A demand-side approach to SME’s capital structure. Evidence from Argentina.

ANAHÍ BRIOZZO; HERNÁN VIGIER

Estados Unidos

Congreso; Midwest Finance Association 57th Annual Meeting; 2008

Midwest Finance Association

Corporate finance, and capital structure theory in particular, study the firm’s decisions from a normative point a view: shareholder value maximization. However, Brealey and Myers (2006) point out that “how financial decisions are made” is a question that still remains unanswered. In this paper we propose a descriptive approach to the understanding of how small and medium enterprises (SME) make their financing decisions. Considering the owner-firm intertwinement as a fundamental characteristic of these firms, we include behavioral features as explanatory variables for capital structure. We classify these new arguments into two groups: the managerial view and life cycle approaches, and test the implications of our approach in a sample of small Argentine firms. The evidence supports some of our hypothesis: the owner-manager’s age and her previous experience with personal debt are relevant in SME’s financing choices, which we expect to be reflecting the owner’s risk and uncertainty aversion. We believe this characterization of the problem could be very helpful to understand capital structure decisions in small Argentine firms (or from other developing countries as well), where a history of economic crises has undermined people’s confidence in financial institutions, sometimes leading to an extreme aversion to debt.