Optimal capital structure, model uncertainty, and European SMEs
Iván Arribas (),
Emili Tortosa-Ausina () and
TingTing Zhu ()
Additional contact information
Iván Arribas: IVIE, ERI-CES and Department of Economic Analysis, Universitat de València, Spain
TingTing Zhu: Leicester Castle Business School, DeMontfort University, UK
No 2021/11, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)
We revisit the determinants of capital structure for European SMEs. Our work differs from previous contributions in the field by considering several measures of leverage (short-term debt, long-term debt, and total debt) and employing panel Bayesian model averaging, in an effort to address regression model uncertainty. Examining a rich set of firm-specific, country-specific, and institutional determinants of capital structure in 15 European Union countries over the period 2002–2019, we find that the effects of the different variables considered on leverage are intricate. First, only certain variables are important in explaining capital structure, based on their high posterior inclusion probabilities (above 0.5). Second, the effect of some variables differs depending on the measure of leverage considered. Under Bayesian model averaging, results are based on all possible models, rather than a particular one, and give a much greater depth of information. Therefore, our methods help to provide some additional guidance on the existing competing theories (trade-off, pecking-order, agency), which seems appropriate as empirical studies to date have not been conclusive. Our findings are especially pertinent in the European context where the predominance of SMEs, which are vulnerable to economic downturns, makes it particularly relevant to understand what determines their capital structure.
Keywords: Bayesian model averaging; capital structure; European Union; SMEs (search for similar items in EconPapers)
JEL-codes: D21 D22 G32 G33 (search for similar items in EconPapers)
Pages: 48 pages
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-ent and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:jau:wpaper:2021/11
Access Statistics for this paper
More papers in Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain) Contact information at EDIRC.
Bibliographic data for series maintained by María Aurora Garcia Gallego ().