Industry Effects and Banking Relationship as Determinants of Small Firm Capital Structure Decisions

Timo Korkeamaki and Matthew W. Rutherford
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Matthew W. Rutherford: Virginia Polytechnic Institute & State U

Journal of Entrepreneurial Finance, 2006, vol. 11, issue 1, 23-38

Abstract: This work examines the leverage ratios of firms covered by the 1998 SSBF Survey. We find that small firms in general are significantly more levered than their larger counterparts in an industry-matched Compustat sample, but the difference is at least partially explained by differences in industry distributions of the two samples. Our regression results provide some interesting contrasts to previous studies. In examining the effects of relationship banking on deviations from industry leverage norms, we find that a close banking relationship is related to a lower leverage, even after controlling for industry medians, and also that firms with a closer primary banking relationship adhere more closely to industry norms. Counter to previous research, we also find that small business leverage is negatively correlated with total assets.

Keywords: Banking; Capital Structure; Capital; Firm; Firms (search for similar items in EconPapers)
JEL-codes: G21 G32 L25 M13 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:pep:journl:v:11:y:2006:i:1:p:23-38

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