How the sovereign debt crisis has affected the behavior of SME managers, especially with regard to management's choice of capital structure, is not yet well understood. In the context of the sovereign debt crisis, the choice of corporate capital structure became increasingly difficult and complex. Baker and Wurgler (2002) studied the relationship between firms' capital structure choices and market conditions and reported that managers issue debt or equity based on market conditions.
In a recent study, Proença, Laureano and Laureano (2014) investigated the impact of the 2008 credit crisis on the capital structure of Portuguese SMEs. Kanda and Iqbal (2014) investigated the relationship between the sovereign debt crisis and the capital structure of banks in the Eurozone. In addition, the market conditions under which the companies operate also influenced the choice of capital structure.
Benkraiem and Gurau (2013) provided a better understanding of the drivers of the capital structure of French SMEs during this period. Bokpin (2009) studied the effect of macroeconomic elements on the choice of capital structure of emerging companies. On the contrary, bank credit has a statistically significant positive relationship with the capital structure of companies.
However, most research has focused on firm-specific determinants of capital structure.
Measurement of variables
In terms of macroeconomic data, total gross government debt is collected from the Euro statistics website. According to De Jong et al. 2008), there is a trade-off between the number of countries that can be examined and the availability of sufficient firm-specific data. 19 calculated with the sum of the total liabilities and the market value of the common capital, which is equal to the price per share multiplied by the number of ordinary shares in circulation. 2004), the long-term debt ratio measured by total long-term debt to total assets will be used for sustainability control.
The dependent variables used in this study are similar to those used by Deesomsak, Paudyal and Pescetto (2004) and Frank and Goyal (2009). For measuring government debt, we used a method similar to that used by Alves and Francisco (2013). Book value of total debt (BV1) Total debt/ Total book value of total Market value of long-term debt.
Book Value of Long-Term Debt (BV2) Total Long-Term Debt/Total Book Value of Assets. First, trend analysis is used to identify whether there is a change in the capital structure during the crisis period. Therefore, a panel regression with unobserved effects is more appropriate for firms that have stable and unobserved variables affecting their debt ratio.
𝐷𝑖𝑡 represents the market value of leverage or the book value of leverage or the market value of long-term debt or the book value of long-term debt or debt/capital of company 𝑖 in year 𝑡. Similar to Flannery and Rangan (2006) and Ariff, Taufiq and Shamsher (2008), we also used a lagged period of the debt ratio to capture the speed of capital structure adjustment towards the target ratio in the context of the sovereign debt crisis lay. . The adjustment speed is calculated by one minus the coefficient of the lagged leverage ratio.
The analysis is performed for the entire sample, two sub-periods (referring to the period before and during the crisis) and two subgroups of countries (which are stressed countries and non-stressed countries) to make a comprehensive comparison. Although this research focuses on the debt-to-market ratio, the book value of debt will also be analyzed to determine the leverage measure that factors strongly influence. In order to verify the reliability of the model, a robustness test is performed using different proxies for the dependent variables, namely the long-term debt-to-total assets ratio and the debt-to-equity ratio (DCA).
Descriptive and trend analysis
22 period and for stressed countries compared to the pre-crisis period and non-stressed countries. This result suggests that there has been an increase in the use of fixed assets by SMEs. In terms of growth rate, the pre-crisis period has a lower average rate than the post-crisis period.
Comparing two groups of countries, the non-stressed countries present a higher average growth value of 3.869 compared to the group of countries with stress, which is only 1.567. Regarding the determinants of capital structure at the industry and country level, there are some notable observations. The average of the industry's median leverage decreased from 0.131 before the sovereign debt crisis to 0.105 after the crisis.
The stressed countries recorded a higher average industry median leverage of 0.1686 compared to the non-stressed countries of 0.105. In particular, the stressed countries have a negative average GDP growth rate of -1.57%, which implies that this group of countries' GDP decreased during the crisis period. The average government debt increased from 0.65 for the pre-crisis period to 0.934 for the crisis period.
While the group of non-stressed countries has an average government debt ratio of about 0.69, stressed countries have a significantly higher ratio of 1.180. The average inflation rate is slightly lower in the pre-crisis period and for stressed countries. Correlations for the independent variables are low, indicating that multicollinearity is not a major concern for this study.
The market debt ratio is consistently higher for the stressed countries than for the non-stressed countries. Thus, during the crisis, the two groups of countries have different trends for market debt ratio. While the stressed countries seem to have increased their debt levels, the non-stressed countries have either reduced their market debt level or kept it unchanged.
Regression Results
Firm size is important in determining capital structure in non-stressed countries), and the sign of the coefficient is negative. Surprisingly, sovereign debt plays an important role in capital structure decisions only in non-stressed countries. The results reported in columns 7–11 show evidence that the lagged variable is statistically significant for capital structure decisions in SMEs.
Second, the results for the lagged debt share show that it is important in determining the capital structure of firms. The coefficient of the variable share of outstanding debt shows that SMEs in non-stressed countries change their capital structure faster. Results for asset tangibility (TANG) show that it is a strong determinant of capital structure regardless of period and country.
39 Growth (GROWTH) and volatility (VOL) of firms did not have a significant impact on capital structure decisions across all outcomes. Profitability is an important determinant of capital structure during the non-crisis period from Table 6) and for SMEs in stressed companies (Table 5). The level of government debt (GOV_DEBT) shows important implications for the choice of capital structure during both pre-crisis and crisis periods.
There is not much previous literature that examines the public debt ratio to their determinants for the capital structure model. First, most previous papers focus on the determinants of capital structure of large firms. The trend analysis and lagged debt ratio were included to test for SMEs' capital structure adjustment.
The results show that European SMEs adjusted their capital structure during the sovereign debt crisis and the speed of adjustment was faster for non-stressed countries than for stressed countries. Profitability became an important determinant of capital structure during the 2010-2013 crisis period and for SMEs in stressed countries. The level of public debt had a significant impact on the choice of capital structure in both periods before the crisis and during the crisis.
Determinants of the capital structures of European SMEs.Journal of Business Finance & Accounting The theory of capital structure. Determinants of capital structure and adjustment to long-term objective: Evidence from UK corporate panel data.
