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Determinants of capital structure in Irish SMEs

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Abstract

This paper presents an empirical examination of determinants of the capital structure of a sample of 299 Irish small and medium-sized enterprises (SMEs). Results suggest that age, size, level of intangible activity, ownership structure and the provision of collateral are important determinants of the capital structure in SMEs. A generalisation of Zellner’s (Journal of the American Statistical Association 57, 348–368, 1962) seemingly unrelated regression (SUR) approach is used to examine industry effects and to test the stability of parameter estimates across sectors. We find that the influence of age, size, ownership structure and provision of collateral is similar across industry sectors, indicating the universal effect of information asymmetries. Firms overcome the lack of adequate collateralisable firm assets in two ways: by providing personal assets as collateral for business debt, and by employing additional external equity to finance research and development projects.

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Acknowledgements

The authors would like to thank two anonymous reviewers and the editor for useful comments and suggestions which have improved the paper. We are grateful to William Kelly for his recommendations and advice on methodological issues. We are grateful to Prof. Francis Chittenden and participants at the 2007 ISBE conference for their valuable comments which improved this paper.

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  1. Fiontar, Dublin City University, Dublin, Ireland

    Ciarán mac an Bhaird

  2. School of Business, Trinity College Dublin, Dublin, Ireland

    Brian Lucey

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  1. Ciarán mac an Bhaird
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Correspondence to Ciarán mac an Bhaird.

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mac an Bhaird, C., Lucey, B. Determinants of capital structure in Irish SMEs. Small Bus Econ 35, 357–375 (2010). https://doi.org/10.1007/s11187-008-9162-6

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