Effect of Covid-19 pandemic on capital structures of firms: How SMEs adjusted their leverage compared to larger firms
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2024-07-01
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en
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Abstract
This thesis examines the impact of the Covid-19 pandemic on the capital structures of small and
medium-sized enterprises compared to larger firms, using data from 123,831 firms across 90
countries. This research employs fixed effects panel regression to assess adjustments in three
capital structure measures. Findings indicate that during Covid-19, both large firms and SMEs
reduced their overall leverage and increased their use of long-term debt, employing a
conservative approach aligned with the trade-off theory. Post-pandemic, SMEs relied more on
leverage across all three measures, in line with the pecking-order theory, to finance recovery and
growth. Following the trade-off theory, medium-sized firms preferred long-term debt during and
after the pandemic, while larger firms reduced their reliance on debt financing more after the
pandemic. These results contrast existing literature on the global financial crisis of 2008-2009 and
contribute to the literature on how the Covid-19 pandemic and the period after the pandemic
affected firms and their capital structures. This research provides insights into how firms of
different sizes adjust their capital structures in response to economic shocks, offering valuable
information for policymakers and financial managers aiming to support SME resilience in future
crises.
Keywords
Covid-19, capital structure, SMEs, trade-off theory, pecking-order theory, leverage.
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Faculteit der Managementwetenschappen