Capital structure decisions in a period of economic intervention. Empirical evidence of Portuguese companies with panel data

• DOI: https://doi.org/10.1108/IJAIM-08-2019-0094
• Pages: 465-495
• Date: 11 March 2020
• Published date: 11 March 2020
• Author: Maria Elisabete Neves,Zélia Serrasqueiro,António Dias,Cristina Hermano
• Subject Matter: Accounting/accountancy,Accounting methods/systems,Accounting & Finance

Capital structure decisions in a

period of economic intervention

Empirical evidence of Portuguese companies

with panel data

Maria Elisabete Neves

Coimbra Business School, Higher Institute of Accountancy and Administration of

Coimbra, Polytechnic Institute of Coimbra, Coimbra, Portugal and

University of Trás-os-Montes and Alto Douro, Vila Real, Portugal

Zélia Serrasqueiro

School of Human and Social Sciences,

University of Beira Interior, Covilha, Poland, and

Ant

onio Dias and Cristina Hermano

School of Human and Social Sciences,

University of Tras-os-Montes and Alto Douro, Vila Real, Portugal

Abstract

Purpose –This paper aims to analyse the Portuguese companies’determinants of capital structure.

To reach this objective, the authors used data from 37 non-f‌inancial Portuguese large enterprises and

from 4,233 non-f‌inancial small and medium enterprises for the period 2010-2016. Additionally, the

authors selected a sub-period from 2010 to 2014 for a deeper understanding of the impact of the

sovereign debt crisis and the Economic Adjustment Programme of Troika on the capital structure of

those companies.

Design/methodology/approach –Three dependent variables were tested according to debt

maturity, and a dynamic panel data model, namely, the gene ralised method of moments

system estimator, was used to test the formulated research hypotheses following Arellano and

Bover (1995) and Blundell and Bond (1998) to capture the dynamic nature of the f‌irm’scapital

structure decisions.

Findings –In general, the results point out that the capital structure decisions depend on a set of f‌irm-

specif‌ic factors,and that the effects of the determinants of the debt maturity ratios differ accordingto the type

of f‌irm, i.e. large/smallf‌irms, and the economic cycle.

Originality/value –To the best of the authors’knowledge, this is the f‌irst study that has been

carried out in Portugal by using two samples of large and small companies for analysing the effects of

the Economic Adjustment Programme of Troika on the capital structure of companies. The autho rs

seek to understand which type of companies suffered more because of the effects of the Economic

Adjustment Programme of Troika during this period, and which are the capital structure

determinants that present greater change. Contrary to what might be expected, large companies are

the f‌irms that suffer most from the Economic Adjustment Programme. Probably, because these

companies are the most immediate, most scrutinised and those that must show abroad that the bank

JEL classif‌ication –G32, C26, L22

Acknowledgements to CETRAD and this work is supported by national funds, through the

Fundação para a Ciência e Tecnologia –Portuguese Foundation for Science and Technology under

the projects: UID/SOC/04011/2019 and UID/ECO/04007/2019.

Capital

structure

decisions

465

Received6 August 2019

Revised16 October 2019

12December 2019

Accepted31 December 2019

InternationalJournal of

Accounting& Information

Management

Vol.28 No. 3, 2020

pp. 465-495

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-08-2019-0094

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

did not fund them in the long term, because of the imposition and limits to grant credit faced by the

banks themselves.

Keywords Determinants of capital structure, Economic adjustment, GMM system,

Sovereign debt crisis, Financing determinants

Paper type Research paper

1. Introduction

The relevance and the academic interest in capital structure decisions date back to the

empirical studies of Modigliani and Miller (1958) on the irrelevance of the capital structure.

The authors found that in the presence of a perfect capital market, without frictions, the

company’s value is independent of f‌inancing decisions. It was in the wake of this

controversial line of thought that an extensive publication of empirical studiesand theories

on capital structure and respective determinants emerged. However, despite this, capital

structure decisions and its determinants are still an open research topic, as the f‌inancial

literature remains to failin responding to the appropriate capital structure to each company,

inserted in a certain industry sector, in different environments and economic cycles. Thus,

this lack of consensusis the main motivation for this study.

In addition, the motivation for this paper stems from the existing incomplete empirical

literature, given that despite the various studies analysing the effects of the f‌inancial crisis

in the context of Portuguese f‌irms: Lisboa (2017a),Proença et al. (2014),Vergas et al. (2015)

and Vieira and Novo (2010) for small and medium enterprises (SMEs) and Lisboa (2017b)

and Vieira (2013) for listed f‌irm, these studies do not compare the determinants of capital

structure between small and large f‌irms in the context of the f‌inancial crisis and the

Economic Adjustment Programme of Troika. Thus, this being one of the main gaps in the

Portuguese literature, we hope that the current study will be able to f‌ill this gap, supported

by the underlying theories.

Therefore, to deepen our understanding about Portuguese companies’capital structure

decisions during and after the Troika EconomicAdjustment Programme, the main objective

of this paper is to analyse the determinantsof capital structure of Portuguese companies by

using two different samples: one composed of Portuguese large enterprises (LEs) and the

other composed of PortugueseSMEs, using three debt ratios (total, long-term and short-term

debt ratios). Essentially, SMEs follow different economic policies and do not have the same

capacity of access to external f‌inance sources when compared to large companies, so it

becomes relevant to analyse what are the determinants of leverage for each one of these

types of companies. Likewise, knowing the main factors that explain the leverage of listed

companies is extremely importantinsofar as these are often understood as representative of

the Portuguese market benchmark and, therefore, the reference for similar studies in other

markets. Moreover, it is important to analyse the determinants of capital structure of

Portuguese SMEs in the context of the sovereign debt crisis and Economic Adjustment

Programme, given that these f‌irms represent almost of 96.7 per cent of the Portuguese

businesses (INE, 2017), as well as because of their diff‌iculties in accessing external f‌inance

sources, becomingextremely dependent on bank debt.

In addition, it was fundamental to understand the determinants that most affect the

capital structure of Portuguese companies in the stable economic environment in which the

Portuguese economy is currentlylocated, as well as during the period of the f‌inancial crisis

and economic recession.In this sense, this study considers a global period comprisingseven

years, from 2010 to 2016 and a sub-samplefor the period between 2010 and 2014, a period of

deep crisis with the Economic AdjustmentProgramme for Portugal (Troika)[1].

IJAIM

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