Abstract
The aim of this study was to elucidate the relationship between corporate governance, credit ratings and the capital structure of small-to-medium enterprises (SMEs) and large Greek listed firms for the period spanning from 2005 to 2010. Panel regression analysis demonstrates that corporate governance structures and credit ratings play a significant role in the capital structure of Greek listed firms, especially during the crisis period (2008–2010). Moreover, firm-specific determinants such as size, profitability, asset structure and growth opportunities are also significant determinants of leverage. Finally, we detect that the influence of corporate governance variables on the capital structure of SMEs is less evident compared with large firms. We attribute this to the active involvement of owners in the management of SMEs, which reduces the need for shareholders to bear the costs of monitoring agents.
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Notes
According to Vermoesen et al. (2013, p. 434), “because SMEs are more vulnerable to information problems, they will be more bank dependent than large firms, which can rely more on market finance”.
Greece’s banks have lost €36.7 billion of their deposit base in 2011 and €64.6 billion since the beginning of 2010, which is down from €233 billion to €173 billion in the previous 2 years.
The Alternative Investment Market (AIM) is among the most prominent capital markets that also allow smaller companies to go listed with a more flexible regulatory system. Flexibility is provided by less regulation and no requirements for capitalization or for the number of shares issued.
The study of Morellec et al. (2012) discerned two governance mechanisms: internal and external. External governance mechanisms are represented by institutional ownership, outside blockholder ownership, and antitakeover provisions or shareholder rights. Internal governance mechanisms include CEO tenure, board independence, board committees, etc.
According to Psillaki and Daskalakis (2009), size may also serve as a proxy for the information asymmetry for outside investors, which may result in the increase in their preference for equity relative to debt.
According to Noulas and Genimakis (2011, p. 381) “ICAP is involved in credit risk services and credit rating evaluation of Greek companies”.
In order to mitigate survivorship bias, we include companies even if data is not available for every year. Consequently, the number of observations in each year varies, with a maximum of 1,386 firm-year observations. A similar approach was followed by Bevan and Danbolt (2004).
Amadeus is a widely recognized database that, among other things, provides information about the financial strength for thousands of listed and unlisted non-financial firms across Europe. The credit rating system is based on the Multi Objective Rating Evaluation (MORE) model. The basic idea of the model is to analyze a set of financial and economic ratios in a predictive corporate bankruptcy model with the purpose of creating a fundamental credit scoring model for each industrial sector.
In the appendix, there is a table which describes the credit rating categories provided by Amadeus.
The Hausman test was employed to check for fixed effects versus random effects.
In Greek context, Noulas and Genimakis (2011) employ the ratio of depreciation over total assets to proxy NDTS and find a positive association with the debt level.
To avoid perfect collinearity among all credit rating groups, we leave out the dummy for the third group of credit ratings (BB and BBB).
We did not include CEO and AUDITOR and all interactions (SME or Crisis) since these are dummy variables and cannot be used in dynamic panel regressions.
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The authors would like to thank three anonymous reviewers and the editor for useful comments and suggestions, which have considerably improved the paper. The first author acknowledges financial support from the Greek State Foundation of Scholarships (IKY).
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Dasilas, A., Papasyriopoulos, N. Corporate governance, credit ratings and the capital structure of Greek SME and large listed firms. Small Bus Econ 45, 215–244 (2015). https://doi.org/10.1007/s11187-015-9648-y
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DOI: https://doi.org/10.1007/s11187-015-9648-y