Financing decisions of portuguese micro-enterprises
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abstract
This paper seeks to analyze the sources of finance and capital structure of a sample of 131 small firms in Portugal, in the districts of Vila Real, Bragança, Guarda and Castelo Branco, for the period 2005 to 2009. The firms were randomly selected, and the data were collected from the accounting documents prepared for fiscal purpose. Due to the firms’ different capital structures, we divided the research sample in three sub-samples as a function of negative, near zero and positive working capital. The importance of funding sources was measured by the dependent variable of medium-long term sources, while capital structure was assessed through the dependent variables of permanent capital/total assets, non-current liabilities/total assets. The independent variables considered were firm growth, non-current asset ageing and return on equity. For data processing, we used a multi-variate linear regression, taking the mean values of each variable in the period 2005 to 2009. We found that the medium-long term growth of the firms is financed by sources of finance with the same maturity, concluding that firms follow the principle of minimum financial balance. The negative relationship between medium-long term sources and return on equity, allows us to conclude that firms follow the Pecking Order Theory. Non-current asset ageing has a positive relationship with the ratio of capital structure, meaning that older firms tend to have a higher level of permanent capital. Additionally, these results allow us to conclude that, although developed primarily for large enterprises, capital structure theories are also applicable to the micro firms analyzed.
