Debt Financing and Internationalization of Portuguese SMEsJune 4, 2018
This paper examines the relationship between the capital structure of Portuguese small and medium enterprises(SMEs) and their export performance. The Portuguese industrial firms are of great importance for the domestic economy and played a significant role in the country’s economic recovery amid the recessionary environment of the last decade. Being smaller and privately owned, and thus with less publicly available information, SMEs tend to face greater agency and asymmetric information problems that impact investment and performance generally, and export performance more specifically.
The paper tests the hypothesis that firms that export to riskier markets (i.e., markets outside the European Union) face higher agency costs and thus have lower debt and debt capacity. Alternatively, firms that export to safer markets (i.e., the EU market) have more leverage due to lower agency costs. Considering a representative sample of 3,164 firms and the period from 2011 to 2014, the paper analyzes the impact of the presence in foreign markets on short-term and long-term indebtedness. The study finds that for otherwise similar firms, there are no significant differences between exporting and non-exporting firms with regards to the composition – short-term versus long-term debt – and the level of financial leverage; the destination region of exports does not affect the level of debt financing; and, there are no relevant differences between sectors of activity. Where the internationalization appears to matter is across firm types: early on SMEs that start internationalizing rely more on short-term debt, and as firms enter a more mature stage debt maturity increases. Overall, the evidence is suggestive that Portuguese exporting SMEs do not appear to have experienced significant difficulty in borrowing relative to non-exporting SMEs.