Efflciency and capital structure in portuguese SMEs

This paper aims to analyse the bi-directional relationship between technical efficiency, as measure of companies' performance, and capital structure, under the agency cost theory as well as the pecking order and trade-off theory to explain the capital structure decisions. The technical efficiency was estimated by the DEA method and corrected by using a suitable bootstrap to obtain statistical inferences. To test the agency cost hypothesis, asymmetric information hypothesis, risk-efficiency hypothesis and franchise value hypothesis (under pecking order and trade off theories framework) two models were performed using some determinants of capital structure such as size, profitability, tangibility, liquidity as control and explanatory variables through a truncated regression with bootstrapping. From an initial sample of 1024 small and medium sized companies from the interior of Portugal, for the period 2006-2009, it was selected a subsample of 210 SMEs from secondary and tertiary sectors. The results suggest that medium sized companies have higher average bias-corrected efficiency than small companies; short-term leverage is positively related to efficiency and the companies in the sample follow pecking-order theory.

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