Determinants of the Capital Structure of SMEs: A Seemingly Unrelated Regression Approach

21 Pages Posted: 4 Oct 2007 Last revised: 14 Jul 2009

See all articles by Ciaran Mac an Bhaird

Ciaran Mac an Bhaird

Dublin City University

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Date Written: October 1, 2007

Abstract

This paper presents an empirical examination of firm characteristic determinants of the capital structure of a sample of 299 Irish small and medium sized firms (SMEs hereafter). Hypotheses are formulated from pecking order and agency theories incorporating a financial growth life cycle approach, and are tested on a number of multivariate regression models. The results suggest that age, size, level of intangible activity, ownership structure and the provision of collateral are important determinants of the capital structure in SMEs. A generalisation of Zellner's (1962) Seemingly Unrelated Regression approach (SUR hereafter) is used to examine industry effects and to test the stability of parameter estimates across sectors. Results suggest that the influence of age, size, ownership structure and provision of collateral is constant across industry sectors, indicating the universal effect of information asymmetries. Surmounting these information asymmetries is influenced by differences in asset structure across sectors, resulting in diverse sectoral financing choices.

Keywords: Capital structure, SME, Zellner's SUR Model

JEL Classification: D92, G30, G32

Suggested Citation

Mac an Bhaird, Ciarán and Lucey, Brian M., Determinants of the Capital Structure of SMEs: A Seemingly Unrelated Regression Approach (October 1, 2007). Available at SSRN: https://ssrn.com/abstract=1018383 or http://dx.doi.org/10.2139/ssrn.1018383

Ciarán Mac an Bhaird (Contact Author)

Dublin City University ( email )

Ireland 9
Dublin 9, leinster 9
Ireland

Brian M. Lucey

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Sydney Business School ( email )

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Australia

Ho Chi Minh City University of Economics and Finance ( email )

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6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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