Debt Structure, Agency Costs and Firm’s Size: An Empirical Investigation

This paper shows that corporate debt type, maturity and priority structures and their determinants are not homogeneous across firms of different size. Small firms use leasing and bank loans and overdraft while large companies rely on loan capital, convertible and subordinated loans. Small companies depend more on secured debt while large companies’ debt is unsecured and subordinated. The results show that 70 per cent of small companies’ debt is short-term, while 64 per cent of the larger companies’ debt is long-term. The regression results suggest that debt structure of large companies is significantly affected by agency cost measures while that of small companies is driven by profitability. JEL classification: G32