Are Capital Structure Determinants Different Depending on Firm Size and Debt Maturity? Evidence from European Panel Data

Abstract

The aim of the study is to verify whether and how the determinants of capital structure vary depending on the firm size and debt maturity. A number of firm-specific factors, as well as country and industry characteristics are compared across three size groups of firms in terms of their impact on various measures of capital structure. The study employs the BACH-ESD database provided by the European Commission and covers 11 EU countries during the period 2000–2013. Using panel data models for different size groups and for different measures of debt, findings provide evidence that both the direction and the significance of capital structure determinants vary along with the firm size, as well as depending on the debt maturity. As for the size-dependent findings, it appears that financing decisions of small firms generally seem to support the pecking order theory more, while medium and large-sized firms tend to follow the trade-off predictions on leverage. The results also indicate that the trade-off theory is more applicable for short-term debt, whereas pecking order predictions on capital structure are more suitable for long-term debt. The research confirms the prevalence of the country effect over the industry effect in the capital structure, although the difference between the importance of the two effects tends to decrease as firms grow larger.