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| Author: | Lopez-Gracia, J. Sogorb-Mira, F. |
| Title: | Testing trade-off and pecking order theories financing SMEs |
| Journal: | Small business economics
2008 : AUG, VOL. 31:2, p. 117-136 |
| Index terms: | financing theories capital structure of companies small and medium-sized enterprises (smes) Spain |
| Language: | eng |
| Abstract: | This paper explores two of the most important theories behind financial policy in Small- and Medium-Sized Enterprises (SMEs), that is, the pecking order and the trade-off theories. Based on a sample of over 3,500 Spanish SMEs over a 10-year period dating from 1995 to 2004, the empirical hypotheses are tested using panel data methodology. The study results suggest that both theoretical models help to explain SME capital structure. However, despite finding clear evidence of SMEs following a funding source hierarchy (pecking order model), the results reveal that greater trust is placed in SMEs aiming at reaching target or optimum leverage (trade-off model). |
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