The Financial Structure of Private
Held Belgian Firms
We examine the determinants of the debt-equity
choice and the debt maturity choice for a sample of small, pri-
vately held ﬁrms in a creditor oriented environment. Our results,
which are based on 4,706 ﬁrm-year observations for 1132 Belgian
ﬁrms in the period 1996–2000, generally conﬁrm the role of
asymmetric information and agency costs of debt as major
determinants of the ﬁnancial structure of privately held ﬁrms.
High growth ﬁrms and ﬁrms with less tangible assets have a lower
debt ratio. We also ﬁnd that more proﬁtable ﬁrms have less debt.
Firms tend to match the maturity of debt with the maturity of
their assets. Growth options do not seem to inﬂuence debt
maturity, which would suggest that the underinvestment problem
is resolved by lowering leverage and by bank monitoring, not by
reducing debt maturity. Credit risk is also an important deter-
minant of debt maturity: ﬁrms with higher credit risk borrow
more on the short term. Finally, in contrast to most studies on the
ﬁnancial structure of companies, we ﬁnd that larger ﬁrms tend to
have a higher debt ratio and a shorter debt maturity.
KEY WORDS: debt maturity, capital structure, small
ﬁrms, privately held ﬁrms.
JEL CLASSIFICATION: G32.
Modigliani and Miller (1958) demonstrated that
in a so-called ‘‘perfect’’ world, debt-equity
choices and debt maturity choices are irrelevant.
In other words, capital structure decisions can
not aﬀect the value of a ﬁrm. Since the publi-
cation of the famous Modigliani and Miller
article, an overwhelming amount of research has
added taxes, costs of ﬁnancial distress, agency
conﬂicts, governance problems, asymmetric
information and interactions between real and
ﬁnancial decisions to this perfect world, in ever
so many attempts to explain why capital struc-
ture choice does seem to matter. A number of
papers have discussed the inﬂuence of these
imperfections on the debt-maturity structure.
Myers (1977) demonstrated the importance of
growth opportunities. Other important theoret-
ical contributions have been those of Brick and
Ravid (1985, 1991), Diamond (1991, 1993), and
Flannery (1986). Empirical evidence has been
provided by Guedes and Opler (1996), Barclay
and Smith (1995), Stohs and Mauer (1996),
c-Kunt and Maksimovic (1999), Ozkan
(2000), Scherr and Hulburt (2001), Berger et al.
(2005) and Ortiz-Molian and Penas (2006).
In this paper, we empirically investigate the
ﬁnancial structure of small, privately held ﬁrms
in a creditor-oriented system. The main focus
of the paper lies on debt maturity choices, but
we also examine the leverage decision, which is
closely related to the debt maturity decision.
Our study adds to the existing literature in two
ways. First, while most studies on debt matu-
rity choices are based on large, publicly listed
ﬁrms, this is a study of debt maturity choices
by small, privately held ﬁrms.
ﬁrms diﬀer from large ﬁrms in several respects,
their ﬁnancing options and methods are also
quite diﬀerent. Second, we focus on ﬁrms in a
country with a creditor-oriented ﬁnancial sys-
tem. This is a signiﬁcant issue because it is
often argued that banks are better monitors of
debt, and they can mitigate agency problems.
Final version accepted on November 2006
Department of Financial Economics
Woodrow Wilsonplein 5D, 9000, Ghent, Belgium
Department of Accounting and Finance
Prinsstraat 13, 2000, Antwerp, Belgium
Vlerick Leuven Gent Management School and Ghent
Reep 1 and Kuiperskaai 55E, 9000, Ghent, Belgium
Small Business Economics (2008) 30:301–313 Ó Springer 2007