z. and V. K. Goyal (2009). “Capital Structure Decisions: Which Factors Are Reliably Important?”, in Financial Management, Spring, 1-37.
Gibson B. (1992). “Financial Information for Decision-Making: An Alternative Small Firm Perspective”, in Journal of Small Business Finance, 1(3), 221–232.
Gibson B. (2002). “A Cluster Analysis Approach to Financial Structure in Small Firms in the United States”, University of Castle, working paper.
Graham J.R. (2000). “How big are the tax benefits of debt?”, in The Journal of Finance, 55, 1901-41.
Gregory B. T., M. W. Rutherford, S. Oswald and L. Gardiner (2005). “An Empirical Investigation of the Growth Cycle Theory of Small Firm Financing”, in Journal of Small Business Management, 43(4), 382-392.
Hall G. and P. Hutchinson (1993). “A Profit Analysis of the Changes in the Financial Characteristics of Newly Quoted Small Firms, 1970-73 y 1980–83”, in Small Business
Economics, 5, 207–214.
Hamilton R. T. and M. A. Fox (1998). “The Financing Preferences of Small Firm Owners”, in International Journal of Entrepreneurial Behaviour & Research, 4(3), 239–248.
Harris M. and A. Raviv (1991). “The theory of capital structure”, in Journal of Finance, 46, 297-355.
Haugen R. A. and L. W. Senbet (1986). “Corporate finance and taxes: A review”, in Financial Management, 15(3), 5–21.
Holmes S. and P. Kent (1991). “An Empirical Analysis of the Financial Structure of Small and Large Australian Manufacturing Enterprises”, in Journal of Small Business Finance, 1(2), 141–154.
Hughes A. (1997). “Finance for SMEs: A U.K. Perspective”, in Small Business Economics, 9, 151-166.
Jensen M. C and W. H. Meckling (1976). “Theory of the firm: managerial behavior, agency costs and ownership structure”, in Journal of Financial Management, 3(4), 305-360.
Jensen M. C. (1986). “Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers”, in American Economic Review, 76, 323–339.
Jordan J., J. Lowe and P. Taylor (1998). “Strategy and Financial Policy in U.K. Small Firms”, in Journal of Business Finance & Accounting, 25(1), 1–27.
Kraus A. and R. H. Litzenberger (1973). “A State-preference Model of Optimal Financial Leverage”, in The Journal of Finance, 33, 911–922.
La Rocca M., T. La Rocca and A. Cariola (2009). “Capital Structure Decisions During a Firm’s Life Cycle”, in Small Business Economics, published on line: 25 August.
Lemmon M. and J. Zender (2002). “Debt Capacity and Tests of Capital Structure Theories”, University of Utah, working paper.
Lopez-Grazia J. and C. Aybar-Arias (2000). “An Empirical Approach to the Financial Behaviour of Small and Medium Sized Companies”, in Small Business Economics, 14, 55-63.
Lopez-Gracia J. and F. Sogorb-Mira (2008). “Testing trade-off and pecking order theories financing SMEs”, in Small Business Economics, 31, 117-136.
Mackie-Mason J. K. (1990). “Do Taxes Affect Corporate Financing Decisions?”, in The Journal of Finance, 45(5), 1471–1493.
Michaelas N., F. Chittenden and P. Poutziouris (1999). “Financial policy and capital structure choice in UK SME: Empirical evidence from company panel data”, in Small Business Economics, 12, 113–130.
Modigliani F. and M. H. Miller (1958). “The Cost of Capital, Corporation Finance and the Theory of Investment”, in American Economic Review, 48(3), 261-297.
Modigliani F. and M. H. Miller (1963). “Corporate Income Taxes and the Cost of Capital: a Correction”, in American Economic Review, 53(3), 443-453.
Monteforte D. and M. La Rocca (2003). “Le scelte di struttura finanziaria delle PMI calabresi”, in Venanzi D. - Le decisioni di struttura finanziaria delle imprese italiane. Evidenza empirica, Morlacchi Editore, Perugina, 111-192.
Murray Z. F. and V. K. Goyal (2007). “Trade-off and Pecking Order Theories of Debt”, Center for Corporate Governance – Tuck School of Business at Dartmouth, working paper.
Myers S. C. (1977). “Determinants of Corporate Borrowing”, in Journal of Financial Economics, 5, 147-175.
Myers S. C. (1984). “The Capital Structure Puzzle”, in Journal of Finance, 39, July, 575-592.
Myers S. C and N. S. Majluf (1984). “Corporate Financing and
Investment Decisions When Firms Have Information That Investors Do Not Have”, in Journal of Financial
Economics, 13, 187-221.
Petersen M. A. and R. G. Rajan (1994). “The Benefits of Lending Relationships: Evidence from Small Business Data”, in The Journal of Finance, 49(1), 3–37.
Ross S. A. (1977). “The determination of financial structure: the incentive-signalling approach”, in The Bell Journal of Economics, 8, 23-40.
Sànchez-Vidal J. and J. F. Martìn-Ugedo (2005). “Financing Preferences of Spanish Firms: Evidence on the Pecking Order Theory”, in Review of Quantitative Finance and Accounting,
25, 341–355.
Scherr F., T. Sugrue and J. Ward (1990). “Financing the small firm startup: determinants of debt use”, in Proceedings Second Annual Small Firm Finance Research Symposium.
Stiglitz J. E. and A. Weiss (1981). “Credit Rationing in Markets with Imperfect Information”, in American Economic Review, 71(3), 393–410.
Titman S. and R. Wessels (1988). “The determinants of capital structure choice”, in Journal of Finance, 43(1), 1–19.
Venanzi D. (2005). “Specificità finanziarie delle medie imprese italiane: un’analisi del campione Mediobanca-Unioncamere”, in Argomenti, 13.
Venanzi D. (2010). “Il puzzle della struttura finanziaria”, Pearson Italia – Milano, Torino.
Wald J. K. (1999). “How Firm Characteristics Affect Capital Structure: An International Comparison”, in The Journal of Financial Research, 22(2),161–187.
Watson R. and N. Wilson (2002). “Small and Medium Size Enterprise Financing: A Note on Some of the Empirical Implications of a Pecking Order”, in Journal of Business Finance &
Accounting, 29(3/4), 557–578.
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