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Efficiency and Capital Structure in Portuguese SMEs

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Operational Research (APDIO 2017)

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Abstract

This paper aims to analyse the bi-directional relationship between technical efficiency, as a measure of companies’ performance, and capital structure, under the agency cost theory as well as the pecking order and trade-off theory, to explain the capital structure decisions. The technical efficiency was estimated by the DEA method and corrected by using a suitable bootstrap to obtain statistical inferences. To test the agency cost hypothesis, asymmetric information hypothesis, risk-efficiency hypothesis and franchise value hypothesis (under pecking order and trade off theories framework), two models were applied using some determinants of capital structure such as size, profitability, tangibility, liquidity as control and explanatory variables through a truncated regression with bootstrapping. From an initial sample of 1024 small and medium sized companies from the interior of Portugal, for the period 2006–2009, a subsample of 210 SMEs from secondary and tertiary sectors was selected. The results suggest that medium sized companies have higher average bias-corrected efficiency than small companies; that short-term leverage is positively related to efficiency and that the companies in the sample follow pecking order theory.

UNIAG—Research unit funded by the FCT - Portuguese Foundation for the Development of Science and Technology, Ministry of Science, Technology and Higher Education. Project No. UID/GES/4752/2016.

NECE—Research Unit in Business Sciences, Beira Interior University, Research unit funded by the FCT - Portuguese Foundation for the Development of Science and Technology, Ministry of Science, Technology and Higher Education. Project No. UID/GES/04630/2013.

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Notes

  1. 1.

    Other variables used by Margaritis and Psillaki [34] were risk, measured by the standard deviation of annual earnings before taxes and market power proxied by the concentration index (CI), that represents the market share of the largest four firms in the industry. Margaritis and Psillaki [35] used also the ownership structure. Other determinants used are effective tax paid, measured by the ratio of Tax Paid to Earnings Before Taxes [53] or Non-debt tax shield, measured by the ratio between depreciations and amortizations and total assets [50, 53].

  2. 2.

    IES is a new way for companies to deliver information on-line to public services, through an electronic form, by using a totally dematerialized procedure. This service allows to abiding, at once, the following legal obligations: Deposit of annual accounts in Business Register; Delivery of annual fiscal declaration to Ministry of Finance and Public Administration; Delivery of annual information to National Statistics Institute for statistical purposes; Delivery of information to Portuguese Central Bank. Additional information is available at http://www.ies.gov.pt/.

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Authors and Affiliations

  1. Applied Management Research Unit (UNIAG), Polytechnic Institute of Bragança, Bragança, Portugal

    António Fernandes

  2. Centre for Management and Industrial Engineering (CEGI/INESC TEC), Polytechnic Institute of Bragança, Bragança, Portugal

    Clara Bento Vaz

  3. Applied Management Research Unit (UNIAG) and NECE, Polytechnic Institute of Bragança, Bragança, Portugal

    Ana Paula Monte

Authors
  1. António Fernandes
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  2. Clara Bento Vaz
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  3. Ana Paula Monte
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Correspondence to Clara Bento Vaz .

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Editors and Affiliations

  1. School of Engineering, University of Minho, School of Engineering, Braga, Portugal

    A. Ismael F. Vaz

  2. Department of Mathematics and LIAAD-INESC TEC, Polytechnic Institute of Bragança, School of Technology and Management, Bragança, Portugal

    João Paulo Almeida

  3. INESC TEC - Faculty of Engineering, University of Porto, INESC TEC - Faculty of Engineering, Porto, Portugal

    José Fernando Oliveira

  4. Department of Mathematics, University of Porto, Department of Mathematics, Porto, Portugal

    Alberto Adrego Pinto

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Fernandes, A., Vaz, C.B., Monte, A.P. (2018). Efficiency and Capital Structure in Portuguese SMEs. In: Vaz, A., Almeida, J., Oliveira, J., Pinto, A. (eds) Operational Research. APDIO 2017. Springer Proceedings in Mathematics & Statistics, vol 223. Springer, Cham. https://doi.org/10.1007/978-3-319-71583-4_8

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