Abstract
The relationship between leverage and the managerial risk-taking behavior has been largely investigated. However, little attention has been attributed to the link between these two variables for small and medium-sized enterprises (SMEs), especially during and after the global crisis in continental Europe. Consequently, this paper tries to fill this gap by examining the impact of leverage on the risk-taking behavior of small business managers in France. Using a sample of 1403 French listed SME-observations over the period 2008 to 2016, the empirical findings show that the risk-taking behavior of corporate managers is positively and significantly related to the corporate leverage. This relationship is more striking and robust after than during the global crisis, especially for low growth firms. Thus, credit institutions seem to favor a high restriction on debt during the crisis and to limit their monitoring scope after the crisis particularly for firms with low conflict of interests in order to limit the related costs.
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Notes
- 1.
Information retrieved from: OECD (2018), Financing SMEs and Entrepreneurs 2018: An OECD Scoreboard, OECD publishing, Paris. https://doi.org/10.1787/fin_sme_ent-2018-en
- 2.
Corporate insolvencies in European countries reached 150,240 in total which places France as the highest country with 49,100 corporate insolvencies (32.68% of the total corporate insolvencies).
- 3.
Basel I reform also known as the Basel Capital Accord was signed by the Basel committee and published in July 1988. Its objective was to enhance the stability of the international banking system by imposing a ratio of capital to risk-weighted assets equal to a minimum of 8% on banks of the member countries.
- 4.
Modigliani and Miller (1958) divided the firms in their study into classes according to their returns such that “(…) the return on the shares issued by any firm in any given class is proportional to the return on the shares issued by any other firm in the same class” (p.266).
- 5.
NACE codes serve as an industry classification code for European firms. (Source: Eurostat).
- 6.
European Commission definition of SMEs.
- 7.
Financial debt is measured by long-term debt plus short-term loans of each firm in the sample.
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Khairallah, N., Benkraiem, R., Deffains-Crapsky, C. (2021). Leverage Financing and the Risk-Taking Behavior of Small Business Managers: What Happened After the Crisis?. In: Zopounidis, C., Benkraiem, R., Kalaitzoglou, I. (eds) Financial Risk Management and Modeling. Risk, Systems and Decisions. Springer, Cham. https://doi.org/10.1007/978-3-030-66691-0_3
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