Resilience and capital structure: A European perspective

Emili Tortosa-Ausina, Iván Arribas, Tingting Zhu, Elmar Puntaier

Research output: Chapter in Book/Report/Conference proceedingConference proceedingpeer-review


Applicability to the conference theme – Resilience is based on the idea to return to the initial state after external factors affect a firm’s operations. Having access to capital is vital to absorb macro-economic shocks and when the cost of capital is low, firms have the freedom to choose among options. These options are a reflection of resilience and understanding how framework conditions influence capital structure decisions are an important element in creating entrepreneurial opportunities through appropriate policy design.

Aim – The purpose of this paper is to investigate capital structure adjustments as a function of firm-specific characteristics, macro-economic factors and framework conditions during times of (un)certainty. With resilience as the overarching theoretical concept, this work investigates how external factors affect firms’ capital structure decisions across sectors and whether market-oriented economies differ from bank-oriented economies.

Methodology – The sample consists of 2480 listed non-financial small and medium-sized enterprises (SMEs) from 15 European countries with observations from 2002 to 2019. We use Bayesian econometrics to analyse the data and determine the factors that should be considered when designing policies to enhance resilience. Total debt ratio, short-term debt ratio, long-term debt ratio and market value of leverage are the proposed dependent variables to operationalise resilience. Shareholder rights, legal rights, depth of credit, bank credit availability and capital formation are the framework variables for primary interest.

Contribution – This paper contributes to the empirical and theoretical literature. As opposed to the conventional capital structure view, we look at firms’ capital structure decisions from the lens of resilience. This allows us to develop a dynamic conceptual framework that focusses on framework conditions necessary to create resilient SMEs. The paper also distinguishes market from bank-oriented economies and takes into account industry-specific characteristics, which leads to a framework that is sector-specific.

Findings – The relevance of framework conditions during pre-, intra, and post-crisis periods vary and influence firms’ ability to manage their debt structure. While shareholder rights are of little relevance, legal rights are a central force during the intra-crisis period. Depth of credit also plays a role and extends to the post-crisis period. The relevance of framework conditions, such as the availability of bank credit and capital formation, vary across sectors. Few differences have been found between the UK (market oriented) and continental Europe (bank oriented).

Implications for policy – It is the large share of SMEs that make up the majority of firms in developed economies and this deserves attention when creating policies that aim to create resilient economies. Our findings demonstrate that framework conditions play a major role in capital structure decisions and imply that creating a resilient SME sector is possible. Policies must take into account the relevance of pre-, intra- and post-crisis effects framework conditions have and should be sector-specific in order to maximise the benefits for the wider society.

Implications for practice – The findings confirm that short-term debt decisions are primarily influenced by macro-economic conditions that are beyond the control of individual firms. Assets and tangibility are the main drivers that support the issuance of short-term debt, whereas for long-term debt issuance the relevance of framework conditions becomes a key determinant. Firms should therefore be strategic when preparing for external shocks and planning for post-crisis recovery.
Original languageEnglish
Title of host publicationISBE2022 Conference
Publication statusPublished - 31 Oct 2022
EventInstitute for Small Business and Entrepreneurship 44th Annual conference: New Approaches to Raising Entrepreneurial Opportunity: Reshaping inclusive Enterprise, Policy, and Practice Post-Pandemic - York, York, United Kingdom
Duration: 27 Oct 202228 Oct 2022


ConferenceInstitute for Small Business and Entrepreneurship 44th Annual conference
Country/TerritoryUnited Kingdom
Internet address


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