Trade-off-theory vs. pecking order theory and the determinants of corporate leverage: Evidence from a panel data analysis upon French SMEs (2002–2010)

Figures & data

Table 1. Testing TOT vs. POT and the related set of assumptions

Financial theory	Hypothesis	Variables regarding	Definition	Code	DR
TOT vs. POT	H1	The choice between share and debt	Workforce: average number of employees (according to sales turnover and balance sheet) dummy variable	WF	+
					−
TOT vs. POT	H2	The existence of an optimal financial structure in a dynamic perspective	2002—date of registration: quantitative variable	AGE	+
					−
TOT vs. POT	H3	The risk to the main activity of the firm (industry)	Included in the NAF classification, level 60: dummy variable	SEC	+
					−
TOT vs. POT	H4	Profitability	Operating income/total assets: quantitative variable	PROF	+
					−
TOT vs. POT	H5	Growth opportunities	Intangible assets/total assets: quantitative variable	GO	−
					+
TOT vs. POT	H6	The confidence of suppliers as a good signal	Credit to customers—accounts payable/total liabilities: quantitative variable	TC	+
					−
TOT vs. POT	H7	The presence of guarantees as a good signal	Tangible fixed assets + inventories/total assets: quantitative variable	GAR	+
					−

Source: Our design.

Table 2. Four estimations testing the debt ratio

Explanatory variables	Coefficients
	OLS	Within	Between	QGLS
Dummy micro	0.010^*** (4.860)	0.000 (0.310)	0.020^*** (2.710)	0.001 (0.890)
Dummy medium	0.002 (0.930)	−0.002 (−0.860)	0.007 (0.870)	−0.002 (−0.790)
Dummy trade	0.012^*** (4.260)	–	0.006 (0.770)	0.037^*** (5.590)
Dummy manufacturing	0.003 (1.130)	–	0.003 (0.370)	0.009 (1.250)
Dummy services	0.063^*** (21.640)	–	0.062^*** (8.360)	0.070^*** (9.600)
Age (AGE)	−0.001^*** (−10.640)	–	−0.001^*** (−3.630)	−0.001^*** (−5.580)
Profitability (PROF)	−0.174^*** (−18.030)	−0.242^*** (−28.030)	−0.135^*** (−4.260)	−0.231^*** (−27.700)
Growth opportunities (GO)	0.331^*** (37.610)	0.134^*** (7.650)	0.338^*** (14.550)	0.222^*** (15.870)
Trade credit (TC)	0.093^*** (16.640)	0.206^*** (32.840)	0.055^*** (3.370)	0.184^*** (31.440)
Guarantees (GAR)	0.340^*** (68.100)	0.341^*** (47.150)	0.329^*** (23.690)	0.347^*** (54.650)
Constant	0.025^*** (7.570)	0.043^*** (13.750)	0.023^*** (2.490)	0.025^*** (3.850)
Observations	21,330	21,330	21,330	21,330
R^2	0.266	0.174	0.309
Fisher test	774.800	667.420	105.700
Prob > F	0.000	0.000	0.000
Wald χ^2				4860.82
Prob> χ^2				0.0000
Breusch–Pagan test				37758.79
Hausman test Within vs. QGLS		171.38
Prob Hausman		0.0000

^*** Significant at 1%.

^** Significant at 5%.

^* Significant at 10%.

Robust T-statistics are within parentheses.

Source: Our design.

Table 3. An overview of studies upon the capital structure of French SMEs

Authors	Sample, country, period and techniques	Outcomes
Bédué (1997)	Balanced panel of 1,387 firms (DIANE); France, 1989–1993; OLS estimators and Between	POT is validated. Agency theory is verified. Emphasis is upon the role of collateral in the credit relationship`
Boussaa (2000)	Balanced panel of 1,712 SMEs (DIANE); France, 1991–1995; multivariate analysis and econometric analysis (OLS, Within and Between)	POT and signal theory explain the financial structure of SMEs. Trade credit reduces information asymmetry
Ziane (2004)	Balanced panel of 2,551 SMEs (DIANE); France, 1994–2001; estimate the moments (GMM)	POT is most common but not exclusive from TOT
Trabelsi (2006)	Balanced panel of 1,898 SMEs (DIANE); France, 1995–2002; OLS	POT and TOT are compatible
Daskalakis and Psillaki (2007)	Balanced panel: 320 SMEs (Italy); 52 firms (Portugal); 1,252 firms (Greece) and 2,006 SMEs (France); 1997–2002	POT is validated
Bellelettre (2010)	Unbalanced panel of 56,605 micro-enterprises (DIANE); France, 1998–2006; panel model with fixed effects and instrumental variables	POT does not explain the preference of micro-enterprises for debt, as compared to current accounts
Dufour and Molay (2010)	Balanced panel of 1,535 SMEs (DIANE), France, 2000–2007; OLS, generalised least squares with fixed effects or random effects; results associated with the best specification	TOT is validated, but POT (semi-strong version) cannot be rejected. Change in debt depends on the funding gap
Adair and Adaskou (2011)	Balanced panel of 1,520 SMEs (DIANE), France, 2000–2004; OLS, Within, QGLS and instrumental variables	POT and TOT are validated according to variables, albeit some variables remain unexplained

Source: Our design.

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