Pecking order versus trade-offan empirical approach to the small and medium enterprise capital structure
- López Gracia, José
- Sogorb Mira, Francisco
Año de publicación: 2003
Número: 9
Tipo: Documento de Trabajo
Resumen
In this paper, we explore two of the most relevant theories that explain financial policy in small and medium enterprises (SMEs): pecking order theory and trade-off theory. Panel data methodology is used to test the empirical hypotheses over a sample of 6482 Spanish SMEs during the five-year period 1994?1998. The results suggest that both theoretical approaches contribute to explain capital structure in SMEs. However, while we find evidence that SMEs attempt to achieve a target or optimum leverage (trade-off model), there is less support for the view that SMEs adjust their leverage level to their financing requirements (pecking order model).