Regional development and capital structure of SMEs
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Published
18-09-2018
Filippo di Pietro
María José Palacín Sánchez
José L. Roldán
Abstract
This article studies the influence of regional institutional environment, measured as regional development, on capital structure of small and medium-sized enterprises (SMEs). Furthermore, the standard firm-factor determinants and the business sector of the firm are also incorporated. To this end, a sample of 6,560 Spanish firms for 2007 is analysed, where all regions of Spain and all sectors, except the financial sector, are considered. Spain provides a suitable and unexplored laboratory for the analysis of regional differences in the financial structure of SMEs, since, on the one hand, SMEs constitute the most relevant firms in this country, and on the other hand, Spain shows regional disparities at various levels. Moreover, the empirical analysis uses Partial Least Squares (PLS), a variance-based structural equation modelling (SEM). In this respect, PLS has several clear advantages to multiple linear regression (MLR). Thanks to this study, how each of these factors explains the variation in the capital structure could be shown. Moreover, the results show that although firm factors and the business sector explain a large proportion of the variance of capital structure of SMEs, it is important to take into account the regional institutional environment to better ascertain the level of debt of SMEs in a single country.
How to Cite
di Pietro, F., Palacín Sánchez, M. J., & Roldán, J. L. (2018). Regional development and capital structure of SMEs. Cuadernos De Gestión, 18(1), 37–60. https://doi.org/10.5295/cdg.150530fd
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Keywords
Capital structure, SMEs, regional development, PLS, business sector
References
Ang, J., 1991. Small business uniqueness and the theory of financial management. Journal of Small Business Finance, 1 (1), 1-13.
Balakrishnan, S. and Fox, I., 1993. Asset specificity, firm heterogeneity and capital structure. Strategic Management Journal, 14 (1), 3–16.
Bhaird, C. and Lucey, B., 2010. Determinants of capital structure in Irish SMEs. Small Business Economics, 35, 357-375.
Carbó, S., Humphrey, D. and Rodríguez-Fernández, F., 2003. Deregulation, bank competition and regional growth. Regional Studies, 37 (3), 227–237.
Carbó, S., Rodríguez-Fernández, F. and Udell, G., 2009. Bank market power and SME financing constraints. Review of Finance, 13, 309–340.
Carmines, E.G. and Zeller, R.A., 1979. Reliability and Validity Assessment. Beverly Hills, CA: Sage.
Cassar, G. and Holmes, S., 2003. Capital structure and financing of SMEs: Australian evidence. Accounting and Finance, 43, 123–147.
Chang, C., Lee, A. C. and Lee C. F., 2009. Determinants of capital structure choice: A structural equation modeling approach. The Quarterly Review of Economics and Finance, 49 (2), 197-213.
Chin, W.W., 1998. The Partial Least Squares approach to structural equation modelling, In Marcoulides, G.A. eds. Modern Methods for Business Research., Mahwah, NJ: Lawrence Erlbaum Associates, 295-336.
Chin, W. W., 2010. How to write up and report PLS analyses In: Esposito Vinzi, V., Chin, W.W., Henseler, J. and Wang, H. eds. Handbook of partial least squares: Concepts, methods and applications. Berlin, Germany: Springer-Verlag, 655–690.
Chittenden, F., Hall, G. and Hutchinson, P., 1996. Small firm growth, access to capital markets and financial structure: review of issues and an empirical investigation. Small Business Economics, 8, 59-67.
Cohen, J., 1988. Statistical power analysis for the behavioural sciences 2ª ed. New Jersey: Lawrence Erlbaum Associates.
Cuadrado-Roura, J., 2010. Regional policy, economic growth and convergence. Lessons for Spanish case. London, England: Springer.
Degryse, H., De Goeij, P. and Kappert, K., 2012. The impact of firm and industry characteristics on small firms’ capital structure. Small Economics Business, 38(4), 431-437.
Demirgüç-Kunt, A. and Maksimovic, V., 1999. Institutions, financial markets and firm debt maturity. Journal of Financial Economics, 54(3), 295–336.
Diamond, D.W., 1984. Financial intermediation and delegated monitoring. Review of Economic Studies, 51, 393–414.
Djankov, S., La Porta, R., López-de-Silanes, F. and Shleifer, A., 2003. Courts. Quarterly Journal of Economics, 118, 453-517.
Falk, R.F. and Miller, N.B., 1992. A Primer for Soft Modeling. Akron, OH: University of Akron.
Fama, E. and French, K., 2002. Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15 (1), 1-33.
Fan, J., Titman, S. and Twite, G., 2012. An international comparison of capital structure and debt maturity choices. Journal of Financial and Quantitative Analysis, 47 (1), 23–56.
Fernández de Guevara J. and Maudos, J., 2009. Regional financial development and bank competition: effects on firms’ growth. Regional Studies, 43 (2), 211–228.
Fornell, C. and. Larcker, D.F., 1981. Evaluating Structural Equation Models with Unobservable Variables and Measurement Error. Journal of Marketing Research, 18 (1), 39-50
Gefen, D., Rigdon, E. E. and Straub, D., 2011. An update and extension to SEM guidelines for administrative and social science research. MIS Quarterly, 35(2), iii–xiv.
Giannetti, M., 2003. Do better institutions mitigate agency problems? Evidence from corporate finance choices. Journal of Financial and Quantitative Analysis, 38 (1), 185–212.
Haenlein, M. and Kaplan, A. M., 2004. A beginners guide to partial least squares analysis. Understanding Statistics, 3 (4), 283–297.
Hair, J.F., Hult, G.T.M., Ringle, C.M. and Sarstedt, M., 2013. A primer on partial least Squares Structural Equation Modeling (PLS-SEM). Thousand Oaks, CA: SAGE.
Hair, J.F., Ringle, C.M. and Sarstedt, M., 2011. PLS-SEM: Indeed a silver bullet. Journal of Marketing Theory and Practice, 19 (2), 137–149.
Hair, J.F., Sarstedt, M., Pieper, T.M. and Ringle, C.M., 2012. The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications. Long Range Planning, 45, 320-340.
Hall, G., Hutchinson, P. and Michaelas, N., 2000. Industry effects on the determinant of unquoted SME´s capital structure. Economics of Business, 7 (3), 297–312.
Hall, G., Hutchinson, P. and Michaelas, N., 2004. Determinants of the capital structures of European SMEs. Journal of Business Finance & Accounting, 31(5), 711–728.
Harris, M. and Raviv, A., 1991. The theory of capital structure. Journal of Finance, 46, 297–355.
Henseler, J., Ringle, C. M. and Sinkovics, R. R., 2009. The use of partial least squares path modeling in international marketing. Advances in International Marketing, 20, 277–320.
Heyman, D., Deloof, M. and Ooghe, H., 2008. The financial structure of private held Belgian firms. Small Business Economics, 30, 301-313.
Hernández-Cánovas, G. and Koëter–Kant, J., 2011. SME financing in Europe, Cross-country determinants of bank loan maturity. International Small Business Journal, 29 (5), 489–507.
Hernández Cánovas, G. and Martínez Solano, P., 2006. Banking relationships: effects on debt terms for small Spanish firms. Journal of Small Business Management, 44 (3), 315-333.
Jarvis C.B., Mackenzie, S.B. and Podsakoff, P.M., 2003. A critical review of construct indicators and measurement model misspecification in marketing and consumer research. Journal of Consumer Research, 30(2), 199–218.
Jõeveer, K., 2013. What do we know about the capital structure of small firms? Small Business Economics, 41, 479-501.
Jordan, J., Lowe, J. and Taylor, P., 1998. Strategy and financial policy in UK small firms. Journal of Business Finance and Accounting, 25, 1–27.
La Porta, R., López de Silanes, F., Shleifer, A. and Vishny, R., 1998. Law and finance. The Journal of Political Economy, 106, 1113–1155.
La Rocca, M., La Rocca, T. and Cariola, A., 2010. The influence of local institutional differences on the capital structure of SMEs. Evidence from Italy. International Small Business Journal, 28 (3), 234–257.
Lee, L., Petter, S., Fayard, D. and Robinson, S., 2011. On the use of partial least squares path modeling in accounting research. International Journal of Accounting Information Systems, 12 (4), 305-328.
López-Gracia, J. and Sogorb-Mira, F., 2008. Testing trade-off and pecking order theories financing SMEs. Small Business Economics, 31, 117-136.
Lopez-Gracia, J. and Aybar-Arias, C., 2000. An empirical approach to the financial behaviour of small and medium sized companies. Small Business Economics, 14, 55-63.
Lohmöller, J., 1989. Latent variable path modeling with partial least squares. Heidelberg: Physica-Verlag.
Mathieson, K., Peacock, E. and Chin, W. W., 2001. Extending the technology acceptance model: the influence of perceived user resources. The DATA BASE for Advances in Information Systems, 32 (3), 86–112.
Maudos, J., 2014. Tamaño empresarial y acceso a la financiación bancaria. Cuadernos de Información Económica, 240, 35-46.
Michaelas, N., Chittenden, F. and Poutzioris, P., 1999. Financial policy and capital structure choice in UK SMEs. Empirical evidence from company panel data. Small Business Economics, 12(2), 113–130.
Myers, S., 1977. Determinants of corporate borrowing. Journal of Financial Economics, 5, 147-175.
Myers, S. (1984). The capital structure puzzle. Journal of Finance, 34, 575-592.
Nunnally, J. C. and Bernstein, I. H. (1994). Psychometric theory (3rd ed.). New York: McGraw-Hill.
Palacín-Sánchez, M.J and di Pietro, F., 2016. The role of the regional financial sector in the capital structure of small and medium-sized enterprises (SMEs). Regional Studies. 70 (7), 1232-1247. DOI. 10.1080/00343404.2014.1000290
Palacín-Sánchez, M.J., Ramírez-Herrera, L. and di Pietro, F., 2013. Capital structure of SMEs in Spanish regions. Small Business Economics, 41 (2), 403-519
Peng, D. X. and Lai, F., 2012. Using partial least squares in operations management research: A practical guideline and summary of past research. Journal of Operations Management, 30(6), 467-480.
Petter, S., Straub, D. W. and Rai, A. 2007. Specifying formative constructs in information systems research. MIS Quarterly, 31, 623–656.
Psillaki, M. and Daskalakis, N., 2009. Are the determinants of capital structure country or firm specific? Small Business Economics, 33, 319-333.
Roberts, N. and Thatcher, J.B., 2009. Conceptualizing and testing formative constructs: Tutorial and annotated example. The DATA BASE for Advances in Information Systems, 40 (3), 9-39.
Roldán, J. L. and Sánchez-Franco, M. J., 2012. Variance-Based Structural Equation Modeling: Guidelines for Using Partial Least Squares in Information Systems Research, In Mora, M., Gelman, O., Steenkamp, A. and Raisinghani, M. eds. Research Methodologies, Innovations and Philosophies in Software Systems Engineering and Information Systems. Hershey, PA: Information Science Reference, 193-221.
Ringle, C. M., Wende, S. and Will, A., 2005. SmartPLS 2.0 (M3) beta. Hamburg, Germany: Smart PLS.
Salas-Fumás, V., 2014. Cambios en la estructura financiera, coste de capital e inversión en las empresas españolas. En: Requeijo, J. dir. Los Retos de la Financiación del sector empresarial, Madrid: Fundación de Estudios Financieros y Círculo de Empresarios, 43-59.
Sogorb-Mira, F., 2005. How SME uniqueness affects capital structure, Evidence from a 1994–1998 Spanish data panel. Small Business Economics, 25(5), 447 – 457.
Sosik, J. J., Kahai, S. S. and Piovoso, M. J., 2009. Silver bullet or voodoo statistics? A primer for using the partial least squares data analytic technique in group and organization research. Group & Organization Management, 34(1), 5–36.
Tenenhaus, M., Vinzi, V. E., Chatelin, Y.M. and Lauro, C., 2005. PLS path modelling. Computational Statistics & Data Analysis, 48 (1), 159–205
Titman, S. and Wessels R., 1988. The determinants of capital Structure Choice. Journal of Finance, 43, 1-19.
Utrero–González, N., 2007. Banking regulation, institutional framework and capital structure, International evidence from industry data. The Quarterly Review of Economics and Finance, 47, 481–506.
Van der Wijst, N. and Thurik, R., 1993. Determinants of small firm debt ratios. An analysis of retail panel data. Small Business Economics, 5, 55–65.
Balakrishnan, S. and Fox, I., 1993. Asset specificity, firm heterogeneity and capital structure. Strategic Management Journal, 14 (1), 3–16.
Bhaird, C. and Lucey, B., 2010. Determinants of capital structure in Irish SMEs. Small Business Economics, 35, 357-375.
Carbó, S., Humphrey, D. and Rodríguez-Fernández, F., 2003. Deregulation, bank competition and regional growth. Regional Studies, 37 (3), 227–237.
Carbó, S., Rodríguez-Fernández, F. and Udell, G., 2009. Bank market power and SME financing constraints. Review of Finance, 13, 309–340.
Carmines, E.G. and Zeller, R.A., 1979. Reliability and Validity Assessment. Beverly Hills, CA: Sage.
Cassar, G. and Holmes, S., 2003. Capital structure and financing of SMEs: Australian evidence. Accounting and Finance, 43, 123–147.
Chang, C., Lee, A. C. and Lee C. F., 2009. Determinants of capital structure choice: A structural equation modeling approach. The Quarterly Review of Economics and Finance, 49 (2), 197-213.
Chin, W.W., 1998. The Partial Least Squares approach to structural equation modelling, In Marcoulides, G.A. eds. Modern Methods for Business Research., Mahwah, NJ: Lawrence Erlbaum Associates, 295-336.
Chin, W. W., 2010. How to write up and report PLS analyses In: Esposito Vinzi, V., Chin, W.W., Henseler, J. and Wang, H. eds. Handbook of partial least squares: Concepts, methods and applications. Berlin, Germany: Springer-Verlag, 655–690.
Chittenden, F., Hall, G. and Hutchinson, P., 1996. Small firm growth, access to capital markets and financial structure: review of issues and an empirical investigation. Small Business Economics, 8, 59-67.
Cohen, J., 1988. Statistical power analysis for the behavioural sciences 2ª ed. New Jersey: Lawrence Erlbaum Associates.
Cuadrado-Roura, J., 2010. Regional policy, economic growth and convergence. Lessons for Spanish case. London, England: Springer.
Degryse, H., De Goeij, P. and Kappert, K., 2012. The impact of firm and industry characteristics on small firms’ capital structure. Small Economics Business, 38(4), 431-437.
Demirgüç-Kunt, A. and Maksimovic, V., 1999. Institutions, financial markets and firm debt maturity. Journal of Financial Economics, 54(3), 295–336.
Diamond, D.W., 1984. Financial intermediation and delegated monitoring. Review of Economic Studies, 51, 393–414.
Djankov, S., La Porta, R., López-de-Silanes, F. and Shleifer, A., 2003. Courts. Quarterly Journal of Economics, 118, 453-517.
Falk, R.F. and Miller, N.B., 1992. A Primer for Soft Modeling. Akron, OH: University of Akron.
Fama, E. and French, K., 2002. Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15 (1), 1-33.
Fan, J., Titman, S. and Twite, G., 2012. An international comparison of capital structure and debt maturity choices. Journal of Financial and Quantitative Analysis, 47 (1), 23–56.
Fernández de Guevara J. and Maudos, J., 2009. Regional financial development and bank competition: effects on firms’ growth. Regional Studies, 43 (2), 211–228.
Fornell, C. and. Larcker, D.F., 1981. Evaluating Structural Equation Models with Unobservable Variables and Measurement Error. Journal of Marketing Research, 18 (1), 39-50
Gefen, D., Rigdon, E. E. and Straub, D., 2011. An update and extension to SEM guidelines for administrative and social science research. MIS Quarterly, 35(2), iii–xiv.
Giannetti, M., 2003. Do better institutions mitigate agency problems? Evidence from corporate finance choices. Journal of Financial and Quantitative Analysis, 38 (1), 185–212.
Haenlein, M. and Kaplan, A. M., 2004. A beginners guide to partial least squares analysis. Understanding Statistics, 3 (4), 283–297.
Hair, J.F., Hult, G.T.M., Ringle, C.M. and Sarstedt, M., 2013. A primer on partial least Squares Structural Equation Modeling (PLS-SEM). Thousand Oaks, CA: SAGE.
Hair, J.F., Ringle, C.M. and Sarstedt, M., 2011. PLS-SEM: Indeed a silver bullet. Journal of Marketing Theory and Practice, 19 (2), 137–149.
Hair, J.F., Sarstedt, M., Pieper, T.M. and Ringle, C.M., 2012. The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications. Long Range Planning, 45, 320-340.
Hall, G., Hutchinson, P. and Michaelas, N., 2000. Industry effects on the determinant of unquoted SME´s capital structure. Economics of Business, 7 (3), 297–312.
Hall, G., Hutchinson, P. and Michaelas, N., 2004. Determinants of the capital structures of European SMEs. Journal of Business Finance & Accounting, 31(5), 711–728.
Harris, M. and Raviv, A., 1991. The theory of capital structure. Journal of Finance, 46, 297–355.
Henseler, J., Ringle, C. M. and Sinkovics, R. R., 2009. The use of partial least squares path modeling in international marketing. Advances in International Marketing, 20, 277–320.
Heyman, D., Deloof, M. and Ooghe, H., 2008. The financial structure of private held Belgian firms. Small Business Economics, 30, 301-313.
Hernández-Cánovas, G. and Koëter–Kant, J., 2011. SME financing in Europe, Cross-country determinants of bank loan maturity. International Small Business Journal, 29 (5), 489–507.
Hernández Cánovas, G. and Martínez Solano, P., 2006. Banking relationships: effects on debt terms for small Spanish firms. Journal of Small Business Management, 44 (3), 315-333.
Jarvis C.B., Mackenzie, S.B. and Podsakoff, P.M., 2003. A critical review of construct indicators and measurement model misspecification in marketing and consumer research. Journal of Consumer Research, 30(2), 199–218.
Jõeveer, K., 2013. What do we know about the capital structure of small firms? Small Business Economics, 41, 479-501.
Jordan, J., Lowe, J. and Taylor, P., 1998. Strategy and financial policy in UK small firms. Journal of Business Finance and Accounting, 25, 1–27.
La Porta, R., López de Silanes, F., Shleifer, A. and Vishny, R., 1998. Law and finance. The Journal of Political Economy, 106, 1113–1155.
La Rocca, M., La Rocca, T. and Cariola, A., 2010. The influence of local institutional differences on the capital structure of SMEs. Evidence from Italy. International Small Business Journal, 28 (3), 234–257.
Lee, L., Petter, S., Fayard, D. and Robinson, S., 2011. On the use of partial least squares path modeling in accounting research. International Journal of Accounting Information Systems, 12 (4), 305-328.
López-Gracia, J. and Sogorb-Mira, F., 2008. Testing trade-off and pecking order theories financing SMEs. Small Business Economics, 31, 117-136.
Lopez-Gracia, J. and Aybar-Arias, C., 2000. An empirical approach to the financial behaviour of small and medium sized companies. Small Business Economics, 14, 55-63.
Lohmöller, J., 1989. Latent variable path modeling with partial least squares. Heidelberg: Physica-Verlag.
Mathieson, K., Peacock, E. and Chin, W. W., 2001. Extending the technology acceptance model: the influence of perceived user resources. The DATA BASE for Advances in Information Systems, 32 (3), 86–112.
Maudos, J., 2014. Tamaño empresarial y acceso a la financiación bancaria. Cuadernos de Información Económica, 240, 35-46.
Michaelas, N., Chittenden, F. and Poutzioris, P., 1999. Financial policy and capital structure choice in UK SMEs. Empirical evidence from company panel data. Small Business Economics, 12(2), 113–130.
Myers, S., 1977. Determinants of corporate borrowing. Journal of Financial Economics, 5, 147-175.
Myers, S. (1984). The capital structure puzzle. Journal of Finance, 34, 575-592.
Nunnally, J. C. and Bernstein, I. H. (1994). Psychometric theory (3rd ed.). New York: McGraw-Hill.
Palacín-Sánchez, M.J and di Pietro, F., 2016. The role of the regional financial sector in the capital structure of small and medium-sized enterprises (SMEs). Regional Studies. 70 (7), 1232-1247. DOI. 10.1080/00343404.2014.1000290
Palacín-Sánchez, M.J., Ramírez-Herrera, L. and di Pietro, F., 2013. Capital structure of SMEs in Spanish regions. Small Business Economics, 41 (2), 403-519
Peng, D. X. and Lai, F., 2012. Using partial least squares in operations management research: A practical guideline and summary of past research. Journal of Operations Management, 30(6), 467-480.
Petter, S., Straub, D. W. and Rai, A. 2007. Specifying formative constructs in information systems research. MIS Quarterly, 31, 623–656.
Psillaki, M. and Daskalakis, N., 2009. Are the determinants of capital structure country or firm specific? Small Business Economics, 33, 319-333.
Roberts, N. and Thatcher, J.B., 2009. Conceptualizing and testing formative constructs: Tutorial and annotated example. The DATA BASE for Advances in Information Systems, 40 (3), 9-39.
Roldán, J. L. and Sánchez-Franco, M. J., 2012. Variance-Based Structural Equation Modeling: Guidelines for Using Partial Least Squares in Information Systems Research, In Mora, M., Gelman, O., Steenkamp, A. and Raisinghani, M. eds. Research Methodologies, Innovations and Philosophies in Software Systems Engineering and Information Systems. Hershey, PA: Information Science Reference, 193-221.
Ringle, C. M., Wende, S. and Will, A., 2005. SmartPLS 2.0 (M3) beta. Hamburg, Germany: Smart PLS.
Salas-Fumás, V., 2014. Cambios en la estructura financiera, coste de capital e inversión en las empresas españolas. En: Requeijo, J. dir. Los Retos de la Financiación del sector empresarial, Madrid: Fundación de Estudios Financieros y Círculo de Empresarios, 43-59.
Sogorb-Mira, F., 2005. How SME uniqueness affects capital structure, Evidence from a 1994–1998 Spanish data panel. Small Business Economics, 25(5), 447 – 457.
Sosik, J. J., Kahai, S. S. and Piovoso, M. J., 2009. Silver bullet or voodoo statistics? A primer for using the partial least squares data analytic technique in group and organization research. Group & Organization Management, 34(1), 5–36.
Tenenhaus, M., Vinzi, V. E., Chatelin, Y.M. and Lauro, C., 2005. PLS path modelling. Computational Statistics & Data Analysis, 48 (1), 159–205
Titman, S. and Wessels R., 1988. The determinants of capital Structure Choice. Journal of Finance, 43, 1-19.
Utrero–González, N., 2007. Banking regulation, institutional framework and capital structure, International evidence from industry data. The Quarterly Review of Economics and Finance, 47, 481–506.
Van der Wijst, N. and Thurik, R., 1993. Determinants of small firm debt ratios. An analysis of retail panel data. Small Business Economics, 5, 55–65.
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