The determinants of leverage of SMEs: empirical evidence from an emerging economy

Abstract

This paper aims to investigate the relationship between financial leverage and its main determinants in the context of SMEs in an emerging economy, such as the Chilean one. The investigation is based on the application of trade-off theory and pecking order theory. In this regard, the literature has amply highlighted that these two theories are more suitable for explaining the financial decisions of SMEs. We used a stratified sampling technique based on an economic criterion to identify the companies to analyze and develop the empirical analysis. The period investigated is three years and runs from 2016 to 2018. The research hypotheses were tested with a static fixed effects model (FE). The robustness checks validated the reliability of the model used. The results suggest that the size and tangibility of assets have a positive and statistically significant influence on debt. Conversely, profitability has a negative and statistically significant influence on leverage. The results of this research contribute to enriching the literature on the subject, providing empirical evidence of an economic context that has not yet been studied.