ABSTRACT
This paper employs econometric techniques in order to examine the role of political risk on the capital structure decisions of European listed SMEs, during a period which fully captures the Euro zone debt crisis and aspects of political risk due to the recession and its over-indebtedness. We find that political risk decreases significantly SMEs leverage via different and significant transmission channels. Very small (micro) enterprises are decreasing more significantly their leverage at times of political risk. The strength of the creditor’s rights acts as a proxy for the possible effects of the political risk. Political risk combined with corruption has a positive effect on firm leverage.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 Listed SMEs offer some profound advantages, such as substantial transparency in equity markets; easy to find financial records, easily reviewed and validated. On the other hand, non-listed annual accounts are unaudited and have a limited track record in providing available financial information to the investors; usually, they have one dominant owner-manager with unlimited decision-making power (see also Kenourgios, Savvakis, and Papageorgiou Citation2019; Savvakis, Kenourgios, and Papageorgiou Citation2020).
2 The data that support the findings of this study are available from the corresponding author upon reasonable request.
3 The proxy of political risk using the data from the International Country Risk Guide has already been used in the literature (see, for example, Braga-Alves Citation2018; Chen et al. Citation2016).