A two-part fractional regression model for the financial leverage decisions of micro, small, medium and large firms

Abstract

In this paper we examine the following two hypotheses which traditional theories of capital structure are relatively silent about: (i) the determinants of financial leverage decisions are different for micro, small, medium and large firms; and (ii) the factors that determine whether or not a firm issues debt are different from those that determine how much debt it issues. Using a binary choice model to explain the probability of a firm raising debt and a fractional regression model to explain the relative amount of debt issued, we find strong support for both hypotheses. Confirming recent empirical evidence, we find also that, although larger firms are more likely to use debt, conditional on having some debt firm size is negatively related to the proportion of debt used by firms.

The effect of size on the failure probabilities of SMEs: An empirical study on the US market using discrete hazard model

“…With regard to leverage decisions and capital structure, Ramalho and Da Silva (2009) conduct a study on Portuguese SMEs and show that different size structure (micro, small, medium, and large) affect significantly the determinants of leverage decisions. The other research by Mateev et al (2003) tries to explore the capital structure choices for each of the SMEs categories.…”

La recherche en finance entrepreneuriale

“…Aux côtés des fonds propres, les entreprises se financent par endettement, principalement bancaire, qui demeure la principale source de financement externe. Dans l'ensemble, les choix financiers des PME semblent s'aligner sur les prescriptions de la théorie de l'ordre hiérarchique (Qiu et La, 2010 ;Parlak, 2010 ;Ramalho et Da Silva, 2009 ;López-Gracia et Sogorb-Mira, 2008 ;Omri, Akremi et Bellouma, 2005 ;Graham et Harvey, 2001). Par ailleurs, de nombreuses études ont été réalisées au sujet des déterminants de la structure du capital (93 articles).…”

Analysis of Factors Influencing Financial Leverage In Lithuanian Listed Companies

“…Frank and V. K. Goyal (2003), A. S. Gill et al (2012), A. Hovakimian (2004, J. R. S. Ramalho and J. L. Silva (2006), R. Stretcher and S. Johnson (2011), T. S. Zaher (2010). The framework was adapted to capital structure decisions by M. C. Jensen and W. H. Meckling in 1976(Kumar, 2007.…”

“…The factors influencing financial leverage and most commonly identified in the empirical research are: firm size (Kurmar, 2007;Ezeoha, 2008;Frank and Goyal, 2003a;Ramalho and Silva, 2006;Seppa, 2008), profitability (Kumar, 2007;Chen, 2003;Gill et al, 2012;Shaher, 2012;Ramalho and Silva, 2006), growth (Gill et al, 2012;Ramalho and Silva, 2006;Chen, 2003), assets (Frank and Goyal, 2003a;Chen, 2003;Gill et al, 2012), taxes (Dwenger and Steiner, 2009;Frank and Goyal, 2003a;Gill et al, 2012), financial constraints (Frank and Goyal, 2003a;Ramalho and Silva, 2006;Shaher, 2012).…”

“…An analogical definition of financial leverage could be found in N. Dwenger and V. Steiner (2009), M. Z. Frank and V. K. Goyal (2003), J. R. S. Ramalho and J. L. Silva (2006), R. Seppa (2008). There are a number of theories explaining financial leverage and the factors influencing it.…”