The Influential Factors on Capital Structure: A Study on Portuguese High Technology and Medium-High Technology Small and Medium-Sized Enterprises

Abstract

Using the panel data model, this paper studies the influential factors on the capital structure of small and medium-sized enterprises (SMEs) in high and medium-high technology manufacturing sectors in Portugal. In particular, the total sample is further classified into young SME group and mature SME group for observing the similarities and differences. The research results show that firm size, profitability, firm age, and industry sector impact much on the capital structure and debt ratios; on the other hand, the impacts of tangible assets, intangible assets, and growth are not as strong as the previous factors. The differences of the impacts on young and mature SMEs are mainly shown by growth, intangible assets and industry sector. In particular, intangible assets show more statistical significance in young SMEs compared to mature SMEs, and intangible assets tend to be positively related to long-term debt especially in young SME group; this may reflect the positive attitude of financial institutions on the value of intangibles in generating future benefits for high and medium-high technology young firms. Besides, the findings tend to support the pecking order theory more than the trade-off theory regarding the high and medium-high technology manufacturing SMEs here.

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“…This is confirmed by the results of empirical studies conducted by Platt and Platt (2006). Anglosphere economists point to the cash flow statement as an ongoing kind of financial security for an enterprise, having defined the financial security of an enterprise as the cash flows required to make debt repayments on time (Rujoub, Cook, Hay 1995) (Sharma, Iselin 2003), (Dahiya et al 2003), (Tong and Serrasqueiro 2019).…”

The Impact of Capital Structure on the Firm Performance

“…This study is particularly relevant because it sheds light on the specific determinants of capital structure in the context of technology companies. Tong and Serrasqueiro 's research on the factors affecting the capital structure of medium and high technology smes in Portugal has provided valuable insights into the impact of firm size, profitability, establishment time and industry sector on capital structure [10]. This study helps to understand the details of the capital structure of the technology sector, especially SMEs.…”