Is Age a Determinant of SMEs’ Financing Decisions? Empirical Evidence Using Panel Data Models

Abstract

Using panel data models, this study investigates whether firm's age is a determinant of Portuguese SMEs’ financing decisions. The results suggest that age is relevant for: the impact of financial deficit on variations of short– and long–term debt; the level of adjustment of short– and long–term debt toward the respective optimal levels; and the relationships between usual determinants and short– and long–term debt. The results for young and old SMEs suggest that Trade–Off Theory and Pecking Order Theory should not be considered to be mutually exclusive, since both theories are necessary to understand the SMEs’ capital structure decisions throughout their life–cycle.