The Capital Structure Determinants of Swedish SMEs in Jamtland

This study examines empirically capital structuredeterminants of Swedish SMEs located in Jamtland through testing hypotheses formulated from pecking theory. The study focuses on a sample contains 1710SMEs for which complete financial information was available for 2003–2005 andrepresents a target population of 4116 firms located in the studied region.While most previous research has focused on publicly traded firms, the presentstudy uses a broad database and pays attention to unlisted SMEs in a rural areawhere small businesses occupies a prominent social position and reflect aspecial financial environment. In addition, more explanatory variables are usedthan in prior research. The empirical results indicate that the explanatoryfactors are associated to various extents with capital structure. However, theresults are somewhat mixed, suggesting that both pecking order and trade-offtheories are relevant, but giving stronger support to pecking order theory.SMEs can use these findings to improve their awareness of financial managementand of how to use resources more effectively. Moreover, potential SMEs willhave a better understanding of how to approach financial problems encountered inthe start-up stage. Finally, both the financial sector and policy makers areexpected to re-evaluate their policies regarding SME financing.