Similarities and differences in small and large corporation beliefs about capital structure policy

Theoretical researchers posit many factors that affect a firm's capital structure decisions. Theory also suggests that these influences will have different impacts on small and large firms. However, empiricists face difficulties in testing these hypotheses due to problems of quantifying the motivations, expectations, and preferences prevalent in the various theories.To test some of the strands of theory and to determine differences between small and large corporation capital structure beliefs, a survey was sent to financial managers of 405 small corporations; 27% of the surveys were completed and returned. By comparing the results of this survey to those of previously published large corporation surveys, similarities (e.g., belief in a financing pecking order, little belief in the importance of bankruptcy costs, agency costs, and information asymmetries) and differences (e.g., less reliance by small firms on target debt ratios, greater preference for zero debt by the small firms) were identified.