A two-part fractional regression model for the financial leverage decisions of micro, small, medium and large firms

Joaquim Ramalho () and Jacinto Silva

Economics Working Papers from University of Évora, Department of Economics (Portugal)

Abstract: In this paper we examine the following two hypotheses which traditional theories of capital structure are relatively silent about: (i) the determinants of financial leverage decisions are different for micro, small, medium and large firms; and (ii) the factors that determine whether or not a firm issues debt are different from those that determine how much debt it issues. Using a binary choice model to explain the probability of a firm raising debt and a fractional regression model to explain the relative amount of debt issued, we find strong support for both hypotheses. Confirming recent empirical evidence, we find also that, although larger firms are more likely to use debt, conditional on having some debt firm size is negatively related to the proportion of debt used by firms.

Keywords: capital structure; financial leverage; zero leverage; micro firms; SMEs; fractional data; two-part model (search for similar items in EconPapers)
JEL-codes: C51 G32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2006
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Journal Article: A two-part fractional regression model for the financial leverage decisions of micro, small, medium and large firms (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:evo:wpecon:9_2006

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