What Do We Know about the Capital Structure of Privately Held Firms: Evidence from the Surveys of Small Business Finances

摘要

This paper seeks to shed light on what factors determine the capital structure at privately held firms. The capital structure decision - a fundamental issue facing financial managers - is, in its simplest form, the selection of a ratio of debt to equity for the firm. This seemingly simple decision about the best mixture of capital sources to be employed in financing the firms operation and growth has confounded researchers since the seminal 'capital structure irrelevance' theory of Modigliani and Miller. Existing empirical studies that test capital structure theories have relied on data from large corporations that issue complex financial securities for both debt and equity. Unresolved is the question of whether these theories are useful for understanding the capital structure of small privately held firms, which are primarily limited in their external borrowing to financial intermediaries such as banks, finance companies, and other business lending institutions. Using data from a set of four nationally representative samples of small businesses surveyed for the Federal Reserve Board and the Small Business Administration over a 15-year period, this study contributes to the capital structure literature in at least three important ways. The analysis reveals that firm size is perhaps the most important determinant of leverage, with firm age also significant. Unprofitable and riskier firms consistently use greater leverage. These findings are consistent with predictions from the pecking-order theory.