Indebtedness in export-led SMEs

This study finds that Portuguese small and medium enterprises (SME) with a higher degree of export intensity rely more on internal funds.

This finding arises from examining the determinants of corporate leverage on a sample of 7,676 Portuguese SMEs and by focusing on the impact of export intensity on firms’ capital structure. In addition, the analysis reveals that more profitable SMEs and those with more asset tangibility and business risk have lower debt ratios, but that SMEs with larger growth opportunities (measured either by sales growth or the ratio between CAPEX and total assets) are more levered.

As SMEs account for over two thirds of employment in Portugal and about 60% of non-financial firms’ total revenues, they are a significant growth engine. Understanding how these firms accumulate debt is important because firms burdened with debt tend to fare poorly during economic recessions. Whether the motivation of export-led SMEs to have less debt is to better endure local economic recessions (so as to preserve their competitiveness in export markets) or rather that these firms face difficulties when trying to borrow funds in foreign countries are important considerations in the design of government policies and requires further research.

Click here to go to the paper by João M. Pinto and Cátia S. Silva.