Title: Capital structure choice: a case study on New Zealand's unlisted firms

Authors: Nirosha Hewa Wellalage; Stuart Locke

Addresses: Department of Finance, The University of Waikato, Hamilton, New Zealand ' Department of Finance, The University of Waikato, Hamilton, New Zealand

Abstract: This paper investigates the determinants of capital structure in unlisted firms in New Zealand. Hypotheses utilising pecking order theory, trade-off theory and agency costs theory and the effects of firm ownership structure, firm characteristics and industry on small business capital structure determinants are empirically examined. 11 years of data for 120 unlisted small businesses are collected and 1320 observations are analysed using dynamic panel GMM estimation. The results indicate that managerial ownership, firm characteristics and industry are important determinants of capital structure. Moreover, this study finds firm ownership and characteristics have opposing relationships with long- and short-term capital structure choices. Though the results generally support pecking order theory, they indicate a potential need for different capital structure theories for long-term debt choice and short-term debt choice, in small firms.

Keywords: capital structure determinants; unlisted business; New Zealand; unlisted firms; pecking order theory; trade-off theory; agency costs theory; ownership structure; small businesses; small firms; firm characteristics; capital structure choices; debt choice.

DOI: 10.1504/AJFA.2014.060809

American Journal of Finance and Accounting, 2014 Vol.3 No.2/3/4, pp.93 - 108

Accepted: 10 Feb 2014
Published online: 11 Oct 2014 *

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