Title: Capital structure of UK SMEs: an integrated understanding

Authors: Panikkos Poutziouris; Demetris Markou; Loukas Glyptis; Εlias Hadjielias

Addresses: UCLan Cyprus, 12-14 University Avenue, Pyla, 7080 Larnaka, Cyprus ' School of Business and Management, UCLan Cyprus, 12-14 University Avenue, Pyla, 7080 Larnaka, Cyprus ' School of Business and Management, UCLan Cyprus, 12-14 University Avenue, Pyla, 7080 Larnaka, Cyprus ' Department of Hotel and Tourism Management, Cyprus University of Technology, 115 Spyrou Araouzou Str., 3036 Limassol, Cyprus

Abstract: This study contributes with an integrated understanding of SME capital structure patterns at the nexus of internal (firm-specific) and external environment determinants. The hypotheses draw on pecking order theory (POT), agency theory, and business cycle theories, and estimates are obtained from a data panel of 424 UK SMEs, over a ten-year period. Furthermore, the findings and discussion draw on both static and dynamic models of capital structure. The results between the static and the dynamic model are qualitatively similar, illustrating that firms change their capital structure over time, which is consistent with the POT and agency theory. In contrast to previous results on capital structure choices, the present study reveals that size relates to long-term debt borrowing only in the short-term, and SME growth is not positively linked with gearing ratios. The findings also offer evidence that support macroeconomic conditions as having a nonlinear, convex relationship with the gearing ratios of the sample firms.

Keywords: SMEs; capital structures; SME financing; business cycle; firm-specific characteristics; UK.

DOI: 10.1504/IJESB.2022.123986

International Journal of Entrepreneurship and Small Business, 2022 Vol.46 No.1, pp.64 - 95

Received: 13 Feb 2019
Accepted: 14 Jul 2019

Published online: 06 Jul 2022 *

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