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DETERMINANTS OF THE FIRM’S CAPITAL STRUCTURE THE CASE OF THE VERY SMALL ENTERPRISES

By Evaldo Guimarães Barbosa, Cristiana De and Castro Moraes

Abstract

This paper seeks empirically to identify the determinants of the very small firms ’ financial leverage. This is important because both these enterprises have been under-researched and research in the area has been troubled by samples biased towards very large enterprises. Results support hypotheses that size, growth, operational cycle and entrepreneur’s risk tolerance are positively and business risk, asset composition, profitability and inflation negatively associated with financial leverage. Additionally, there is support for a hypothesized relationship with industry but not with enterprise age. To achieve a wider understanding of these relationships, financial leverage is studied in combination with own working capital. Barclay and Smith (1995 p.609) state that financial economics has made significant progress in explaining the incentives that lead large public corporations to choose particular financing policies. There seems to be no denying of this. This is so much so that, as these same authors observe, the profession is increasingly moving beyond an examination of the basic leverage choice to more detailed aspects of the financing decision. Explaining this basic choice between debt and equity was the emphasis of research in the penultimate decade of the 20 th century. The past decade witnessed the appearance of articles extending th

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.195.6490
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