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Industry Effects and Banking Relationship as Determinants of Small Firm Capital Structure Decisions

Author

Listed:
  • Timo P. Korkeamaki

    (Gonzaga University)

  • Matthew W. Rutherford

    (Virginia Polytechnic Institute & State U)

Abstract

This work examines the leverage ratios of firms covered by the 1998 SSBF Survey. We find that small firms in general are significantly more levered than their larger counterparts in an industry-matched Compustat sample, but the difference is at least partially explained by differences in industry distributions of the two samples. Our regression results provide some interesting contrasts to previous studies. In examining the effects of relationship banking on deviations from industry leverage norms, we find that a close banking relationship is related to a lower leverage, even after controlling for industry medians, and also that firms with a closer primary banking relationship adhere more closely to industry norms. Counter to previous research, we also find that small business leverage is negatively correlated with total assets.

Suggested Citation

  • Timo P. Korkeamaki & Matthew W. Rutherford, 2006. "Industry Effects and Banking Relationship as Determinants of Small Firm Capital Structure Decisions," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 11(1), pages 23-38, Spring.
    • Handle: RePEc:pep:journl:v:11:y:2006:i:1:p:23-38
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    Citations

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    Cited by:

    1. Stereńczak, Szymon & Kubiak, Jarosław, 2022. "Dividend policy and stock liquidity: Lessons from Central and Eastern Europe," Research in International Business and Finance, Elsevier, vol. 62(C).
    2. Jarosław Kubiak, 2011. "Metody badania asymetrii informacji w przedsiębiorstwie w zakresie alokacji kapitału," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 45-67.

    More about this item

    Keywords

    Banking ; Capital Structure ; Capital ; Firm ; Firms;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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