Is Age a Determinant of SMEs' Financing Decisions? Empirical Evidence Using Panel Data Models

Using panel data models, this study investigates whether firm's age is a determinant of Portuguese SMEs' financing decisions. The results suggest that age is relevant for: the impact of financial deficit on variations of short- and long-term debt; the level of adjustment of short- and long-term debt toward the respective optimal levels; and the relationships between usual determinants and short- and long-term debt. The results for young and old SMEs suggest that Trade-Off Theory and Pecking Order Theory should not be considered to be mutually exclusive, since both theories are necessary to understand the SMEs' capital structure decisions throughout their life-cycle.